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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JUNE 19, 2000
REGISTRATION NO. 333-35304
===================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
WIRELESS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3663 94-3269426
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
5452 BETSY ROSS DRIVE
SANTA CLARA, CA 95054
(408) 727-8383
(Name and Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices)
--------------
WILLIAM J. PALUMBO
CHIEF EXECUTIVE OFFICER AND PRESIDENT
WIRELESS, INC.
5452 BETSY ROSS DRIVE
SANTA CLARA, CA 95054
(408) 727-8383
(Address, including zip code, and telephone number, including area code, of agent for service)
--------------
COPIES TO:
WARREN T. LAZAROW, ESQ. BLAIR W. WHITE, ESQ.
DAVID G. ODRICH, ESQ. CHRISTINE K. TALARIDES, ESQ.
JONATHAN G. SHAPIRO, ESQ. BLAIR M. WALTERS, ESQ.
BROBECK, PHLEGER & HARRISON LLP PILLSBURY MADISON & SUTRO LLP
TWO EMBARCADERO PLACE 2550 HANOVER STREET
2200 GENG ROAD PALO ALTO, CA 94304
PALO ALTO, CA 94303 (650) 233-4500
(650) 424-0160
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As Soon as practicable after the effective date of this
Registration Statement.
--------------
If 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
================================================================================================================================
PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE (1) (2)
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value ......................... $97,750,000 $25,806
================================================================================================================================
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o).
(2) $22,770 of this fee has been previously paid. $3,036 of this fee is being paid herewith.
-----------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
=================================================================================================================================
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The information contained 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 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, DATED JUNE 19, 2000
P r o s p e c t u s
8,500,000 SHARES
[WIRELESS LOGO]
COMMON STOCK
$ PER SHARE
--------------
We are selling 8,500,000 shares of our common stock. The underwriters named
in this prospectus may purchase up to 1,275,000 additional shares of our common
stock to cover over-allotments.
This is an initial public offering of our common stock. We currently expect
the initial public offering price of the common stock to be between $8.00 and
$10.00 per share and we have applied to have our common stock included for
quotation on the Nasdaq National Market under the symbol "WLSS."
--------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 8.
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.
--------------
PER SHARE TOTAL
----------- -----------
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Wireless, Inc. (before expenses) $ $
The underwriters expect to deliver the shares to purchasers on or about
____________________ , 2000.
--------------
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
, 2000
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INSIDE FRONT COVER
The page consists of an orange circle, part of which disappears off of
the page to the right, appearing on a light blue background. Inside the circle
is a diagram of several buildings connected by lines. The building in the center
is captioned "Communication Service Provider." Underneath are two groups of
houses. The line between the center building and the first group of three houses
is captioned "Cable Service" in bold and underneath "6 Mbps." The line between
the center building and the second group of two houses is captioned "Digital
Subscriber Service" in bold and underneath "256 Kbps." Beneath all five houses
is the caption "Residential" in bold. Directly to the left of the center
building is a larger building captioned "Small and Medium Businesses" in bold.
The line between the larger building and the center building is captioned "T-1
service" in bold and underneath "1.5 Mbps." Towards the top left corner is a
tall building captioned "Large Businesses." The line between the tall building
and the center building is captioned "Fiber Optic Service" in bold and
underneath "45 Mbps." A cloud appearing above the center building connected to
it by a line contains the words "Internet Applications" and six bullets, reading
"E-commerce," "Large data transfers," "Streaming video and audio,"
"Telecommuting," "Distance learning," and "Web-based conferencing." Below the
diagram inside the circle is the text: "High-speed Internet access within a
broadband service coverage area is limited by existing telephone and cable
facilities, and the expensive installation costs associated with fiber optic and
T-1 technology." At the inside left edge of the circle are the words "Wired
broadband service coverage boundary." Outside the orange circle on the light
blue background to the lower left are eight houses amongst which appears the
word "Residential" in bold and 4 larger buildings in the middle of which is the
caption "Small & Medium Businesses" in bold. Centered between the larger
buildings and the houses but outside the orange circle are the words "Dial-up
Access Only" in bold and underneath "56 Kbps." At the lower right corner of the
page is the text: "High-speed Internet access services are unavailable outside a
limited coverage area." In the top left corner of the page on the light blue
background is the Wireless logo, which consists of the word "Wireless" with the
first four letters in black and the last four in blue, multi-colored dots
appearing above the "i", "r" and "e", the capital letters "INC" in the top right
corner, the letters "TM" in the lower right corner and a semi-circular blue line
underneath. Underneath the logo are the words "Broadband without Boundaries."
GATEFOLD
The gatefold consists of three large columns stretching across both pages
of the gatefold. In the upper left corner of the left page is the Wireless logo,
which consists of the word "Wireless" with the first four letters in black and
the last four in blue, multi-colored dots appearing above the "i," "r" and "e,"
the capital letters "INC." in the top right corner, the letters "TM" in the
lower right corner and a semi-circular blue line underneath.
The first column is split in half. The heading for the top half contains
the words "WaveNet Access" in bold and underneath, the words
"point-to-multipoint," all on a blue background, below which is a diagram
consisting of five small buildings, four of which are labeled "Insurance,"
"Office Supply," "Bank," "Retailer" and the fifth of which is not labeled. Red
dots emanate from a Wireless product on the top of each building to a large
telephone pole at the right of the column on which a Wireless device is mounted.
Under the dots are the words "4-5 Mbps." Below the diagram are the words
"WaveNet Access" in bold and underneath the words "A point-to-multipoint system
under development that is designed to transport voice and data traffic to
multiple end-users within a local area."
The heading for the bottom half of the first column contains the word
"StarPort" in bold and underneath, the words "Point-to-multipoint," all on a
yellow background, below which is a diagram consisting of four houses and a
personal computer below the first house. There is a personal computer visible
inside the first house as well. Both personal computers are connected to a small
Wireless device. Red dots emanate from a Wireless product within each building
to a large telephone pole at the right of the column on which a Wireless device
is mounted. Under the dots are the words "4-5 Mbps." Below the diagram is the
word "StarPort" in bold and underneath the words "A point-to-multipoint system
under development that is designed to provide Internet access to multiple
end-users at DSL rates."
The heading for the second column contains the words "WaveNet Link" in
bold and underneath the words "Point-to-point," all on a red background. A line
connects the large pole on the right side of the upper half of the first column
to a large pole on the left side of the second column on which another Wireless
device appears. Above this pole are the words "WaveNet Link 4X" in bold. A
caption over the line connecting the two poles reads "Voice and data traffic" in
bold. A second line connects the pole on the right side of the lower half of the
first column to
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another pole on the left side of the second column. Above this pole are the
words "WaveNet Link EX" in bold. A caption over the line connecting the two
poles reads "Internet traffic." Red dots emanate from both poles on the left
side of the second column to two poles on the right side of the second column,
on which are mounted Wireless devices. Under the red dots between the pole
coming from the upper half of the first column are the words "16 Mbps" and under
the dots between the pole coming from the lower half of the first column are the
words "16 Mbps." In the center of the second column are the words "WaveNet
Link," in bold and underneath the words "A point-to-point system that transports
voice and data between two locations."
The heading for the third column contains the words "WaveNet Transport"
in bold and underneath the words "High-capacity transport," all on an orange
background. Two lines connect the two poles on the right side of the second
column to a large box on the left side of the third column out of which a pole
emerges with a microwave antenna at the top. Below the box are the words
"Interconnection Node" in bold. Red dots emanate from the microwave antenna to
another similar antenna on top of a building in the center of the third column.
The words "Service Provider" in bold appear below the building. A thick red line
connects the building to a blue cloud on the right side of the column, inside of
which are the words "Telecommunication Network or Internet" in bold. A caption
over and under the red line reads "IP or ATM." In the center of the third column
are the words "WaveNet Transport," in bold and underneath the words "A
point-to-point system that transports network traffic between two locations."
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary..................................................... 4
Risk Factors........................................................... 8
Forward-Looking Statements............................................. 21
Use of Proceeds........................................................ 22
Dividend Policy........................................................ 22
Capitalization......................................................... 23
Dilution............................................................... 24
Selected Financial Data................................................ 25
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 27
Business............................................................... 37
Management............................................................. 48
Executive Compensation and Other Information........................... 53
Certain Transactions................................................... 60
Principal Stockholders................................................. 65
Description of Capital Stock........................................... 68
Material United States Federal Income and Estate Tax Consequences to
Non-United States Holders.............................................. 72
Shares Available for Future Sale....................................... 74
Underwriting........................................................... 76
Legal Matters.......................................................... 78
Experts................................................................ 78
Additional Information................................................. 78
Index to Financial Statements.......................................... F-1
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Until _____________________________ , 2000, all dealers that buy, sell or
trade the common stock, 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.
--------------
Our trademarks and service marks include WIRELESS, WAVENET, WAVENET ACCESS,
WAVENET LINK, WAVENET TRANSPORT, STARPORT, RAN and BROADBAND WITHOUT BOUNDARIES
with the accompanying design and the Wireless logo. Each trademark, trade name
or service mark of any other company appearing in this prospectus belongs to its
holder.
3
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PROSPECTUS SUMMARY
BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING
"RISK FACTORS," AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO,
BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
OUR COMPANY
We are a global provider of broadband wireless access solutions that enable
Internet and communication service providers, telephone operating companies and
private network operators to deliver voice and high-speed data services to their
customers. We have systems installed and operating in Argentina, Brazil, Chile,
China, Mexico, Panama, the Philippines, Poland and the United States. In 1999
and the first quarter of 2000, 87% and 91% of our revenues, respectively, were
derived from outside the United States. Our global service organization provides
customer support 24 hours per day, 7 days a week and offers network design and
installation services as part of our wireless solution.
As the Internet and public and private communication networks have become
essential for communication, electronic commerce and information exchange, the
volume of voice and high-speed data traffic worldwide has increased
dramatically. In addition, user applications, such as electronic mail,
telecommuting and business-to-business exchanges have further increased the
amount of network traffic. This increase in network traffic has resulted in a
demand for greater transmission capacity, or bandwidth, and high-speed, or
broadband, services to support it. Bandwidth limitations between service
providers' central offices and end-users, often referred to as the last mile
bottleneck, have constrained service providers from delivering broadband
services to end-users. We believe that traditional dial-up modem technology is
insufficient to support the growth in network traffic and demand for high-speed
data transmission. Although wired access network infrastructures using cable,
digital subscriber line, or DSL, and fiber optic systems can deliver greater
bandwidth than that provided by dial-up modem technology, these systems are not
universally available to end-users. This last mile bottleneck is frustrating a
broad base of business, residential and small office/home office users, many of
whom require high-speed access to data.
Broadband wireless access technology can solve many of the problems imposed
by wired networks. Broadband wireless technology enables rapid implementation of
high-speed network access in a cost-effective manner relative to wired networks.
We believe that wireless network providers will be able to gain a greater share
of the network access market because, unlike wired network providers, they are
not required by federal law to share their wireless networks with competing
service providers. A broadband wireless network is often the best option for
high-speed communication in remote areas and in many developing countries due to
the lack of an existing wired infrastructure. In these regions, wireless
technologies provide clear advantages over wired networks, including lower cost,
faster installation, greater flexibility and increased reliability.
We believe our broadband wireless access line of systems provides our
customers with the following key benefits:
o cost-effective design and implementation;
o rapid installation;
o scalability;
o remote management; and
o network compatibility.
Our goal is to be the global broadband wireless access solution for
Internet and communication service providers, telephone operating companies
and private network operators. Our strategy for achieving this goal includes the
following core elements:
o introducing new wireless access technologies;
o leveraging strategic relationships;
o expanding global market presence;
4
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o emphasizing research and development; and
o continuing to deliver high-quality customer service and support.
As part of our strategy, we are expanding our product line. We are
currently testing in the field a new system called STARPORT which we intend to
commercially introduce during 2000. STARPORT will be a point-to-multipoint
broadband wireless access system that we expect will not require a line of sight
between transmission and reception points and supports high-speed Internet
traffic. STARPORT is specifically being designed for the residential, small
office and home office markets and we expect that it will be installable by the
consumer without requiring a communication service provider to supply a
professional technician. We expect that the consumer will be able to connect an
interface cable from STARPORT to a personal computer and then automatically
receive broadband service at data rates that are comparable to typical DSL
service. We have entered into a strategic relationship with TRW which provides
us with technology that we use in our STARPORT system. As part of this
initiative, TRW acquired approximately 18% of our capital stock outstanding
prior to this offering.
OUR BACKGROUND
Wireless, Inc. was incorporated on May 7, 1997 in California and in August
1998 purchased Multipoint Networks, Inc., or Multipoint, a California
corporation engaged in the manufacturing of point-to-multipoint data products.
Wireless, Inc. plans to reincorporate in Delaware in June 2000. References in
this prospectus to "Wireless," "we," "our" and "us" refer to Wireless, Inc., a
Delaware corporation and its California predecessor and not to the underwriters.
Our principal executive offices are located at 5452 Betsy Ross Drive, Santa
Clara, CA 95054 and our telephone number is (408) 727-8383. Our web site can be
found at www.wire-less-inc.com. Information contained in our web site is not a
prospectus and does not constitute a part of this prospectus.
5
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THE OFFERING
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Common stock offered.................................. 8,500,000 Shares
Common stock to be outstanding
after the offering................................... 41,349,348 Shares
Use of proceeds....................................... For general corporate purposes, including working
capital and capital expenditures. $2.5 million of the
proceeds will be paid to TRW in connection with the
license of certain technology. We may also use a
portion of the proceeds for possible acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol................ "WLSS"
</TABLE>
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Unless otherwise indicated all information in this prospectus:
o assumes no exercise of the underwriters' over-allotment option; and
o reflects the conversion of all of our outstanding preferred stock into
common stock upon the effectiveness of the registration statement.
See "Description of Capital Stock" and "Underwriting."
EXCEPT WHERE OTHERWISE NOTED, REFERENCES IN THIS PROSPECTUS TO 1998 AND
1999 REFER TO THE TWELVE MONTHS ENDING DECEMBER 31, 1998 AND DECEMBER 31, 1999,
RESPECTIVELY, REFERENCES TO THE PERIOD FROM INCEPTION TO DECEMBER 31, 1997 REFER
TO THE PERIOD BEGINNING MAY 7, 1997 AND ENDING DECEMBER 31, 1997 AND REFERENCES
TO THE FIRST QUARTER OF 1999 AND 2000 REFER TO THE THREE MONTHS ENDING MARCH
31, 1999 AND 2000, RESPECTIVELY.
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
6
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following tables set forth our summary financial, operating and
balance sheet data. You should read this information together with the financial
statements and the related notes included elsewhere in this prospectus, as well
as the information set forth under the captions "Selected Financial Data,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The pro forma financial data presented below reflects as of March 31,
2000:
o the conversion of all outstanding shares of preferred stock into common
stock;
o the exercise of outstanding warrants to purchase 68,000 shares of
preferred stock at a weighted-average exercise price of $1.62 per share
and the conversion of such shares into 68,662 shares of common stock;
and
o the exercise of outstanding warrants to purchase 150,000 shares of
common stock at a weighted-average exercise price of $3.00 per share,
which by their terms expire or automatically convert within 30 days of
the completion of this offering.
The pro forma, as adjusted balance sheet data presented below reflects the above
factors as well as the estimated net proceeds from the sale of 8,500,000 shares
of common stock at an assumed initial public offering price of $9.00 per share,
middle of the filing range, after deducting estimated underwriting discounts and
commissions and our estimated offering expenses. See Note 1 of Notes to
Financial Statements for a detailed explanation of the determination of the
shares used to compute actual and pro forma basic and diluted net loss per
share.
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<CAPTION>
PERIOD FROM
MAY 7, 1997
(INCEPTION)TO
DECEMBER 31, YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
------------- -------------------------- ---------------------------
1997 1998 1999 1999 2000
------------- ----------- ------------- ------------ -------------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 201 $ 11,172 $ 20,329 $ 6,276 $ 5,535
Gross profit (loss)........................ (220) 2,081 4,972 2,517 971
Total operating expenses................... 3,438 9,267 18,411 3,489 18,606
Operating loss............................. (3,658) (7,186) (13,439) (972) (17,635)
Net loss................................... $ (3,644) $ (7,476) $ (13,866) $ (1,032) $ (17,577)
============= =========== ============= ============ =============
Basic and diluted net loss per share....... $ -- $ (6.18) $ (4.18) $ (0.36) $ (2.17)
============= =========== ============= ============ =============
Basic and diluted weighted average shares
used in computation of net loss per
share................................... 1,242,617 3,316,344 2,844,902 8,081,497
Pro forma basic and diluted net loss per
share................................... $ (0.85) $ (0.62)
============= =============
Pro forma basic and diluted weighted
average shares used in computation of
net loss per share...................... 16,334,797 28,129,693
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AS OF MARCH 31, 2000
-------------------------------------
(UNAUDITED)
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------- ------------ -------------
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 10,692 $ 11,254 $ 80,099
Working capital.................... 8,908 9,470 78,315
Total assets....................... 38,316 38,878 107,723
Long-term liabilities.............. 239 239 239
Total stockholders' equity......... 24,796 25,358 94,203
7
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST
IN SHARES OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS
AND FINANCIAL RESULTS MAY SUFFER. IN THAT CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
RISKS RELATING TO OUR COMPANY
OUR PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY AND DID NOT SHIP OUR FIRST WIRELESS ACCESS PRODUCT UNTIL SEPTEMBER 1998.
We were incorporated in May 1997 and did not ship our first wireless access
product until September 1998. We have limited meaningful historical financial
data upon which to base projected revenues and planned operating expenses and
upon which investors may evaluate us and our prospects. In addition, our
operating expenses are largely based on anticipated revenue trends and a high
percentage of our expenses are and will continue to be fixed. You should
consider the risks and difficulties frequently encountered by companies like
ours in a new and rapidly evolving market. Our ability to sell products and the
level of success we achieve depends in part, on the level of demand for
broadband wireless access and networking products, which is a new and rapidly
evolving market.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE OR
SUSTAIN PROFITABILITY.
As of March 31, 2000, we had an accumulated deficit of $42.6 million. We
anticipate continuing to incur significant sales and marketing and general and
administrative expenses and significantly increasing our research and
development expenses as a result of products under development. As a result, we
will need to generate significantly higher revenues to achieve or sustain
profitability and we may not be able to generate these revenues. We incurred net
losses of $3.6 million, $7.5 million, $13.9 million and $17.6 million in 1997,
1998, 1999 and the first quarter of 2000, respectively. We expect to continue to
incur net losses for the foreseeable future.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY ADVERSELY AFFECT THE TRADING PRICE OF
OUR COMMON STOCK.
Our operating results have varied in the past and are likely to vary in the
future. It is possible that our revenues and operating results may be below the
expectations of securities analysts or investors in future quarters. If we fail
to meet or surpass the expectations of securities analysts or investors, the
market price of our stock will most likely fall. Fluctuations in our operating
results could be caused by a number of factors, including:
o the timing and cancellation of customer orders given our dependence on
relatively large orders from a discrete set of current and potential
customers;
o our ability to introduce new systems and technologies on a timely
basis given the rapidly evolving technology in our industry;
o market acceptance of our systems and our customers' services given the
new and rapidly evolving nature of our market;
o introduction of products and systems by our competitors which could
cause potential customers to cancel, delay or forego purchases of our
systems;
o our ability to respond to fluctuations in customer order levels which
could leave us with either excess inventory or lost sales
opportunities as a result of insufficient quantities of systems due to
our dependence on a limited number of contract manufacturers and sole
source suppliers and the lead times we must give them;
o the timing of our investments in research and development which we
expect to be significant in scope and periodic in nature;
o the timing and provision of returns from our distributors;
o whether our customers buy from a distributor, an original equipment
manufacturer or directly from us which affects our profit margins;
8
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o our customers' ability to finance their purchases of our systems,
given that many of our customers are themselves emerging companies who
may have difficulty securing financing;
o cost and availability of components and subassemblies, which comprise
a significant portion of our cost of sales once products are fully
developed;
o competitive pressures on selling prices which could cause us to reduce
the prices we charge for our products; and
o general economic conditions which may affect demand for our products,
the prices we can charge and the expenses we incur.
Given that any one or more of those factors could have an adverse effect on
our business, the prediction of future operating results is difficult and
uncertain. In addition, most of our operating expenses are relatively fixed and,
as a result, we may not be able to reduce our operating costs in response to
unanticipated reductions in our revenues or the demand for our systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
WE CURRENTLY SELL A LIMITED NUMBER OF SYSTEMS AND BECAUSE OUR MARKET IS SUBJECT
TO RAPID TECHNOLOGICAL CHANGE, THESE SYSTEMS MAY BECOME OBSOLETE AND WE MAY NOT
BE ABLE TO ENHANCE EXISTING SYSTEMS AND INTRODUCE NEW SYSTEMS THAT ACHIEVE
MARKET ACCEPTANCE IN A TIMELY AND COST-EFFECTIVE MANNER.
Our WAVENET ACCESS 2400, WAVENET ACCESS 2458, WAVENET LINK, WAVENET
TRANSPORT, and RAN SYSTEM and those systems that we resell are the only systems
we have shipped to our customers. The market for broadband wireless access
systems is characterized by rapidly changing technology and evolving industry
standards. If we fail to introduce and achieve market acceptance of enhancements
to our existing systems, as well as new systems and products, in a timely manner
that meets changing customer requirements and evolving industry standards, or if
we are forced to liquidate or write-off obsolete inventory, our business,
operating results and financial condition will be materially harmed. In
addition, our technology or our systems may become obsolete upon the
introduction of alternative technologies by larger competitors with more
extensive research, development and marketing capabilities. Following our
acquisition of Multipoint we incurred a charge of approximately $1.2 million in
1999 for inventory obsolescence related to earlier legacy products acquired from
Multipoint. We may incur such charges in the future if our products or those of
companies we acquire become obsolete.
IF THE DEVELOPMENT OF OUR STARPORT SYSTEM IS MATERIALLY DELAYED OR FAILS TO
PERFORM TO CUSTOMER EXPECTATIONS, OR IF OUR STRATEGIC RELATIONSHIP WITH TRW IS
TERMINATED, OUR BUSINESS AND FUTURE GROWTH WILL BE SUBSTANTIALLY HARMED AND WE
MAY LOSE OUR EXCLUSIVE LICENSE TO THE TECHNOLOGY.
We obtained an exclusive license from TRW in January 2000 to use the
technology employed by our STARPORT system in base stations configured for
outdoor use. The STARPORT system is still under development and will require
significant internal resources to complete, including requiring us to maintain a
significant staff of qualified engineers. There is intense competition for
qualified engineers in our industry and if we lose the engineers currently
developing our STARPORT system we may not be able to find suitable replacements.
If this were to happen, the commercial release of the STARPORT system could be
delayed. If we do not offer a commercial version of a product containing the
STARPORT technology for sale by July 14, 2001, unless the delay is the fault of
TRW or attributable to specified reasons, we will lose our exclusivity with
respect to the TRW license.
Our future growth depends on the success of our STARPORT system and we are
committed to spending substantial amounts of money to develop and commercialize
products based upon STARPORT technology. STARPORT is currently being field
tested and we have not yet begun accepting orders for this product. If we fail
to successfully commercialize products containing STARPORT technology or if the
development and commercialization of STARPORT costs significantly more than we
anticipate, our prospects will be severely diminished. Moreover, if our STARPORT
system did not perform to customer expectations once we completed development,
our business would be substantially harmed. In addition, the STARPORT system
represents a significant increase in design complexity and sophistication of
operation from our current products and our WAVENET ACCESS 3500 system. Because
our current products are not as complex as STARPORT, we may experience design or
manufacturing difficulties that could delay or prevent our development or
commercialization of the STARPORT system or enhancements to or based on that
system. See "Business--Strategic Relationship with TRW" and "Certain
Transactions--Strategic Relationship with TRW."
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IF EITHER OUR CURRENTLY AVAILABLE BROADBAND WIRELESS ACCESS SYSTEMS OR THOSE
UNDER DEVELOPMENT DO NOT FUNCTION WELL, OR IF THEIR COMMERCIAL RELEASE IS
DELAYED, WE COULD LOSE SALES OPPORTUNITIES, SUFFER INJURY TO OUR REPUTATION, OR
EXPERIENCE WARRANTY CLAIMS.
To date, several of our broadband wireless access systems under
development, including STARPORT and WAVENET ACCESS 3500, are currently
undergoing, or will soon undergo, trial deployments. These broadband wireless
access systems may contain undetected or unresolved errors when they are first
introduced or as a result of changes we subsequently make. If any of our current
or future broadband wireless access systems fail, or do not function adequately
for our customers needs, we could experience:
o delays in, or losses of, sales opportunities;
o diversion of development resources;
o injury to our reputation; and
o increased service, warranty and replacement costs.
In addition, we design our current products and those under development to
comply with identified and known industry specifications for radio and
networking operations. Our products are sometimes used by our customers with
products manufactured by other companies, or with products that are not
primarily intended for use in broadband wireless applications. Our current and
future products may not be fully compatible, or may not remain operational when
used in conjunction with other products. Failure of our current systems, or
planned systems such as WAVENET ACCESS 3500 and STARPORT, to operate as expected
could delay or prevent their adoption. Moreover, if the commercial release of
our WAVENET ACCESS 3500 system is delayed for any reason, or if it does not
satisfy our customers' expectations, our business would be substantially harmed.
GOVERNMENT AGENCIES RETAIN BROAD AUTHORITY TO DESIGNATE THE PERMISSIBLE USES FOR
VARIOUS RADIO FREQUENCIES AND IF THE RADIO FREQUENCY IN WHICH OUR WAVENET ACCESS
3500 SYSTEM IS DESIGNED TO OPERATE IS REASSIGNED, OUR BUSINESS WILL BE
SUBSTANTIALLY HARMED.
Various governing bodies and regulatory agencies have the right to reassign
a radio frequency to a different use if they deem its current use does not best
meet public needs. We have expended significant resources to design our WAVENET
ACCESS 3500 system to operate in the 3.5 GHz frequency radio band. This
frequency band was reassigned for broadband wireless access applications within
the last five years and it could be reassigned for another use at any time. If
the 3.5 GHz frequency band does not remain available for use by
point-to-multipoint broadband wireless access systems at or subsequent to the
time we develop and launch our WAVENET ACCESS 3500 system, we would be unable to
sell this system and our business and future growth would be significantly
harmed. The reassignment of the 3.5 GHz frequency band to services other than
broadband wireless access applications would significantly harm our business.
OUR BUSINESS MODEL DEPENDS UPON OBTAINING AND PROTECTING OUR INTELLECTUAL
PROPERTY, AND IF WE FAIL TO PROTECT OUR PROPRIETARY RIGHTS, OUR BUSINESS COULD
BE HARMED.
Our ability to compete depends substantially upon our internally developed
technology, and, in particular, upon our ability to obtain and preserve patent
and other intellectual property rights covering our systems and development and
testing tools. Our efforts to obtain and maintain patent, trade secret,
copyright and other intellectual property rights in connection with our products
are likely to be expensive, may not be effective and may have unpredictable
consequences. If we are not successful in protecting our intellectual property,
our business could be substantially harmed.
OUR PENDING PATENTS MAY NEVER BE ISSUED, AND EVEN IF ISSUED, MAY PROVIDE US
WITH LITTLE PROTECTION.
We regard the protection of patentable inventions as important to our
future opportunities. We currently hold two U.S. patents and have two patent
applications pending before the U.S. Patent and Trademark Office relating to our
point-to-multipoint wireless networking technology. We also share ownership of
two patent applications pending before the U.S. Patent and Trademark Office,
obtained under a purchase and license agreement with TRW, relating to our
STARPORT point-to-multipoint wireless networking technology. In addition, under
our purchase and license agreement with TRW, we obtained rights in technology in
the field of wireless communications systems that may lead to additional patent
applications. However, a significant number of our sales are made
internationally and
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none of our technology is patented outside of the United States nor do we
currently have any international patent applications pending. In addition, any
of the following events could significantly harm our business:
o patents may not be issued to us from our currently pending or future
applications;
o our existing patents or any new patents may not be sufficient in scope
to provide meaningful protection or any commercial advantage to us;
o an issued patent may be successfully challenged by one or more third
parties, resulting in our loss of the right to prevent others from
exploiting the inventions claimed in the patents;
o foreign intellectual property laws may not adequately protect our
intellectual property rights, if at all; and
o others may independently develop similar or superior products,
duplicate our products or design around any patents issued to us.
TO PROTECT OUR PROPRIETARY RIGHTS, WE RELY UPON TRADEMARKS, COPYRIGHTS AND
TRADE SECRETS, WHICH ARE ONLY OF LIMITED VALUE.
We rely on a combination of laws, such as copyright, trademark and trade
secret laws, and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. We currently have
registered trademarks for the marks "WAVENET," and "RAN" and applications
pending before the United States Patent and Trademark Office for additional
marks, including "STARPORT," and the Wireless logo. However, none of our
trademarks are registered outside of the United States, nor do we have any
trademark applications pending outside of the United States. Moreover, despite
any precautions which we have taken:
o laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
o other companies may claim common law trademark rights based upon state
or foreign law which precede our federal registration of such marks;
and
o policing unauthorized use of our systems and trademarks is difficult,
expensive and time-consuming and, therefore, we are unable to
determine the extent to which piracy of our systems and trademarks may
occur, particularly overseas.
The establishment of trade secrets, proprietary know-how and copyright
rights used in our business relies upon confidentiality and other provisions in
agreements with employees, consultants and other contracting parties. Such
contracting parties may not comply with the terms of their agreements with us
and we may not be able to adequately enforce our rights or, if enforceable, the
remedies may be inadequate. In contracts with our suppliers, customers and
others, we usually include indemnification provisions concerning intellectual
property matters. Any indemnification that we receive may not adequately
compensate us and any indemnification that we give may impose a significant
liability on us that could harm our business.
See "Business--Intellectual Property and Proprietary Rights."
WE MAY BECOME INVOLVED IN COSTLY AND TIME CONSUMING LITIGATION OVER PROPRIETARY
RIGHTS WHICH COULD DELAY OR PREVENT SALES OF OUR CURRENT AND FUTURE PRODUCTS.
Substantial litigation regarding intellectual property rights exists in our
industry. Intellectual property rights are uncertain and involve complex legal
and factual questions. Any litigation, brought by us or others, regardless of
the outcome, could result in the expenditure of significant financial resources
and the diversion of management's time and efforts. In addition, litigation in
which we are accused of infringement may cause product shipment delays, require
us to develop non-infringing technology or require us to enter into royalty or
license agreements even before the issue of infringement has been decided on the
merits. If any litigation were not to be resolved in our favor, we could become
subject to substantial damage claims and be enjoined from the continued use of
the technology at issue without a royalty or license agreement. These royalty or
license agreements, if required, might not be available on acceptable terms, or
at all, and could harm our business. If a successful claim of infringement were
made against us and we could not develop non-infringing technology or license
the infringed or similar technology on a timely and cost-effective basis, our
business could be significantly harmed.
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We expect that software and hardware in our industry may be increasingly
subject to third-party infringement claims as the number of competitors grows
and the functionality of products in different industry segments overlaps. Third
parties may currently have, or may eventually be issued, patents that would be
infringed by our products or technology. Any of these third parties could make a
claim of infringement against us with respect to our products and technology.
In particular, our STARPORT system under development relies upon a
technology known as direct sequence spread spectrum technology. There are a
number of patents relating to this technology held by different companies which
may impact our STARPORT system. If our STARPORT system infringes any of these
patents and we are unable to negotiate a license, then we may be required to
redesign the STARPORT system or we may not be able to sell it.
OUR RELIANCE ON INTERNATIONAL OPERATIONS EXPOSES US TO ADDITIONAL RISKS UNIQUE
TO THOSE MARKETS.
Revenues from customers outside the United States accounted for 87% and 91%
of our total revenues for 1999 and for the first quarter of 2000, respectively.
We anticipate that revenues from customers outside the United States will
continue to account for a significant portion of our total revenues for the
foreseeable future. Our reliance on international operations exposes us to
numerous risks, which could harm our results of operations, including the
following:
o difficulties of staffing and managing foreign operations;
o longer customer payment cycles and greater difficulties in collecting
accounts receivable;
o unexpected changes in regulatory requirements, telecommunications
standards, exchange rates, trading policies, tariffs and other
barriers;
o uncertainties of laws and enforcement relating to the protection of
intellectual property;
o language barriers;
o potential adverse tax consequences; and
o political and economic instability.
EXPANSION OF OUR INTERNATIONAL OPERATIONS HAS REQUIRED, AND WILL CONTINUE TO
REQUIRE, SIGNIFICANT MANAGEMENT ATTENTION AND RESOURCES.
Although all of our sales are currently denominated in U.S. dollars, future
fluctuations in foreign currency exchange rates may harm our operating results
and financial condition given the fact that we currently sell broadband wireless
access systems to customers in over 50 countries on 6 continents. During 1999,
system sales to Mexico totaled $7.6 million or 37.6% of total revenues. System
sales to the Philippines totaled $3.0 million or 14.5% of total revenues. One
customer in Mexico represented $3.0 million or 14.5% of total revenues in 1999.
These countries have recently experienced significant problems with their
economies, which have adversely affected the value of their currency,
availability of credit and their ability to engage in foreign trade in general.
If their economies do not improve, our ability to collect payments and gain
future revenue opportunities may suffer.
WE DEPEND UPON TECHNOLOGY LICENSED FROM THIRD PARTIES, AND IF WE DO NOT MAINTAIN
THESE LICENSE ARRANGEMENTS, OUR BUSINESS WILL BE SERIOUSLY HARMED.
We license technology that is used in both our current broadband wireless
access systems and our systems under development from third parties under
agreements of limited duration. If we fail to maintain these license
arrangements or if we are unable to maintain these licenses on affordable terms,
we would not be able to sell the affected systems, and our business would be
seriously harmed.
WE DEPEND ON THIRD-PARTY DISTRIBUTORS TO MARKET, SELL AND SUPPORT OUR SYSTEMS IN
INTERNATIONAL MARKETS.
A majority of our total revenues are derived from customers outside the
United States. We are heavily dependant on third-party distributors to market,
sell and support our broadband wireless access systems in such international
markets. If our distributors are unable or unwilling to continue to market, sell
and support our systems internationally on acceptable terms or in the event of a
degradation in the quality of service provided by such distributors, our results
of operations would suffer.
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WE DEPEND ON A LIMITED NUMBER OF CONTRACT MANUFACTURERS AND SOLE-SOURCE
SUPPLIERS. IF THESE MANUFACTURERS OR SUPPLIERS ARE UNABLE TO FILL OUR ORDERS ON
A TIMELY BASIS, WE MAY BE UNABLE TO DELIVER PRODUCTS TO MEET CUSTOMER ORDERS.
We depend on a limited number of contract manufacturers and sole-source
suppliers to manufacture our broadband wireless access systems. We operate on a
purchase order basis and do not have long-term supply contracts with our
contract manufacturers. Our contract manufacturers may terminate their contracts
with us at any time. We manufacture only small quantities of products at our own
facilities. If our manufacturers are unable or unwilling to continue
manufacturing our components in required volumes or in the event of a reduction
or interruption of supply or a degradation of quality, we would have to identify
and train acceptable alternate manufacturers, which could take as long as six
months and cause our results of operations to suffer.
In addition, many of our key components have long lead times, are purchased
from sole-source vendors for which alternate sources are not currently
available, and are complex to manufacture. In the event of an interruption of
supply, or a degradation in quality, as many as six months or more could be
required before we would begin receiving adequate supplies from alternate
suppliers, if any. As a result, shipments could be delayed and our revenues and
results of operations would suffer. It is possible that a sole-source supplier
may not be available when needed, and we may not be able to satisfy our
production requirements at acceptable prices and on a timely basis, if at all.
Our reliance on a limited group of contract manufacturers and sole-source
vendors involves several risks, including an inability to obtain an adequate
supply of required components and systems and reduced control over the price,
timely delivery, reliability and quality of such components and systems. Any
significant interruption in supply would affect the allocation of our systems to
customers, which in turn could cause us to lose customers and harm our business.
WE DO NOT KNOW THE CURRENT OR POTENTIAL SIZE OF OUR MARKET, AND IF OUR MARKET
DOES NOT GROW AS WE EXPECT, OUR REVENUES WILL BE BELOW OUR EXPECTATIONS AND OUR
BUSINESS WILL SUFFER.
We are a new company engaging in a developing business with an unproven
market. Accordingly, we do not know the size of our market or the potential
demand for our systems. If our customer base does not expand or if there is not
widespread acceptance of our systems, our business and financial results will
suffer. We believe that our potential to grow and increase our market acceptance
depends principally on the following factors, some of which are beyond our
control:
o the effectiveness of our marketing strategy and efforts;
o our product and service differentiation and quality;
o the extent of our wireless coverage;
o the performance of our products compared to our competition;
o our ability to provide timely, effective customer support;
o our distribution and pricing strategies as compared to our
competitors;
o our industry reputation; and
o general economic conditions such as downturns in the computer or
software markets.
A MAJORITY OF OUR SALES ARE DERIVED FROM A RELATIVELY SMALL NUMBER OF
CUSTOMERS AND THE LOSS OF ANY SUCH CUSTOMER COULD SIGNIFICANTLY REDUCE OUR
REVENUES.
Although our customers are geographically dispersed, a relatively small
number of them accounted for more than half of our revenues. In 1999, one
customer, Celular de Telefonia, accounted for approximately $3.0 million or
14.5% of our revenues. Although no other customer represented over 10% of
revenues in 1999, approximately 57.4% of our revenues were derived from ten
customers in 1999. For the first quarter of 2000, three customers each exceeded
10% of total revenues, totalling $2.8 million, or 51.4%, of revenues in
this period. We expect that for the foreseeable future the majority of our sales
will be to fewer than 20 customers and the loss af any large customer, without
acquiring a similar replacement customer, could significantly reduce our
revenues.
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BECAUSE WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS, OUR CUSTOMERS MAY
CEASE PURCHASING OUR SYSTEMS AT ANY TIME.
We do not have long-term contracts with the majority of our customers. As a
result, our agreements with our customers do not provide any assurance of future
sales. Our customers can stop purchasing our systems at any time without
penalty. Our customers are free to purchase systems from our competitors. In
addition, in many cases, our customers are not required to make minimum
purchases of our systems. Sales are typically made by individual purchase
orders, often with extremely short lead times. If we are unable to fulfill these
orders in a timely fashion, we will lose sales and customers and our business
will be significantly harmed.
MANY NETWORKS THAT INCLUDE OUR SYSTEMS REQUIRE SYSTEM INTEGRATION EXPERTISE AND
THIRD-PARTY FINANCING, WHICH WE ARE UNABLE TO PROVIDE. IF SOURCES FOR SYSTEM
INTEGRATION OR FINANCING CANNOT BE OBTAINED AS NEEDED, CUSTOMERS MAY NOT BUY OUR
SYSTEMS.
Some customers using our systems purchase them as a part of a larger
network installation program that can require capital expenditures in the
hundreds of millions of dollars. In some circumstances, these customers require
their equipment vendors to integrate equipment into these larger networks and to
finance the installation. We are unable to provide integration services or
financing and will have to rely on the ability of our system integrators and
third parties to integrate or finance these transactions. In the event that we
are unable to identify distributors and system integrators that are able to
provide integration services or financing on our behalf, we would be unable to
compete for the business of some customer accounts and our business would be
harmed.
IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS
COULD BE SERIOUSLY HARMED.
We have expanded our operations in recent years and we anticipate that
further expansion will be required to address potential growth in our customer
base and market opportunities. This expansion has placed, and future expansion
is expected to place, a significant strain on our management, technical,
operational, administrative and financial resources. We have recently hired new
employees, including a number of key managerial and operations personnel, who
have not yet been fully integrated into our operations.
Our current and planned expansion of personnel, systems, procedures and
controls may be inadequate to support our future operations. We may be unable to
manage further growth in our relationships with our distributors and other third
parties. If we are unable to manage growth effectively, our business, financial
condition and results of operations could be harmed.
IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATION AND OUR DISTRIBUTION
CHANNELS OR SUCCESSFULLY MANAGE OUR EXPANDED SALES ORGANIZATION, OUR ABILITY TO
INCREASE OUR REVENUES WILL BE HARMED.
Historically, we have relied primarily on our direct sales organization to
sell our systems domestically and on a limited number of distributors to sell
our systems internationally. We may not be able to successfully expand our
direct sales organization and the cost of any expansion may exceed the revenue
generated. To the extent that we are successful in expanding our direct sales
organization, we still may not be able to compete successfully against the
significantly larger, well-funded sales and marketing operations of many of our
current or potential competitors. In addition, if we fail to develop
relationships with significant distributors, or if these distributors are not
successful in their sales or marketing efforts, sales of our systems may
decrease and our business would be significantly harmed.
IF WE DO NOT RETAIN OUR DISTRIBUTORS, RESELLERS AND CHANNEL PARTNERS, OR IF
THOSE PARTIES DO NOT GIVE PRIORITY TO OUR SYSTEMS, OUR PRODUCT SALES AND
REVENUES WILL SUFFER.
We rely on distributors, resellers and channel partners for the marketing,
sale and distribution of our products. If our distributors, resellers and
channel partners do not prioritize marketing, selling and distributing our
systems, our business and results of operations could be harmed. The loss of any
of these parties may result in lower sales for a particular region, and we may
not be able to replace a lost distributor, reseller or channel partner with a
suitable replacement for a given region. We expect that many of these parties
will also market, sell and distribute competing systems. These distributors,
resellers and channel partners may not continue, or may not give a high priority
to, marketing and supporting our systems. These and other channel conflicts
could result in diminished sales through the indirect channel and harm our
operating results.
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OUR OPERATING RESULTS WILL SUFFER IF SALES DO NOT INCREASE AS ANTICIPATED TO
SUPPORT THE EXPENSES OF EXPANDING OUR BUSINESS.
Because our operating expenses for personnel, new system development and
inventory continue to increase, we must continue to generate increased sales to
offset these increased expenses. We have limited ability to reduce expenses
quickly in response to any revenue shortfall. In response to anticipated long
lead times to obtain inventory and materials from our contract manufacturers and
suppliers, we have in the past and may continue to need to order in advance of
anticipated customer demand. Advance ordering has and may continue to result in
higher inventory levels. To sell this increasing inventory, we have depended on
and will continue to depend on an increase in customer demand. Any significant
shortfall in customer demand would harm our quarterly and annual operating
results.
In addition, our future operating results depend upon the continued growth
and increased availability and acceptance of advanced radio-based wireless
telecommunications systems and services in the United States and
internationally. The volume and variety of and the markets for and acceptance of
wireless telecommunications systems and services may not continue to grow as
anticipated. Because these markets are relatively new, predicting which market
segments will develop and at what rate they will grow is difficult. We have
recently invested and will continue to invest additional significant time and
resources in the development of new products. If the market for these new
products and the market for related services for our systems fail to grow, or
grow more slowly than anticipated, revenue will also fail to grow, adversely
affecting our results of operations.
CONTROL BY OUR EXISTING STOCKHOLDERS COULD DISCOURAGE POTENTIAL ACQUISITIONS OF
OUR BUSINESS THAT OTHER STOCKHOLDERS MAY CONSIDER FAVORABLE.
Upon completion of this offering, our executive officers, directors and 5%
or greater stockholders and their affiliates will own 16,186,844 shares or
approximately 39.2% of the outstanding shares of common stock. Acting together,
these stockholders would be able to control all matters requiring approval by
stockholders, including the election of directors. This concentration of
ownership could have the effect of delaying or preventing a change in our
control or otherwise discouraging a potential acquirer from attempting to obtain
control of us, which in turn could harm the market price of our common stock or
prevent our stockholders from realizing a premium over the market price for
their shares of common stock.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DISCOURAGE POTENTIAL
ACQUISITIONS OF OUR BUSINESS BY THIRD PARTIES THAT STOCKHOLDERS MAY CONSIDER
FAVORABLE AND THIS MAY REDUCE THE PRICE OF OUR COMMON STOCK.
Some provisions of our certificate of incorporation and bylaws and of
Delaware law may discourage, delay or prevent a merger or acquisition that
stockholders may consider favorable. This may reduce the market price of our
common stock. A summary of these provisions is included in "Description of
Capital Stock--Anti-Takeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."
OUR HEADQUARTERS AND MANY OF OUR CONTRACT MANUFACTURERS ARE LOCATED IN NORTHERN
CALIFORNIA WHERE NATURAL DISASTERS MAY OCCUR AND WE DO NOT HAVE REDUNDANT SITE
CAPACITY IF A DISASTER DISRUPTS OUR OPERATIONS.
Currently, our corporate headquarters and many of our contract
manufacturers are located in Northern California. Northern California
historically has been vulnerable to natural disasters such as earthquakes, fires
and floods, which at times have disrupted the local economy and posed physical
risks to our and our manufacturers' property. We presently do not have redundant
site capacity in the event of a natural disaster. In the event of a natural
disaster, our business would suffer.
WE MAY HAVE LIABILITY FOR OPTIONS WE GRANTED AND STOCK WE ISSUED IN VIOLATION OF
SECURITIES LAWS.
We granted stock options to various individuals between June 1997 and April
2000 under our 1997 stock option/stock issuance plan. A substantial portion of
the shares of our common stock that are subject to the grants were not qualified
or exempted under applicable state securities laws and therefore the options may
have been granted in violation of these laws. As a result, we may have potential
liability under state securities laws to the individuals and entities to whom
the options were granted or who purchase shares of our common stock upon the
exercise of those options. Any liability to the option holders will be in the
form of a rescission offer to them in which they will have the opportunity to
rescind their option grants in return for a cash payment from us based upon a
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percentage of the exercise price payable under their options, and any liability
to individuals or entities who actually purchase shares under the options will
be in the form of an offer from us to repurchase those shares for a cash amount
equal to the exercise price paid for the shares, together with interest due to
both the option holders and the stock purchasers who accept the offers which is
to accrue from the date of the option grant and the date of the option exercise,
respectively. We are currently analyzing this matter and cannot, at this time,
ascertain the extent of our potential liability, if any. Nevertheless, the
exercise prices in effect for the options granted prior to this offering range
from $0.05 to $5.74 per share, and accordingly, we expect our maximum potential
liability associated with these option grants to be no more than $275,000 in the
aggregate.
RISKS RELATING TO OUR INDUSTRY
SOME OF OUR SYSTEMS HAVE LONG SALES CYCLES, WHICH WILL LIKELY CAUSE OUR RESULTS
OF OPERATIONS AND STOCK PRICE TO FLUCTUATE.
Some of our systems have sales cycles that are long and unpredictable. As a
result, our revenues will likely fluctuate from quarter to quarter and fail to
correspond with our expenses and our operating results and stock price will
likely fluctuate. In addition, the delays inherent in our sales cycle raise
additional risks of customer decisions to cancel or change their product plans.
Our business could be harmed if a significant customer reduces or delays orders
or chooses not to install networks incorporating our systems. Our customers
typically perform numerous tests and extensively evaluate our systems before
incorporating them into networks. The time required for testing, evaluation,
design and integration of our systems into a customer's network typically ranges
from two to six weeks. If a customer decides to supply commercial service using
our systems, it can take an additional six to twelve months before it can
commence installation of our products. Some additional factors that affect the
length of our sales cycle include:
o acquisition of roof rights;
o installation and planning of network infrastructure;
o complexity of a given network;
o scope of a given project;
o availability of radio frequency; and
o regulatory issues.
SOME OF OUR COMPETITORS AND POTENTIAL COMPETITORS ARE LARGE, WELL CAPITALIZED
FIRMS WITH SIGNIFICANT RESOURCES AND INTENSE COMPETITION IN THE MARKET FOR
COMMUNICATIONS EQUIPMENT COULD PREVENT US FROM INCREASING OR SUSTAINING REVENUES
OR ACHIEVING OR SUSTAINING PROFITABILITY.
The market for high-speed, wireless, point-to-point and point-to-multipoint
communications equipment is rapidly evolving, highly competitive and requires
significant investments in product development and marketing. We may not have
sufficient resources to make these investments or we may not be able to make the
technological advances necessary to be competitive. As a result, we may not be
able to compete effectively against our competitors. Increased competition is
likely to result in price reductions, shorter product life cycles, reduced gross
margins, longer sales cycles and loss of market share, any of which would harm
our business. As a provider of high-speed wireless communications equipment, we
compete with a number of large, well capitalized communications equipment
suppliers in the point-to-multipoint market, including Adaptive Broadband
Corporation, BreezeCOM, Ltd., Gigabit Wireless, Inc., Lucent Technologies, Inc.,
Netro Corporation, and Wavtrace Inc., as well as with smaller start-up
companies. We also compete with communications equipment suppliers, such as
BreezeCOM, Digital Microwave Corporation, Lucent and P-Com, Inc., in the
point-to-point market. In addition, well-capitalized companies such as Ericsson,
Inc., Motorola, Inc., Nokia Corporation, QUALCOMM Corporation and Siemens AG are
potential entrants into either market. Our broadband wireless access technology
also competes with wired solutions such as cable, DSL, fiber optic systems and
high-speed lines leased from communication service providers, such as T-1 lines.
Our larger competitors and potential competitors may have resources to
develop competing products that offer superior performance or lower prices to
ours, which may prevent us from competing in various markets. We expect our
competitors to continue to improve the performance of their current systems and
to introduce new systems or
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new technologies that may supplant or provide lower cost alternatives to our
systems. To be competitive, we must continue to invest significant resources in
research and development, sales and marketing and customer support and we may
not have sufficient resources to make these investments.
WE EXPECT AVERAGE SELLING PRICES OF OUR BROADBAND WIRELESS ACCESS SYSTEMS TO
DECREASE WHICH WOULD REDUCE GROSS MARGINS OR REVENUES, AND, AS A RESULT, WE MUST
CONTINUE TO REDUCE OUR SYSTEM COSTS IN ORDER TO PRICE OUR SYSTEMS COMPETITIVELY.
The market for broadband wireless access systems is characterized by
declining average selling prices resulting from factors such as increased
competition, the introduction of new products and systems and competitive
pressures from traditional wired broadband network access technologies. We
anticipate that average selling prices will decrease in the future in response
to product and system introductions by competitors, or in response to other
factors, including pricing pressures from significant customers. For example, we
have one large customer to which we have provided volume discounts in the past,
which reduces our profit margins. Competitive factors may require us to provide
similar or other discounts in the future. Additionally, because lower prices are
typically charged on sales made through indirect channels, increased indirect
sales could adversely affect our average selling prices and result in lower
gross margins. Therefore, we must continue to develop and introduce on a timely
basis new systems that incorporate features that can be sold at higher average
selling prices. Failure to do so would cause our revenues and gross margins to
decline, which would significantly harm our business.
We may be unable to reduce the cost of our systems sufficiently to enable
us to compete with others. Our cost reduction efforts may not allow us to keep
pace with competitive pricing pressures or lead to improved gross margins. In
order to be competitive, we must continually reduce the cost of manufacturing
our systems through design and engineering changes. We may not be successful in
redesigning our systems or delivering our systems to market in a timely manner.
Any redesign may not yield sufficient cost reductions to allow us to reduce the
price of our systems to be competitive or improve our gross margin.
IF BROADBAND WIRELESS TECHNOLOGY OR OUR IMPLEMENTATION OF THIS TECHNOLOGY IS NOT
BROADLY ACCEPTED, WE WILL NOT BE ABLE TO SUSTAIN OR EXPAND OUR BUSINESS.
The market for broadband wireless access technology has only recently begun
to develop and is rapidly evolving. Because this market is new, it is difficult
to predict its potential size or future growth rate. Our success in generating
revenue in this emerging market will depend, among other things, on the growth
of this market. If the market for broadband wireless access technology fails to
develop or develops more slowly than expected, or if our systems do not achieve
widespread market acceptance in this market, our business would be significantly
harmed.
A MAJORITY OF SERVICE PROVIDERS THAT USE WIRELESS TECHNOLOGIES SUCH AS OURS ARE
EMERGING COMPANIES WITH UNPROVEN BUSINESS MODELS, AND IF THEY DO NOT REMAIN IN
BUSINESS OR DO NOT GENERATE SUFFICIENT REVENUES, THEY WILL NOT BE ABLE TO
PURCHASE OUR PRODUCTS AND OUR BUSINESS WOULD BE HARMED.
Many of our customers are service providers that are using wireless
technologies to attract and retain new end-user customers. Many of these service
providers are emerging companies with a limited degree of success in the
broadband wireless access industry. These service providers may therefore become
under-capitalized and may not be able to remain in business for a substantial
period of time. The broadband wireless access market is intensely competitive,
and the service providers typically are forced to reduce the monthly access
charges they impose upon their subscribers in order to attract and retain
additional subscribers. The reduction in monthly access charges reduces the
amount of capital available for service providers to invest in additional
wireless infrastructure. The failure or loss of these service providers as
customers would significantly harm our business.
WE WILL FACE CHALLENGES TO OUR BUSINESS IF OUR TARGET MARKET ADOPTS ALTERNATE
STANDARDS FOR WIRELESS TRANSMISSION, OR IF OUR SYSTEMS FAIL TO COMPLY WITH
EVOLVING INDUSTRY STANDARDS.
Broadband wireless access technology is extremely complex, and products
must adhere to a continually changing set of standards and compliance
requirements. Currently, our systems meet the present protocol standards for
data transmission. The protocol definitions for data transmission, however, are
established by standards organizations over which we have no direct influence.
We have invested substantial amounts of engineering resources into developing
interfaces that are compliant with these standards. Should these organizations
change the standards for data transmission or its associated technology, or if
these organizations introduce new and
17
<PAGE>
substantially different standards for data transmission, we may not be able to
introduce systems in a timely manner that meet these new and evolving standards.
If we fail to introduce systems that meet new and evolving data transmission
standards, our business would be significantly harmed.
SYSTEMS WE DESIGN FOR SALE IN THE UNITED STATES MUST COMPLY WITH THE REGULATORY
REQUIREMENTS OF THE FEDERAL COMMUNICATIONS COMMISSION AND ANY FAILURE TO COMPLY
WITH SUCH REGULATIONS COULD PREVENT SALES IN THE UNITED STATES AND HARM OUR
BUSINESS.
Our systems that are sold and installed in the United States are subject to
the rules and regulations of the Federal Communications Commission, or FCC,
which determines the rules, regulations and procedures under which radio
transmission products sold in the United States must be certified. If we fail or
are unable to comply with the rules and regulations of the FCC, we would be
unable to sell and install the non-complying systems in the United States and
our business could be harmed. The FCC is also responsible for establishing which
frequency bands can be allocated for use by systems that are intended to provide
broadband wireless access and networking systems. In the United States,
operation of unlicensed radio communications equipment is subject to the
conditions that no harmful interference is caused to authorized users of the
band, and that interference, including interference that may cause undesired
operation, must be accepted from all other users of the band. This includes
other unlicensed operators, authorized operators such as amateur licensees,
industrial, scientific and medical equipment, and U.S. Government operations.
Unlicensed operators that cause harmful interference to authorized users, or
that exceed permitted radio frequency emission levels, may be required to cease
operations until the condition causing the harmful interference or excessive
emissions has been corrected. If any of our systems interfere with these
authorized operators, or if any authorized operators cause interference
resulting in undesired operation, we may be prevented from operating these
systems or we may need to redesign our systems at significant expense and our
business may be harmed. See "Business--Government Regulation."
SYSTEMS WE DESIGN FOR SALE OUTSIDE THE UNITED STATES MUST COMPLY WITH THE
REGULATORY REQUIREMENTS OF THE HOST COUNTRY AND ANY FAILURE TO COMPLY WITH SUCH
REGULATIONS COULD PREVENT SALES IN SUCH COUNTRY AND HARM OUR BUSINESS.
Outside of the United States, our products are subject to the rules and
regulations as set forth by the governing bodies for radio transmission and
telecommunications of the host country. In most cases, the rules and regulations
differ substantially between countries, and radio design is therefore
significantly affected. We do not presently have radio technology that meets the
local rules and regulations for all countries. If significant market
opportunities were to develop in those countries where our products do not meet
the local rules and regulations, we would lose sales opportunities in such
countries until such time as we could meet the local rules and regulations. We
may not be able to redesign our systems to meet all local rules and regulations
or such redesigns may cause us to incur significant expenses and our business
could be harmed. See "Business--Government Regulation."
THERE MAY BE POTENTIAL HEALTH AND SAFETY RISKS RELATED TO OUR BROADBAND WIRELESS
ACCESS SYSTEMS WHICH COULD NEGATIVELY AFFECT SALES.
There has been recent public concern regarding the potential health and
safety risks of electromagnetic emissions. Our broadband wireless access systems
intentionally emit electromagnetic radiation. If safety or health issues do
arise, our system sales could decline or cease. Even if safety concerns
ultimately prove to be without merit, negative publicity could materially harm
our ability to market our systems. In addition, we may be subject to litigation,
with or without basis in fact, alleging that we are responsible for injuries or
illnesses relating to this radiation. If this litigation were not resolved in
our favor, our results of operation could be materially harmed. Moreover, even
if the litigation were resolved in our favor, the costs of litigating or of
settlement could be significant.
BECAUSE OF INTENSE COMPETITION, WE MAY NOT BE ABLE TO RECRUIT OR RETAIN
QUALIFIED PERSONNEL NECESSARY TO DEVELOP OUR PRODUCTS AND ACCOMPLISH OUR
BUSINESS OBJECTIVES.
Our growth in operations has placed significant demands on our management,
engineering staff and facilities and could harm our ability to develop systems
on a timely basis. Continued growth will require us to hire more engineering,
manufacturing, sales and administrative personnel. We may not be able to attract
and retain the necessary qualified personnel to accomplish our business
objectives and we may experience constraints that could harm our ability to
satisfy customer demand in a timely fashion or to support our customers and
operations. We
18
<PAGE>
have at times experienced, and continue to experience, difficulty in recruiting
qualified personnel. Recruiting qualified personnel is an intensely competitive
and time-consuming process. We will need to train new sales and marketing
personnel before they achieve full productivity. The design and installation of
broadband wireless access technology can be complex. Accordingly, we need highly
trained professional services and customer support personnel to service our
customers. In addition, recently hired employees may not successfully integrate
into our management team. The inability to attract and retain qualified
personnel or to assimilate them into our business could significantly harm our
business.
WE MAY BE HARMED BY DELAYED YEAR 2000 PROBLEMS.
Although the date is now past January 1, 2000, and we have not experienced
immediate harm from the transition to the year 2000, it is possible that we or
our suppliers and customers have been affected in a manner that is not yet
apparent. In addition, some computer programs that were date sensitive to the
year 2000 may not have been programmed to process the year 2000 as a leap year,
and any negative consequential effects remain unknown. In particular, we are
subject to:
o costs associated with the failure of our products to be year 2000
compliant, including potential warranty or other claims from our
customers, which may result in significant expenses to us;
o business shutdowns or slowdowns as a result of a failure of the
internal management systems we use to run our business, which could
disrupt our business operations;
o interruption of system or component supplies, or a reduction in
product quality, as a result of the failure of systems used by our
suppliers; and
o reductions or deferrals in sales activities as a result of year 2000
compliance issues of our distributors and system integrators.
As a result, we will continue to monitor our year 2000 compliance and the year
2000 compliance of our suppliers and customers. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
RISKS RELATING TO THIS OFFERING
OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL.
Stock prices and trading volumes for many technology companies fluctuate
widely for a number of reasons, including some reasons which may be unrelated to
their businesses or results of operations. This market volatility, as well as
general domestic or international economic, market and political conditions,
could materially adversely affect the price of our common stock without regard
to our operating performance. In addition, our operating results may be below
the expectations of public market analysts and investors. If this were to occur,
or if other risks discussed in this prospectus were to occur, the market price
of our common stock would likely significantly decrease.
THE LIQUIDITY OF OUR COMMON STOCK IS UNCERTAIN SINCE IT HAS NOT BEEN PUBLICLY
TRADED AND MAY HAVE A LIMITED MARKET, AND THE INITIAL OFFERING PRICE NEGOTIATED
BY THE COMPANY AND THE UNDERWRITERS MAY NOT ACCURATELY REFLECT MARKET DEMAND.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. In this offering, we intend to
sell our common stock primarily to a limited number of institutional investors,
which could limit the development of an active trading market. Active trading
markets generally result in lower price volatility and more efficient execution
of buy and sell orders for investors. In addition, the initial public offering
price will be determined by negotiations between us and the representatives of
the underwriters and may bear no relationship to the price at which our common
stock will trade upon completion of this offering. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
19
<PAGE>
SUBSTANTIAL NUMBERS OF SHARES OF OUR COMMON STOCK WILL BECOME AVAILABLE FOR SALE
IN THE PUBLIC MARKET SIMULTANEOUSLY, WHICH COULD CAUSE THE MARKET PRICE OF OUR
STOCK TO DECLINE.
Sales of substantial amounts of common stock in the public market following
this offering, or the appearance that a large number of shares is available for
sale, could cause the market price of our common stock to decline. In addition
to the adverse effect a price decline could have on holders of common stock,
that decline would likely impede our ability to raise capital through the
issuance of additional shares of common stock or other equity securities. See
"Shares Available for Future Sale."
After this offering, if certain conditions are met, the holders of a
substantial number of shares of common stock and the holders of warrants to
purchase thereof will be entitled to require us to register their shares under
the Securities Act. These shareholders and holders of additional warrants also
have the right to participate in any registration of our shares which we
undertake on our own. If these shareholders exercise their registration rights,
a large number of our shares may be registered and sold in the public market.
This could adversely affect the trading price for our shares. If we attempted to
raise money through a registration and sale of our stock and these shareholders
forced us to allow them to participate in the registration, our ability to raise
the amount of money we need to execute our business plan could be adversely
affected. See "Description of Capital Stock--Registration Rights."
YOU WILL NOT HAVE CONTROL OVER MANAGEMENT'S USE OF THE PROCEEDS FROM THIS
OFFERING AND THE PROCEEDS MAY NOT BE APPROPRIATELY USED.
We expect to use the net proceeds from the offering for general corporate
purposes, including working capital, product development and capital
expenditures. $2.5 million of the proceeds will be paid to TRW in connection
with the license of the STARPORT technology. We may use a portion of the
proceeds to invest in complementary businesses or products or to obtain the
right to use complementary technologies. However, we will have broad discretion
in how we use the net proceeds from the offering, and we may ultimately decide
to use the proceeds for purposes other than the above and may not use proceeds
for any one or more of the above purposes. You will not have the opportunity to
evaluate the economic, financial or other information on which we base our
decisions on how to use the net proceeds or to approve these decisions. If our
management uses poor judgment in spending our proceeds or if the proceeds are
not used effectively, our business will be harmed.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which involve risks
and uncertainties. These forward-looking statements are not historical facts but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and assumptions. We use words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and variations
of these words and similar expressions to identify forward-looking statements.
These statements are not guarantees of future performance and are subject to
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties include those described in "Risk Factors" and elsewhere
in this prospectus. You should not place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus.
21
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale and issuance of the 8,500,000 shares of
common stock offered are estimated to be $68.8 million at an assumed initial
public offering price of $9.00 per share after deducting estimated underwriting
discounts and commissions and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, our estimated net proceeds will be
$80.3 million. We are conducting this offering primarily to increase our equity
capital, to create a public market for our common stock and to facilitate our
future access to public equity markets. We intend to use the net proceeds for
general corporate purposes, including working capital, product development and
capital expenditures. $2.5 million of the proceeds will be paid to TRW, Inc.
upon completion of this offering in connection with the license of the STARPORT
technology. In addition, we may use a portion of the net proceeds to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. We currently have no agreements or commitments with
respect to any acquisition or investment, and we are not involved in any
negotiations with respect to any similar transaction. Pending these uses, we
will invest the net proceeds of the offering in short-term, interest-bearing
investment-grade securities. See "Risk Factors--You will not have control over
management's use of the proceeds from this offering and the proceeds may not be
appropriately used" and "Certain Transactions--Strategic Relationship with TRW."
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock. We intend
to retain any future earnings to finance the operation and expansion of our
business and do not anticipate declaring or paying cash dividends in the
foreseeable future. Payments of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion. In addition, our loan agreement with Silicon
Valley Bank prohibits the payment or declaration of dividends without its prior
written consent. Consequently, stockholders will need to sell shares of common
stock in order to realize a return on their investment, if any.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000 on
the following three bases:
o on an actual basis;
o on a pro forma basis to give effect to:
o the conversion of all outstanding shares of preferred stock into
common stock;
o the exercise of outstanding warrants to purchase 68,000 shares of
preferred stock at a weighted-average exercise price of $1.62 per
share and the conversion of such shares into 68,662 shares of
common stock; and
o the exercise of outstanding warrants to purchase 150,000 shares
of common stock at a weighted-average exercise price of $3.00 per
share, which by their terms expire or automatically convert
within 30 days of the completion of this offering.
o on a pro forma, as adjusted basis to give effect to the sale of
8,500,000 shares of common stock by us at an assumed initial public
offering price of $9.00 per share after deducting estimated
underwriting discounts and commissions and estimated offering
expenses.
You should read this table in conjunction with our financial statements and
the notes to our financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------------------------
ACTUAL PRO FORMA PRO FORMA,
AS ADJUSTED
------------ ------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
Capital lease obligations, less current portion..................... $ 239 $ 239 $ 239
Stockholders' equity:
Convertible Preferred Stock, issuable in series, $0.001 par value
per share, 25,000,000 shares authorized actual and pro forma;
5,000,000 shares, $0.001 par value per share, authorized pro
forma, as adjusted; 20,277,898, no shares and no shares issued
and outstanding actual, pro forma and pro forma as adjusted,
respectively..................................................... 37,298 -- --
Common Stock, 50,000,000 shares, $0.001 par value per share,
authorized, actual; 100,000,000 shares, $0.001 par value per
share, authorized, pro forma and pro forma, as adjusted;
12,115,824 shares, issued actual; 32,849,348 shares, issued pro
forma;
41,349,348 shares, issued and outstanding pro forma, as adjusted. 12 33 42
Additional paid-in-capital.......................................... 34,946 72,785 141,621
Note receivable from stockholder.................................... (169) (169) (169)
Deferred stock-based compensation................................... (4,728) (4,728) (4,728)
Accumulated deficit................................................. (42,563) (42,563) (42,563)
------------ ------------- --------------
Total stockholders' equity..................................... 24,796 25,358 94,203
------------ ------------- --------------
Total capitalization........................................... $ 25,035 $ 25,597 $ 94,442
============ ============= ==============
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of March 31, 2000, and excludes:
o 1,444,975 shares of common stock issuable upon exercise of stock
options outstanding as of March 31, 2000 at a weighted average
exercise price of $2.18 per share;
o 390,460 shares of common stock issuable upon the exercise of
outstanding warrants as of March 31, 2000 at a weighted average
exercise price of $2.31 per share;
o 330,576 shares of common stock issuable upon conversion of an
outstanding $1 million convertible promissory note, as of March 31,
2000;
o 8,750,000 shares of common stock reserved for issuance under our 2000
stock incentive plan that incorporates our 1997 stock option plan; and
o 250,000 shares of common stock reserved for issuance under our 2000
employee stock purchase plan.
For additional information regarding these shares, see "Executive Compensation
and other Information--Employee Benefit Plans," "Description of Capital Stock"
and Note 6 of Notes to Financial Statements.
23
<PAGE>
DILUTION
Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of common stock in the offering exceeds the net
tangible book value per share of common stock after the offering. The pro forma
net tangible book value per share of common stock is determined by subtracting
our total liabilities from the total book value of our tangible assets and
dividing the difference by the number of shares of common stock deemed to be
outstanding on the date of which such book value is determined.
Our pro forma net tangible book value at March 31, 2000, was
approximately $11.0 million, or $0.33 per share. After giving effect to the
conversion of all outstanding shares of preferred stock into common stock and
the sale of the shares of common stock offered by us at the assumed initial
public offering price of $9.00 per share, and after deducting underwriting
discounts and estimated offering expense, our pro forma net tangible book value
at March 31, 2000, would have been $79.8 million, or $1.93 per share. This
represents an immediate increase in net tangible book value of $1.60 per share
to existing stockholders and an immediate dilution of $7.07 per share to new
investors purchasing shares of our common stock in this offering. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................................ $9.00
Pro forma net tangible book value per share at March 31, 2000........................... $0.33
Pro forma increase per share attributable to new investors.............................. 1.60
-------
Pro forma net tangible book value per share after the offering............................. 1.93
------
Pro forma dilution per share to new investors.............................................. $7.07
======
</TABLE>
The following table summarizes, at March 31, 2000, on a pro forma basis,
the total number of shares and consideration paid to us and the average price
per share paid by existing stockholders and by new investors purchasing shares
of common stock in this offering at an assumed initial public offering price of
$9.00 per share before deducting the estimated underwriting discounts and
commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- --------- --------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 32,849,348 79.44% $ 60,696,717 44.24% $ 1.85
New investors............................... 8,500,000 20.56 76,500,000 55.76 9.00
------------- --------- --------------- --------- -------------
Total.................................... 41,349,348 100.0% $ 137,196,717 100.0%
============= ========= =============== =========
</TABLE>
The above computations are based on the number of shares of common stock
outstanding as of March 31, 2000 and excludes:
o 1,444,975 shares of common stock issuable upon exercise of stock
options outstanding as of March 31, 2000 at a weighted average exercise
price of $2.18 per share;
o 390,460 shares of common stock issuable upon the exercise of
outstanding warrants as of March 31, 2000 at a weighted average
exercise price of $2.31 per share;
o 330,576 shares of common stock issuable upon conversion of an
outstanding $1 million convertible promissory note, as of March 31,
2000;
o 8,750,000 shares of common stock reserved for issuance under our 2000
stock incentive plan that incorporates our 1997 stock option plan; and
o 250,000 shares of common stock reserved for issuance under our 2000
employee stock purchase plan.
To the extent that any of these options or warrants are exercised, there
could be further dilution to new investors. For additional information regarding
these shares, see "Capitalization," "Executive Compensation and other
Information--Employee Benefit Plans," "Description of Capital Stock" and Note 6
of Notes to Financial Statements.
24
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following selected financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The statement of operations data for the period from May 7,
1997 (inception) to December 31, 1997 and the years ended December 31, 1998 and
1999, and the balance sheet data as of December 31, 1998 and 1999, are derived
from the audited financial statements of Wireless, Inc. included elsewhere in
this prospectus. The statement of operations data for the quarters ended March
31, 1999 and 2000 and the balance sheet data as of March 31, 2000 are unaudited.
See Note 1 of Notes to Financial Statements for a detailed explanation of the
determination of the shares used to compute actual and pro forma basic and
diluted net loss per share. The historical results are not necessarily
indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1997
(INCEPTION),
TO
DECEMBER 31, YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
------------ ------------------------ ------------------------
1997 1998 1999 1999 2000
------------ ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 201 $ 11,172 $ 20,329 $ 6,276 $ 5,535
Cost of revenue............................ 421 9,091 15,357 3,759 4,564
------------ ---------- ----------- ----------- -----------
Gross profit (loss)................. (220) 2,081 4,972 2,517 971
------------ ---------- ----------- ----------- -----------
Operating expenses
Research and development................ 708 2,324 3,221 744 6,090
Sales and marketing..................... 902 3,811 7,443 1,863 2,015
General and administrative.............. 258 1,316 2,689 210 835
In-process research and development
costs acquired........................ -- 817 -- -- 7,600
Amortization of intangibles............. -- 359 1,102 194 777
Impairment of an intangible asset....... 1,500 -- -- -- --
Amortization of deferred stock
compensation*......................... 69 640 3,956 478 1,289
------------ ---------- ----------- ----------- -----------
Total operating expenses............ 3,438 9,267 18,411 3,489 18,606
------------ ---------- ----------- ----------- -----------
Operating loss............................. (3,658) (7,186) (13,439) (972) (17,635)
Interest expense (income), net............. (14) 290 427 60 (58)
------------ ---------- ----------- ----------- -----------
Net loss............................ $ (3,644) $ (7,476) $ (13,866) $ (1,032) $ (17,577)
============ ========== =========== ========== ===========
Net loss per share:
Basic and diluted....................... (**) $ (6.02) $ (4.18) $ (0.36) $ (2.17)
========== =========== ========== ===========
Weighted average number of shares used 1,242,617 3,316,344 2,844,902 8,081,497
in computation........................ ----------- ----------- ----------- -----------
Pro forma net loss per share (unaudited):
Pro forma basic and diluted loss........ $ (0.89) $ (0.62)
=========== ===========
Weighted average number of shares used 16,334,797 28,129,693
in computation........................
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
----------------------- ----------
1998 1999 2000
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 358 $ 1,140 $ 10,692
Working capital.......................................................... (4,174) 4,566 8,908
Total assets............................................................. 13,215 16,685 38,316
Capital lease obligations net of current portion......................... 84 239 239
Total stockholders' equity............................................... 662 8,882 24,796
</TABLE>
--------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31
-------------------------- ----------------------
1997 1998 1999 1999 2000
------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(*) Amortization of deferred compensation:
Cost of revenue................................... $ 13 $ 48 $ 253 $ 35 $ 82
Research and development.......................... 14 120 1,517 90 495
Sales and marketing............................... 19 81 513 61 167
General and administrative........................ 23 391 1,673 292 545
------ ------- ------- ----------- ---------
Total......................................... $ 69 $ 640 $3,956 $ 478 $ 1,289
====== ======= ======= ========== =========
</TABLE>
--------------
(**) net loss per share is not presented in the period from May 7, 1997
(inception) to December 31, 1997 as all common shares as of December 31,
1997 were unvested and subject to repurchase and, accordingly, are not
considered outstanding for the computations of net loss per share.
The pro forma financial data presented above reflects:
o the conversion of all outstanding shares of preferred stock into
common stock;
o the exercise of outstanding warrants to purchase 68,000 shares of
preferred stock at a weighted-average exercise price of $1.62 per
share and the conversion of the preferred shares into 68,662 shares of
common stock; and
o the exercise of outstanding warrants to purchase 150,000 shares of
common stock at a weighted-average exercise price of $3.00 per share,
which by their terms expire or automatically convert upon the
completion of this offering.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE
RELATED NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a global provider of broadband wireless access solutions that enable
Internet and communication service providers, telephone operating companies and
private network operators to deliver voice and high-speed data services to their
customers. We offer a line of wireless systems that connect end-users to public
and private telecommunication networks in domestic and international markets.
Our systems allow an Internet or communication service provider or enterprise to
rapidly install high-speed communications throughout a service area at a cost
generally lower than a comparable wired network.
Each of our systems allows end-users to transmit voice and data
simultaneously via Internet protocol, or IP, or asynchronous transfer mode, or
ATM, architectures, two leading industry standards for telecommunication
transport. Our broadband wireless access solutions address a wide range of
customer requirements in different markets, including:
o enabling Internet service providers to offer direct Internet access;
o rapidly installing new networks for communication service providers;
o supplementing telephone operating companies' existing wired networks;
o establishing communication networks in regions without existing
infrastructures; and
o establishing private corporate networks.
Our systems are available in a broad range of frequency assignments,
enabling us to address the different regulatory requirements of multiple
geographic markets.
We were incorporated in California on May 7, 1997 to develop advanced
wireless access communications systems for networking and telephony
interconnection solutions. In 1997, under a master distributor agreement with
Innova Corporation, later acquired by Digital Microwave Corporation, we
introduced the ADR series, a family of high capacity digital radios. All of our
1997 revenues and approximately 54% of our 1998 revenues and 25% of our 1999
revenues were derived from this distributor agreement. We subsequently renamed
the ADR series as the WAVENET TRANSPORT DX.
In 1998, we released our ACCESS series of point-to-point spread spectrum
digital radios under a license and technology transfer and manufacturing
agreement with Wi-LAN, Inc. We also introduced the N2-ACCESS series, a
point-to-point digital radio to offer a smaller, cost-competitive package for
cellular and personal communication services, or PCS, networks. We subsequently
renamed the N2-ACCESS series as the WAVENET LINK series.
On August 26, 1998 we acquired Multipoint Networks, Inc., a California
corporation. The acquisition was accounted for by the purchase method and is
included in our operating results from the date of acquisition forward.
Multipoint developed, manufactured and marketed point-to-point and
point-to-multipoint digital wireless radios for customers connecting lottery
terminals, bank automated teller machines, and point-of-service networks. Just
prior to the acquisition, Multipoint designed the WAVENET IP 2400. Initial
shipments of the WAVENET IP 2400 were made in early 1998. In May 1999, we
introduced the WAVENET IP 2458. We subsequently renamed the WAVENET IP series as
the WAVENET ACCESS series.
We market our products through our direct sales force, complemented by
indirect sales channels consisting of agents, distributors, resellers, system
integrators and value-added resellers. Sales to markets outside the United
States were $5.0 million, or 91% of total sales for the first quarter of 2000,
$17.7 million, or 87% of total sales for 1999, and $10.2 million, or 91% of
total sales, for 1998. All of our international sales are denominated in U.S.
dollars. We expect our sales to international customers to grow in absolute
dollars, however, we expect the percentage of international revenue to total
revenue to decline gradually over the foreseeable future. We expect that
international revenues, however, will likely continue to make up the majority of
our revenues.
27
<PAGE>
REVENUE. Revenue consists of product and service revenue. Product revenue
is recognized when all of the following occur:
o the product has been shipped;
o title and risk of loss have passed to the customer;
o we have the right to invoice the customer and collection of the
receivable is probable; and
o all pre-sales obligations have been fulfilled.
Service revenue is comprised principally of installation and system design
services and have not been material to date. Trial sales, reflecting sales of
demonstration equipment to customers, are made directly to the end users and are
not recognized as revenue until the trial has been completed and the product has
been accepted by the customer. Our product sales and services to date have
generally not been recurring, however, once a service provider purchases our
products we believe they are likely to buy additional products from us as they
expand their networks.
COST OF REVENUE. Cost of revenue consists of materials, manufacturing labor
and overhead, outsourced contract manufacturing costs and cost of acquiring
finished products from original equipment manufacturers.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and related personnel expenses, contract engineering
services, consulting fees, software development tools, and prototype expenses
related to the design, development, testing and enhancement of our products. All
research and development costs are expensed as incurred until technological
feasibility of the product is established. After technological feasibility is
established, material development costs are capitalized. To date, the period
between technological feasibility and general release of the product has been
short and development costs have been insignificant. Accordingly, we have
expensed all development costs. We expect these expenses to increase
significantly in the future as we seek to develop new products and enhance
existing products. A significant portion of the increase in research and
development expenses is expected to result from the contracting of independent
and third party research and development vendors in connection with the
development of our STARPORT system. See "Certain Transactions--Strategic
Relationship with TRW."
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and related personnel expenses of our sales agents and
direct sales force. In addition, sales and marketing expenses consist of travel,
trade show, advertising, promotional and public relations expenses. Also
included are costs related to testing and certifying our products to meet
regulatory requirements in various foreign countries. We intend to pursue sales
and marketing campaigns aggressively and therefore expect these expenses to
increase in the future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related personnel expenses for executive, accounting
and administrative personnel, as well as accounting and legal fees and other
general corporate expenses. As we add personnel and incur additional costs
related to the growth of our business and operating as a public company, we
expect that general and administrative expenses will also increase. We allocate
the total costs for information services and facilities to each functional area
that uses the information services and facilities based on our relative
headcount. These allocated costs include medical insurance premiums,
communication charges and rent and other facility-related costs.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. In connection with granting
stock options to our employees, directors and consultants, we recorded deferred
stock-based compensation totaling approximately $10.7 million through March 31,
2000. This amount represents the total difference between the exercise prices of
stock options and the deemed fair market value of the common stock for
accounting purposes on the date these stock options were granted or other
measurement dates. We revalue non-employee options on a quarterly basis and
record the resulting compensation expense on an accelerated basis. We have
recorded stock-based compensation expense of $0.6 million during the year ended
December 31, 1998, and approximately $4.0 million in 1999, and $1.3 million
during the quarter ended March 31, 2000, leaving $4.7 million to be amortized in
future periods.
INTEREST EXPENSE (INCOME), NET. Interest expense consists primarily of
interest expense paid on bank borrowings, short-term promissory notes from
investors and a $1.0 million convertible promissory note due on September 1,
2004 that bears interest at a fixed rate of 10% per annum. See "--Liquidity and
Capital Resources." Interest income consists of interest earned on excess cash.
Interest income represents interest earned on our invested cash equivalents.
28
<PAGE>
INCOME TAXES. We have incurred net losses in each quarter since our
inception. As of March 31, 2000, we had an accumulated deficit of $42.6 million.
Our net losses resulted from significantly higher manufacturing, marketing,
selling, service and research and development expenditures relative to our sales
levels. We expect to continue experiencing significant increases in operating
expenses, particularly in research and development and sales and marketing. As a
result, we expect to incur additional losses and continued negative cash flow
from operations for the foreseeable future.
We have not made a provision for federal or California state income taxes
for any period because we have incurred operating losses since inception. As of
March 31, 2000, we had approximately $30 million of net loss carryforwards for
federal income tax purposes and approximately $17 million of net loss
carryforwards for California state income tax purposes. Utilization of the net
operating loss carryforwards is subject to our ability to generate future
profits and, in addition, may be subject to annual limitations due to an
ownership change as defined in Section 382 of the Internal Revenue Code.
RESULTS OF OPERATIONS
The following table presents selected financial data for the periods
indicated as a percentage of total revenue.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1997
(INCEPTION), TO YEARS ENDED QUARTER ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------------- ------------------
1997 1998 1999 1999 2000
-------------- --------- -------- -------- --------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenue................................................. 100% 100% 100% 100% 100%
Cost of revenue........................................ 209.7 81.4 75.5 59.9 82.0
Gross profit (loss)................................. (109.7) 18.6 24.5 40.1 17.5
Operating expenses:
Research and development............................ 352.8 20.8 15.8 11.9 110.0
Sales and marketing................................. 449.3 34.1 36.6 29.7 36.4
General and administrative.......................... 128.7 11.8 13.2 3.4 15.1
In-process research and development costs acquired.. -- 7.3 -- -- 137.3
Amortization of intangibles......................... -- 3.2 5.4 3.1 14.0
Impairment of an intangible asset................... 747.3 -- -- -- --
Amortization of deferred stock compensation......... 34.4 5.7 19.5 7.6 23.3
Total operating expenses.......................... 1,712.5 82.9 90.6 55.6 336.2
Operating loss......................................... (1,822.2) (64.3) (66.1) (15.5) (318.6)
Interest expense (income), net......................... (6.9) 2.6 2.1 .9 (1.0)
Net loss............................................ (1,815.3)% (66.9)% (68.2)% (16.4)% (317.6)%
</TABLE>
29
<PAGE>
COMPARISON OF QUARTERS ENDED MARCH 31, 1999 AND 2000
REVENUE. Total revenue decreased from $6.3 million for the first quarter of
1999 to $5.5 million for the first quarter of 2000. The reduction was as a
result of increases in sales of approximately $1.0 million of WAVENET ACCESS
products and approximately $1.1 million of WAVENET LINK products offset by
reductions of approximately $0.2 million of WAVENET TRANSPORT products and $2.6
million in sales of legacy products. Sales for the first quarter of 1999
included a non-recurring sale of equipment to a single customer for which we
were a reseller accounting for approximately $1.5 million, or 24%, of our total
revenue for the first quarter of 1999. We anticipate sales of our WAVENET
ACCESS, WAVENET LINK and WAVENET TRANSPORT products to increase and sales of our
legacy products to remain the same or decline in the foreseeable future.
COST OF REVENUE AND GROSS PROFIT. Cost of revenue increased from $3.8
million for the first quarter of 1999 to $4.6 million in the first quarter of
2000. The increase of $0.8 million, or 20.7%, is principally attributable to
unfavorable manufacturing variances which more than offset the reduction in cost
of revenue attributable to a decrease in product sales. Gross profit as a
percentage of revenue was 40.1% for the first quarter of 1999 compared to 17.5%
for first quarter of 2000. The product mix in any quarter will vary depending on
the products and average selling price, and therefore, our cost of revenues will
fluctuate on a quarterly basis. We expect that cost of revenue as a percentage
of revenue will decline in future quarters and as a result our gross profit
margin will increase.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$0.7 million for the first quarter of 1999 to $6.1 million for the first quarter
of 2000. The increase of $5.3 million, or 718.6%, was primarily due to $4.7
million in contract research and development expense related to the development
of STARPORT. The remaining increase of $0.7 million was related to increases in
engineering staff and consulting expenses. As a percentage of revenue, research
and development expenses were 11.8% for the first quarter of 1999 compared to
110% for the first quarter of 2000. Research and development expenses are
expected to increase in absolute dollars on a quarterly basis in conjunction
with ongoing development of STARPORT and with the expansion of our engineering
staff to support the increasing number of research and development projects. We
expect research and development as a percentage of revenue to decline during the
balance of 2000.
SALES AND MARKETING. Sales and marketing expenses increased from $1.9
million for the first quarter of 1999 to $2.0 million for first quarter of 2000.
The increase of $0.2 million or 8.2%, was attributable primarily to the addition
of sales and marketing staff and related supporting expenses and partially
offset by the decrease of sales commissions on lower revenue. As a percentage of
revenue, sales and marketing expenses were 29.7% for the first quarter of 1999
compared to 36.4% for the first quarter of 2000. We expect sales and marketing
expenses to decline as a percentage of revenue during the balance of 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $0.2 million for the first quarter of 1999 to $0.8 million for the first
quarter of 2000. The increase of $0.6 million, or 297.0%, was due primarily to
increases in salaries related to additional staff and legal, accounting and
consulting expenses related to our transition to a publicly traded company. As a
percentage of revenue, general and administrative expense increased from 3.3%
for the first quarter of 1999 to 15.1% for the first quarter of 2000. Also
included in general and administrative expenses was a provision of $0.1 million
for potential bad debts in the first quarter of 2000. We expect general and
administrative expenses to increase both in absolute dollars and as a percentage
of revenue during the balance of 2000.
IN-PROCESS RESEARCH AND DEVELOPMENT COSTS ACQUIRED. In-process research and
development expense increased from zero in the first quarter of 1999 to $7.6
million for the first quarter of 2000. In January 2000, we entered into a
technology purchase and license agreement with TRW to acquire the rights to the
technology underlying our STARPORT product. STARPORT is currently in field
testing and is expected to provide broadband wireless Internet access to
residential, small office and home office customers.
We issued to TRW 3,429,352 shares of common stock valued at $5 per share
and made a commitment to pay TRW $2.5 million in cash to acquire the STARPORT
technology license. The amount allocated to intangible assets was $19.6 million
based on the fair market value of our common stock and the $2.5 million
commitment. We conducted an independent valuation of the acquired technology
which resulted in a $7.6 million allocation to in-process technology that was
immediately expensed. At the time of the agreement, the STARPORT technology was
an in-process technology under development for a number of years at TRW which
had not yet achieved technological feasibility, had no alternative future use
and was not expected to generate any significant sales for one to three years.
30
<PAGE>
The value of the purchased in-process technology was determined by
estimating the cost to develop the purchased in-process technology into a
commercially viable product. We estimated the resulting net cash flows from
STARPORT assuming an expected economic product life of 5 years, the revenue
generated in each future period and the corresponding operating expenses. These
cash flows were adjusted for taxes and charges related to fixed assets and
working capital. These cash flows were then discounted to their present value to
estimate the fair market value of the acquired in-process technology. The
technology was approximately 45% complete as of the acquisition date based on
the ratio of costs incurred to total development. A discount rate of 25% was
used for the in-process technology, reflecting a weighted average cost of
capital of 17% for industry-comparable companies and an 8% premium for
technological and market risk associated with commercializing the acquired
technology.
The estimated costs to be incurred to develop the purchased in-process
technology into commercially viable products were approximately $25-30 million
in the aggregate through 2001. We expected to begin realizing the benefit of the
purchased in-process technology during 2001 with estimated total revenues from
the purchased in-process technology expected to peak in its as-developed state
during 2004. The estimated selling, general and administrative costs were
expected to more closely approximate our future cost structure. These revenue
growth and ultimate earnings projections are only achievable based on the
assumption that we can commercialize and mass produce the purchased in-process
technology. In the event that we are unable to fully develop the technology into
a commercially viable product, our future financial performance and growth will
be harmed.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased from
$0.2 million for the first quarter of 1999 to $0.8 million for the first quarter
of 2000. Amortization expense during the first quarter of 1999 relates
specifically to intangible assets resulting from the acquisition of Multipoint
while for the first quarter of 2000, amortization of intangibles also includes
amortization of capitalized license and technology related to the TRW purchase
and license agreement.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred stock
compensation increased from $0.5 million during the first quarter of 1999 to
$1.3 million during the first quarter of 2000. The increase of $0.8 million, or
169.5%, is due to amortization associated with new options granted during 1999
and additional options granted during the first quarter of 2000 which were
subsequently determined to have been granted at below their deemed fair value.
INTEREST EXPENSE (INCOME), NET. Interest expense (income), net changed
slightly from a $59,600 expense during the first quarter of 1999 to income of
$58,100 during the first quarter of 2000.
COMPARISON OF PERIOD FROM INCEPTION TO DECEMBER 31, 1997 AND YEARS ENDED
DECEMBER 31, 1998 AND 1999
REVENUE. Total revenue increased from $0.2 million from inception through
December 31, 1997 to $11.2 million in 1998 and $20.3 million in 1999. The
increase in revenue in 1998 reflected the sale of our WAVENET TRANSPORT system
to a single large customer, the introduction of our WAVENET LINK series
point-to-point radios in September 1998 and the inclusion of revenue of
Multipoint from the date of acquisition on August 26, 1998. The increase in
revenue in 1999 was attributable to higher sales resulting from the introduction
of the WAVENET ACCESS 2458 and a full year of sales of our WAVENET LINK series
which contributed approximately $3.0 million and $2.4 million in sales,
respectively, in 1999. Sales of our legacy products contributed an incremental
$3.1 million in revenue in 1999, the majority of which related to a
non-recurring sale of equipment to a single customer of product for which we
were a reseller. In 1999, one customer, Celular de Telefonia, accounted for
approximately 14.5% of our revenues. No other customer represented over 10% of
our revenues in 1999. Approximately 57.4% of our revenues were derived from ten
customers in 1999. We expect that for the foreseeable future the majority of our
sales will be to fewer than 20 customers.
COST OF REVENUE. Cost of revenues from inception through December 31, 1997
represented mainly manufacturing overhead and the cost of equipment that we
resold. Cost of revenue increased from $0.4 million in 1997 to $9.1 million in
1998 and $15.4 million in 1999, primarily due to the related increase in
revenue. As a percentage of revenue, cost of revenue decreased from 209.7% to
81.4% and 75.5% during the same period, primarily due to a change in the mix of
products sold, the introduction of our WAVENET ACCESS 2458 and WAVENET LINK
families of systems and the distribution of manufacturing costs over a greater
number of units sold. Cost of revenue in 1999 included a provision of
approximately $1.5 million for inventory obsolescence related to the earlier
legacy products acquired from Multipoint.
31
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$0.7 million from inception through December 31, 1997 to $2.3 million in 1998
and $3.2 million in 1999. The increases in research and development expenses
were primarily attributable to the addition of engineering personnel and
associated support required to expand and enhance our product lines. Research
and development as a percentage of total revenues decreased from 352.8% in 1997
to 20.8% in 1998 and 15.8% in 1999.
SALES AND MARKETING. Sales and marketing expenses increased from $0.9
million from inception through December 31, 1997 to $3.8 million in 1998 and
$7.4 million in 1999. The increase in sales and marketing was related to the
expansion of our sales and marketing organization, trade show expenses and the
increase in commission expenses resulting from higher revenue. Sales and
marketing expense as a percentage of total revenue decreased from 449.3% in 1997
to 34.1% in 1998 and increased to 36.6% in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $0.3 million from inception through December 31, 1997 to $1.3 million in
1998 and $2.7 million in 1999 due primarily to increases in salaries and legal,
accounting and consulting expenses. Also included in general and administrative
expenses for 1999 was a one-time building lease termination charge of $0.2
million. We also made a provision for approximately $1.0 million for potential
bad debts in 1999. General and administrative expenses as a percentage of total
revenue decreased from 128.7% in 1997 to 11.8% in 1998 and increased to 13.2% in
1999.
IN-PROCESS RESEARCH AND DEVELOPMENT COSTS ACQUIRED. In-process research and
development of $0.8 million was fully expensed in 1998 upon acquisition as a
result of our determination that the acquired technology had not yet achieved
technological feasibility and that the technology did not have an alternative
future use.
On August 26, 1998, we acquired the net assets of Multipoint. Multipoint
was incorporated in California in 1987. It was expected that Multipoint's
wireless data communication products could be used for point-to-point or
point-to-multipoint networks with major applications in the rapidly growing
Internet market. The acquisition provided us with an opportunity to gain access
to additional technology and diversify our product line by adding wireless data
transmission capability to our telephony-based product offerings. WAVENET ACCESS
2400, jointly developed with WaveAccess, Inc., an Israeli company, was
Multipoint's first wireless point-to-multipoint router. At the time of
acquisition, a new product, WAVENET ACCESS 2458, was under development. WAVENET
ACCESS 2458 was designed to be the next generation, high-capacity
point-to-multipoint router with greater bandwidth than the existing WAVENET
ACCESS 2400.
The acquisition was accounted for using the purchase method of accounting.
The allocation of purchase price to in-process technology was determined based
upon a valuation conducted through an independent third-party appraisal. At the
time of the acquisition, WAVENET ACCESS 2458 had not yet achieved technology
feasibility and was not expected to generate any significant sales for one to
two years.
The value of the purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into a
commercially viable product, estimating the resulting net cash flows from
WAVENET ACCESS 2458 and related products and discounting the net cash flows back
to their present value. The technology was approximately 85% complete as of the
acquisition date. A discount rate of 25% was used for the developed technology
and 30% for the in-process technology. These rates of return reflected
Multipoint's historical results as of the acquisition date and the risks
associated with revenue growth and profitability. These rates of return were
also consistent with our overall weighted average cost of capital due to the
revenues attributable to future, as yet unidentified, products.
The estimated costs to be incurred to develop the purchased in-process
technology into commercially viable products were approximately $1.0 million in
the aggregate through 1999. We completed the development of WAVENET ACCESS 2458
in March 1999 with actual costs incurred since the acquisition of approximately
$0.8 million. We expected to begin realizing the benefit of the purchased
in-process research and development during 1999, with estimated total revenues
from the purchased in-process technology expected to peak in 2001 and decline
rapidly in 2002. Cost of sales as a percentage of revenues was expected to be in
the range of 40% to 45%. The estimated selling, general and administrative costs
were expected to more closely approximate our cost structure. These revenue
growth and ultimate earnings projections were only achievable based on the
assumptions that the purchased in-process technology could be further developed
by us and that Multipoint could benefit from our experience in the wireless
communications industry. In the event that we are unable to fully develop the
technology into a commercially viable product, our future financial performance
and growth will be harmed.
32
<PAGE>
AMORTIZATION OF INTANGIBLES. All recorded intangible assets through 1999
relate to the acquisition of Multipoint Networks, Inc. Amortization expense
associated with intangible assets was $0.4 million in 1998 and $1.1 million in
1999. As of December 31, 1999, the remaining balance to be amortized by the end
of 2003 was $3.1 million.
IMPAIRMENT OF AN INTANGIBLE ASSET. In 1997, we entered into a license and
technology transfer and manufacturing agreement with Wi-LAN, Inc. Under this
license agreement, Wi-LAN agreed to license and transfer technology to us in
exchange for 3,000,000 shares of our Series A preferred stock, valued at $0.50
per share. An asset worth $1.5 million was recorded for the licensed and
transferred technology. In 1997 we determined that the licensed and transferred
technology was not applicable to our needs. As such, we recorded an impairment
charge of $1.5 million related to this acquired technology. On June 3, 1998 the
license agreement was replaced by a new license agreement and a manufacturing
agreement. In February 2000, we terminated the manufacturing agreement due to a
discontinuance of the product line.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred stock
compensation increased from $0.1 million from inception through December 31,
1997 to $0.6 million in 1998 and $4.0 million in 1999. As of December 31, 1999,
the remaining balance to be amortized by the end of 2003 was $4.7 million.
INTEREST EXPENSE (INCOME), NET. Interest expense (income), net changed from
interest income of $14,000 from inception through December 31, 1997 to interest
expense of $0.3 million in 1998 and $0.4 million in 1999 reflecting increases in
various bridge financings from investors as well as utilization of bank credit
facilities.
QUARTERLY RESULTS OF OPERATIONS
Set forth below is our revenue for the eight quarters ended March 31, 2000.
This information should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- --------- --------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue... $1,705 $4,411 $4,059 $6,276 $3,230 $5,000 $5,823 $5,535
</TABLE>
Revenue for the third quarter of 1998 was $4.4 million, reflecting an
increase over second quarter 1998 principally related to the inclusion of
Multipoint's revenues commencing on August 26, 1998. Revenue for the first
quarter of 1999 was $6.3 million, significantly higher than 1998 fourth quarter
revenue of $4.1 million primarily due to the non-recurring resale of WAVENET
TRANSPORT and other legacy products to a single customer. Revenue for the second
quarter of 1999 was $3.2 million. The decrease from the first quarter of 1999
relates to a decrease in sales of our WAVENET TRANSPORT and other legacy
products due to a temporary decline in demand partially offset by an increase in
sales of WAVENET ACCESS products. The increase in revenue for the third quarter
of 1999 compared to the second quarter of 1999 relates to increases in sales
related to our WAVENET LINK and WAVENET TRANSPORT products. Our sales of WAVENET
LINK increased during this quarter due to the introduction of this product to
customers in Central America.
Our operating results have in the past, and may in the future, fluctuate on
a quarterly and annual basis as a result of various factors. These factors
include, among others:
o the size, timing and terms of customer orders;
o a decrease in the average selling prices of our systems due to
competition;
o the relatively long sales and development cycles for our systems;
o our ability to develop and market new systems;
o the ability to obtain regulatory approval of system installation in
foreign countries;
o the ability to reach and maintain required production volumes and
quality levels for our systems;
o general domestic and international economic conditions;
o market acceptance of our systems and our customers' services;
33
<PAGE>
o introduction of products and systems by our competitors;
o our ability to respond to fluctuations in customer order levels;
o the timing and provision of returns from our distributors; and
o whether our customers buy from a distributor, an original equipment
manufacturer or directly from us.
Therefore, we believe that period-to-period comparisons of our quarterly
operating results are not necessarily meaningful. You should not rely on them to
predict future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from sales of
our preferred stock totaling $37.3 million and other financing activities,
including a bank credit facility, convertible notes for working capital and
capital leases for the purchase of equipment.
Cash used by operating activities was $2.5 million during the first quarter
of 1999 and $4.7 million during the first quarter of 2000. The increase in cash
used by operating activities from the first quarter of 1999 to the first quarter
of 2000 resulted principally from additional net losses incurred, as adjusted
for non-cash items including amortization of deferred stock-based compensation,
in-process research and development and amortization of intangibles. The
increase in cash used by operating activities from the first quarter of 1999 to
the first quarter of 2000 also resulted from increases in accrued liabilities
principally related to accruals for expenses associated with inventory
purchases, costs associated with this offering and accruals related to work
performed by TRW as well as the $2.5 million liability to TRW payable upon
completion of our initial public offering. Cash used by operating activities was
$2.8 million during 1998 and $11.5 million during 1999. The increase in cash
used by operating activities from 1998 to 1999 resulted principally from
additional net losses incurred, an increase in accounts receivable from $3.7
million to $4.8 million, a decrease in accounts payable from $5.1 million to
$3.4 million and an increase in inventory from $3.8 million to $5.0 million. The
increase in accounts receivable reflects an increase in sales. The decrease in
accounts payable reflects an increase in cash payments to suppliers as a result
of bringing current our accounts payable. The increase in inventory levels
reflects anticipated higher sales levels. These increases in cash used by
operating activities are partially offset by non-cash charges such as
amortization of deferred stock compensation, amortization of intangibles and
depreciation and amortization of fixed assets.
Cash used by investing activities for the first quarter of 2000 was $0.5
million compared to cash provided by investing activities of $23,000 in the
first quarter of 1999. The increase in cash used by investing activities was due
to an increase in purchases of equipment principally related to the expansion of
our engineering facilities. Cash used by investing activities during 1999 was
$0.5 million compared with cash provided by investing activities of $0.1 million
in 1998. The decrease in cash flow from investing activities from 1998 to 1999
was primarily due to purchases of property and equipment, including computer
equipment, furniture, manufacturing fixtures, testing equipment and leasehold
improvements to our new facility in Santa Clara, California.
Cash provided by financing activities for the first quarter of 2000 was
$14.8 million compared to $2.8 million for the first quarter of 1999. The
increase was due principally to the sale of Series F preferred stock to TRW.
Cash provided by financing activities was $2.8 million in 1998 and $12.8 million
in 1999. The increase in cash flow provided by financing activities from 1998 to
1999 was primarily the result of $12.7 million in proceeds from the issuance of
common and preferred stock.
As of March 31, 2000 our liabilities included current liabilities of $13.3
million and non-current liabilities of $0.2 million. Our current liabilities
consisted principally of accounts payable and accrued expenses totaling $4.4
million which relate to services associated with the registration statement and
liabilities associated with inventory purchases. Our current liabilities also
include a liability to TRW for development services rendered through March 31,
2000 of approximately $4.7 million and a liability to reimburse TRW for $2.5
million upon the completion of our initial public offering. We currently operate
under a letter agreement with TRW which provides contract research and
development services to us on a time and materials basis. We expect our expenses
associated with TRW's efforts to increase significantly during the balance of
this year. See "Risk Factors--If the development of our STARPORT system is
materially delayed or fails to perform to customer expectations or if our
strategic relationship with TRW is terminated, our business and future growth
will be substantially harmed and we may lose our exclusive license to the
technology." Our ability to continue to utilize TRW for such services is
dependent upon our ability to raise sufficient financing. In the event that we
fail to raise such financing we might be required to
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significantly curtail TRW's development efforts which in turn would potentially
delay the completion and introduction of STARPORT. See "--Results of
Operations."
We generally commit to purchase products based on customer forecasts to be
delivered within the next 120 days. As of March 31, 2000, we have committed to
make purchases totaling $5 million from these manufacturers. In some instances,
we issue blanket purchase orders for specific quantities and delivery schedules
over 12 to 18 months to obtain price discounts. If we cancel the purchase order
before its term ends, we would be obligated for the difference between the
regular price and the discounted price plus the cost of components bought by the
manufacturer specifically for our products. Based on current sales projections,
we do not believe that we will incur any material obligations under these
purchase orders.
As of March 31, 2000, cash and cash equivalents were $10.7 million. We have
a $2.0 million bank credit facility with Silicon Valley Bank secured by
substantially all of our assets which is subject to certain restrictions
relating to eligible accounts receivable. Borrowings under this bank facility
accrue interest at the prime rate plus 2.5%. As of March 31, 2000, we had not
drawn against the bank credit facility and there is no outstanding balance due.
Our credit agreement expires on February 23, 2001. We have recently renegotiated
this line to extend the credit facility to $5.0 million; however, our ability to
access the additional $3.0 million requires us to either consummate an initial
public offering yielding net proceeds of at least $50 million or raise proceeds
of $10.0 million in equity or convertible debentures. In connection with the
renegotiation of this facility, we agreed to issue a warrant to Silicon Valley
Bank for the purchase of 37,500 shares of our common stock at an exercise price
of $4.00 per share if we did not complete an initial public offering before May
31, 2000. On June 1, 2000, this warrant was issued. We have issued a convertible
promissory note to AMT Capital, Ltd. for $1.0 million which matures on September
1, 2004 and bears interest at a fixed rate of 10% per annum. The note is
convertible at the option of AMT Capital Ltd. into Series E preferred stock at
$3.125 per share at any time at or prior to maturity. If the note is converted,
the holder will receive a warrant to purchase 32,000 shares of common stock at
$0.75 per share.
We have experienced a substantial increase in our expenditures since our
inception consistent with growth in our operations and personnel. We expect to
devote substantial additional resources to our research and development efforts,
our sales, support, and marketing organizations, establishing additional
facilities worldwide and building the infrastructure necessary to support our
current and future products, including our STARPORT system. We believe that the
net proceeds of this offering, together with cash and cash equivalents and funds
available under existing credit facilities will be sufficient to meet our
working capital requirements for at least the next 12 months. We may require
additional funds to support our working capital requirements or for other
purposes and may seek to raise additional funds through public or private equity
financings or from other sources. We have received capital commitments of $2.5
million each from Dynamics Technology, Inc., Gemini Investors LLC, Stratford
Equity Partners, L.P., Crossroads Venture Capital, LLC and TRW, Inc. Except for
Stratford Equity Partners, each of these entities is a 5% or greater stockholder
and is affiliated with a member of our board of directors. To date we have not
called upon these capital commitments. The $12.5 million in commitments, if
required, will be documented in the form of convertible promissory notes bearing
interest at a fixed rate of 10% per annum. If not prepaid, the notes will
convert into shares issued in our next round of equity financing of at least
$15.0 million. In connection with obtaining these commitments, we issued
warrants to purchase 10,000 shares of our common stock to each of these five
investors at a price of $4.00 per share and agreed to issue additional warrants
for 30,000 shares of our common stock to each of these five investors at the
then fair market value per share if the loan commitments are exercised, for each
$2,500,000 borrowed. These warrants expire upon the earlier of 5 years or 30
days after the consummation of an initial public offering. We do not know
whether additional financing will be available on acceptable terms, if at all.
In addition, although there are no present understandings, commitments or
agreements with respect to acquisitions of other businesses, products or
technologies, we may, from time to time evaluate these acquisitions. In order to
consummate potential acquisitions, we may issue additional securities or need
additional equity or debt financing and any financing we undertake may be
dilutive to existing investors.
YEAR 2000 COMPLIANCE
In August 1998, we initiated a year 2000 compliance program. The program
was directed by our Director of Management Information Systems and included an
intra-company task force with members from each of our principal departments,
including accounting, engineering, manufacturing, sales and marketing. The task
force was charged with identifying areas of potential risk within each
department and making evaluations, modifications, upgrades or replacements, as
appropriate.
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With the change of the new year, we experienced no major problems
associated with year 2000. The year 2000 task force continued to monitor the
hardware and software systems used until February 2000. After February, the task
force no longer proactively monitored systems and concluded that we met all year
2000 compliance standards. As an ongoing effort, we will continue to upgrade
hardware and software systems to cut costs and improve performance.
Despite our efforts and our experience with year 2000 so far, we may
discover year 2000 compliance problems in our systems that will require
substantial revision. In addition, third-party software, hardware and services
incorporated into our information systems may need to be revised or replaced,
all of which could be time-consuming and expensive and result in the following,
any of which could adversely affect our business, financial condition and
results of operations:
o delay or loss of revenue;
o cancellation of customer contracts;
o diversion of development resources;
o damage to our reputation;
o increased service and warranty costs; and
o litigation costs.
Our failure to fix or replace third-party software, hardware or services on
a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. For
a derivative not designated as a hedging instrument, changes in the fair value
of the derivative are recognized in earnings in the period of change. This
statement will be effective for all annual and interim periods beginning after
January 1, 2001. We do not believe the adoption of SFAS No. 133 will have a
material effect on our financial position or results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and sell such products in North,
Central and South America, Africa, Asia and Europe. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. As all sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
products less competitive in foreign markets. We do not use derivative
instruments to hedge our foreign exchange risk. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the nature of
our short-term investments, we have concluded that there is no material market
risk exposure. Therefore, no quantitative tabular disclosures are required.
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BUSINESS
OVERVIEW
We are a global provider of broadband wireless access solutions that
enable Internet and communication service providers, telephone operating
companies and private network operators to deliver voice and high-speed data
services to their customers. We provide a line of wireless systems that connect
end-users to public and private telecommunication networks in domestic and
international markets. Our systems allow an Internet or communication service
provider or enterprise to rapidly install high-speed communications throughout a
service area at a lower cost than a comparable wired network. More than 200
customers in over 50 countries have purchased and installed our systems.
Our line of systems allows end-users to transmit voice and data
simultaneously via Internet protocol, or IP, or asynchronous transfer mode, or
ATM, architectures, two leading industry standards for telecommunication
transport. Our broadband wireless access solutions address a wide range of
applications in different markets, including:
o enabling Internet service providers to offer direct Internet access;
o rapidly installing new networks for communication service providers;
o supplementing telephone operating companies' existing wired networks;
o establishing communication networks in regions without existing
infrastructures; and
o establishing private corporate networks.
Our systems are available in a broad range of frequency assignments,
enabling us to address the different regulatory requirements of multiple
geographic markets. Our systems operate in both licensed and license-exempt
frequency assignments. A licensed frequency assignment requires that prior to
installing our systems the operator obtain a conditional license from the
appropriate regulatory body for a specific frequency allocation. We have systems
installed and operating in Argentina, Brazil, Chile, China, Mexico, Panama, the
Philippines, Poland and the United States. In 1999 and the first quarter of
2000, 87% and 90% of our revenues, respectively, were derived from outside the
United States. Our global service organization provides customer support 24
hours per day, 7 days a week and offers network design and installation services
as part of our wireless solution.
INDUSTRY BACKGROUND
THE DEMAND FOR HIGH-SPEED NETWORK ACCESS
As the Internet and public and private communication networks have become
essential for communication, electronic commerce and information exchange, the
volume of voice and high-speed data traffic worldwide has increased
dramatically. In addition, user applications, such as electronic mail,
telecommuting and business-to-business exchanges have further increased the
amount of network traffic. This increase in network traffic has resulted in a
demand for greater transmission capacity, or bandwidth, and high-speed, or
broadband services to support it.
Bandwidth limitations between service providers' central offices and
end-users, often referred to as the last mile bottleneck, have constrained
service providers from delivering broadband services to the end-user. We believe
that traditional dial-up modem technology is insufficient to support the growth
in network traffic and demand for high-speed data transmission. Although wired
access network infrastructures using cable, digital subscriber line, or DSL, and
fiber optic systems can deliver greater bandwidth than that provided by dial-up
modem technology, these systems are not universally available to end-users. This
last mile bottleneck is frustrating a broad base of business, residential and
small office/home office users, many of whom require high-speed access to data.
WIRED SOLUTIONS
The demand for broadband access continues to accelerate, pressuring
service providers to improve and expand existing wired infrastructures. Wired
broadband access solutions that are intended to address this demand
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include cable modem service, DSL and fiber optic technology. Often, these
technologies require a trained installation technician and are characterized by
a lengthy implementation process.
COAXIAL CABLE MODEM. Coaxial cable modem technology is currently the most
common wired solution for broadband network access. The cable solution is
limited in its effectiveness, however, because:
o performance deteriorates as more subscribers are added because the
users share a common transmission medium;
o performance difficulties worsen as users transmit more data because
transmission capacity has been allocated primarily to receiving data,
or downstream transmission, and cannot be easily reallocated to
transmitting data, or upstream transmission;
o there are inherent privacy limitations because all users share a common
link rather than using an individual link; and
o the current infrastructure is primarily geared towards residential
service, and is unavailable to most business customers.
DSL. DSL service is delivered over existing copper-based wired
infrastructure and is gaining wide acceptance by both residential and business
markets for high-speed Internet access. However, DSL service is limited in its
effectiveness because:
o the length and quality of available copper wires limit transmission
rates;
o the condition of many of the copper lines between the subscriber and
central office prohibits the use of DSL technology; and
o federally mandated regulations require service providers who upgrade
their copper-based infrastructures to offer competing service providers
access to their upgraded infrastructures. As a result, service
providers are reluctant to upgrade their infrastructures, and copper
wire infrastructures are not keeping pace with the increase in demand
for high-speed Internet access.
FIBER OPTIC. Fiber optic transmission systems offer far greater
transmission rates than either cable modem or DSL service offerings. Although
many wide-area networks have been upgraded to fiber optic cable, fiber optic
technology is not a cost effective last-mile broadband access solution due to
its high installation cost. Similarly, dedicated leased lines providing high
speed Internet access, such as T-1 lines, also have high installation costs that
deter most business customers from pursuing them.
WIRELESS SOLUTIONS
Non-movable, or fixed, broadband wireless access technology can solve
many of the problems imposed by wired networks. Broadband wireless technology
enables rapid implementation of high-speed network access in a cost-effective
manner relative to wired networks. We believe that wireless network providers
should be able to gain a greater share of the network access market because,
unlike wired network providers, they are not required by federal law to share
their wireless networks with competing service providers. A broadband wireless
network is often the best option for high-speed communication in remote areas
and in many developing countries due to the lack of an existing wired
infrastructure. In these regions, wireless technologies provide clear advantages
over wired networks, including lower cost, faster installation, greater
flexibility and increased reliability.
Broadband wireless technologies are classified as either point-to-point
or point-to-multipoint:
POINT-TO-POINT. Point-to-point wireless technology is used to
transport data traffic from one location to another, typically in local
distribution applications. Point-to-point wireless systems can
interconnect high-speed data networks between buildings or facilities
within the same metropolitan area. However, implementing a large wireless
network based on point-to-point technology becomes costly and cumbersome
as the number of locations increases. As a result, this technology is not
practical for interconnecting a large number of buildings or facilities.
POINT-TO-MULTIPOINT. Point-to-multipoint wireless technology is
used to interconnect a large number of facilities in a relatively small
geographic area. Point-to-multipoint wireless technology overcomes the
limitations of point-to-point technology by designating a single radio
transceiver as the central base station.
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The base station uses a radio protocol to control and manage end-user
devices so that data is transmitted and received among multiple locations
with minimal interference. An area served by a single base station is
often referred to as a cell. In order to serve a larger geographic region
and a larger number of facilities, multiple cells are interconnected
using point-to-point technology. As a result, point-to-multipoint systems
are combined with point-to-point technology to deliver broadband wireless
access service to a large geographic area.
Historically, most broadband wireless manufacturers focused on delivering
either point-to-multipoint or point-to-point systems. Few companies have merged
both technologies to deliver a single broadband wireless access solution for
large geographic areas that meets the needs of business and residential
end-users over the last mile. The absence of a single broadband wireless
solution is magnified internationally, where the lack of wire-based
infrastructure and the prohibitive costs associated with building new wired
infrastructure render wireless broadband technology the economically feasible
alternative for high-speed network access. We believe that in order to serve the
global broadband wireless access market, a network solution must integrate
point-to-multipoint and point-to-point technologies on a cost-effective basis.
In addition, a solution must be certified by the applicable regulatory agencies
for installation domestically and internationally.
OUR SOLUTION
Our line of broadband wireless access systems includes
point-to-multipoint and point-to-point wireless products that connect end-users
to the Internet and public and private communication networks. Our systems allow
a service provider to offer high-speed network access to the end-user as a
cost-effective alternative to wired services. These systems assure service
providers a quick time-to-market by permitting rapid installation of complete
high-speed communication networks. In addition, we design our systems to be
compliant with domestic and international standards. We incorporate a worldwide
service organization that provides customer support 24 hours a day, 7 days a
week and offers network design and installation services.
The following describes the key benefits of our broadband wireless access
solution:
COST-EFFECTIVE DESIGN AND IMPLEMENTATION. Our systems provide a
cost-effective combination of point-to-multipoint broadband wireless
access and high-speed point-to-point voice and data transmission.
RAPID INSTALLATION. Our systems are shipped off-the-shelf and are
easy to install. We believe that our systems are reliable. Our
license-exempt products do not require frequency coordination or
licensing, eliminating many of the time-consuming processes required in
planning, coordinating and installing traditional radio technology.
License-exempt operation permits rapid installation to meet customer
demand for broadband wireless access.
SCALABILITY. Our systems are scalable. As more users are added to a
network, a central base station that may have initially been equipped
with a single transmitter can be easily upgraded to accommodate up to ten
transmitters.
REMOTE MANAGEMENT. Our standard network management applications
include a simple network management protocol and a secure Web-based
browser interface. These interfaces allow the system to be managed and
administered remotely through the Internet.
NETWORK COMPATIBILITY. Our wireless systems provide built-in
routing and support industry standard protocols that allow data to be
transported at carrier-quality standards.
Our systems address a broad range of applications in different markets.
Examples of these applications include:
o ENABLING INTERNET SERVICE PROVIDERS TO OFFER DIRECT INTERNET ACCESS.
Digital Wireless Communications, a wireless Internet service provider
based in Savannah, Georgia, focuses on delivering high-speed Internet
service to the small office and home office marketplace. Our WAVENET
LINK product permits Digital Wireless Communications to establish
direct Internet access for its customers. This eliminates the need to
coordinate line access with the incumbent communication service
provider and enables faster availability of services to its customers.
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o RAPIDLY INSTALLING NEW NETWORKS FOR COMMUNICATION SERVICE PROVIDERS.
Central City Online, also known as EZNET Total Access, an Internet
service provider based in Huntington, West Virginia, uses our WAVENET
wireless systems to provide high-speed Internet access in direct
competition with the incumbent communication service provider. Our
WAVENET systems were used by EZNET to become a competitive high-speed
wireless Internet service provider in West Virginia. EZNET is in the
process of launching wireless services across nine states encompassing
the mid-Atlantic region.
o SUPPLEMENTING TELEPHONE OPERATING COMPANIES' EXISTING WIRED NETWORKS.
Northern Indiana Telephone Company, or NetNITCO, was unable to meet
customer demand for high-speed Internet access due to limitations in
copper-based DSL. Our WAVENET ACCESS system enabled NetNITCO to provide
high-speed data services to its entire service area.
o ESTABLISHING COMMUNICATION NETWORKS IN REGIONS WITHOUT EXISTING
INFRASTRUCTURES. In many parts of the world, communication networks are
incapable of supporting the increasing amount of high-speed data
traffic due to inadequate or poorly maintained equipment. Netcom, S.A.,
a communication service provider based in Haiti, determined that
reliable dial-up service was not available in Haiti. By installing our
WAVENET broadband wireless system, Netcom is now able to supply its
Haitian customers with reliable high-speed data services.
STRATEGY
Our goal is to be the global broadband wireless access solution for
Internet and communication service providers, telephone operating companies and
private network operators. Our strategy for achieving this goal includes the
following core elements:
INTRODUCING NEW BROADBAND WIRELESS ACCESS TECHNOLOGIES. We are
devoting substantial resources to the development of new
point-to-multipoint broadband wireless access technologies. For example,
this year we expect to introduce STARPORT, a broadband access system
designed for the residential, small office and home office markets. Also
this year, we expect to begin shipping the WAVENET ACCESS 3500, a
point-to-multipoint system designed exclusively for use in the licensed
spectrum in the international market.
LEVERAGING STRATEGIC RELATIONSHIPS. We have entered into a
strategic relationship with TRW which provides us with technology that we
use in our STARPORT system. We anticipate forming strategic relationships
with additional partners to market and sell STARPORT into the
residential, small office and home office markets. These partners may
include Internet and communication service providers and telephone
operating companies. We intend to leverage these relationships in order
to develop a global market for STARPORT once the system is completed. In
the future we may enter into additional strategic relationships to
enhance existing or develop new market opportunities.
EXPANDING GLOBAL MARKET PRESENCE. We intend to add additional
direct sales and sales support resources within the United States and to
increase our direct sales presence in Europe, Asia and Latin America. In
addition to expanding our field sales and systems engineering forces, we
intend to continue to build additional sales channels, both in the United
States and international markets, to expand the distribution of our
products. We expect to continue to establish distribution relationships
with service providers, distributors and value-added resellers to further
penetrate our target markets.
EMPHASIZING RESEARCH AND DEVELOPMENT. We have invested significant
resources in research and development, particularly in the areas of radio
frequency engineering, software and network protocol development. We
intend to increase our investment in research and development
substantially in order to maintain and enhance our technological
position. By building on our expertise in developing broadband wireless
access technology, we intend to develop high-performance product lines
that will address the needs of global wireless broadband markets.
CONTINUING TO DELIVER HIGH-QUALITY CUSTOMER SERVICE AND SUPPORT. We
provide pre- and post-installation support, with 24 hours per day, 7 days
a week coverage on a global basis. We are committed to providing
exceptional service, and we intend to continually enhance our customer
service and support capabilities in order to address the needs of
existing and new markets.
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TECHNOLOGY
We believe that we have industry-leading multidisciplinary expertise in
the development of broadband wireless access solutions and that our products
incorporate several technologies that provide us with advantages relative to our
competitors.
POINT-TO-MULTIPOINT PROTOCOLS. We have applied our software design
expertise to develop robust point-to-multipoint networking protocols that
allow multiple users to have access in a radio environment without
interfering with each other. We have implemented a sophisticated set of
software resources, including digital signal processing, network routing
and network management, to address many of the unique challenges of
wireless environments. Some of these challenges include interference,
signal fading, path obstructions, signal absorption, security, capacity
requirements and shared operations with other radio systems.
SPREAD SPECTRUM TECHNOLOGY. Spread spectrum transmission is a
method whereby the original signal is spread over a wide range of
frequencies so that the original signal is difficult to detect and is
very resistant to interference from other signals. Some of our WAVENET
ACCESS systems use a form of radio transmission technology known as
frequency hopping spread spectrum. In frequency hopping, the transmitter
sends at one frequency for a period of time and then hops to another
frequency and sends again with the original signal being decoded at the
receiving end. Our STARPORT system uses a form of radio transmission
technology known as direct sequence spread spectrum, a technique that
combines an information signal with a pseudo-random signal to produce a
final signal significantly greater in bandwidth than the original
information signal, with improved interference resistance. We believe
that our STARPORT system will deliver extremely reliable operation in
situations where other wireless-based technologies might suffer from
degraded performance.
IP-OVER-ATM. Our STARPORT systems employ Internet protocol, or IP,
over asynchronous transfer mode, or ATM, transport. IP is the leading
industry standard for data transmission within the information technology
sector and is typically used by Internet access providers to transmit
data over the Internet. ATM is the preferred telecommunications industry
standard for switching and transmission of voice and data, and is
typically used by telephone operating companies in their networks.
IP-over-ATM transport is a method for carrying IP traffic over ATM
networks. We offer solutions based on IP, ATM and IP-over-ATM transport,
allowing us to market our products to both Internet service providers and
telephone operating companies with minimum disruption to their network
architectures.
ROUTER-BASED WIRELESS NETWORKS. We use a router-based architecture
for our WAVENET ACCESS wireless systems, versus many of our competitors
who use bridge-based architectures. The advantages of routing systems
include scalability, control and security. Unlike bridge-based systems
where IP traffic is bridged to all network nodes, in a router-based
system, IP traffic is routed to desired locations eliminating excess
broadcast traffic. By reducing the excess broadcast traffic, our
router-based systems greatly improve the bandwidth efficiency of our
networks in comparison to systems that do not have internal router
capability.
DIGITAL COMMUNICATION TECHNOLOGY. Our strategic relationship with
TRW provides us with access to advanced digital communication technology,
including innovative protocols, algorithms and digital signal processing.
Scientific technology licensed to us by TRW as part of the STARPORT
initiative includes direct sequence spread spectrum waveforms, multiple
access control schemes, quality of service mechanisms and element
management interfaces.
WEB-BASED NETWORK MANAGEMENT. Our products come with WIRELESS
NETMANAGER, a secure Web-based network management system that gives our
clients the ability to easily manage their networks, download software
upgrades, and change or configure software parameters. Additionally,
WIRELESS NETMANAGER allows us to access and analyze our customers'
systems from any location through the Internet, giving us the ability to
provide remote customer support to clients, 24 hours per day, 7 days a
week.
PRODUCTS
We manufacture a complete suite of broadband wireless access systems that
provide point-to-multipoint, point-to-point and high-capacity transport. Our
systems provide IP and ATM transport via wireless broadband service for
high-speed network access. These systems are designed as an alternative to
copper-based DSL or cable-based broadband technologies and allow a service
provider to rapidly install high-speed access throughout a
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service area. Our technology enables service providers to respond quickly to
meet the demand for high-speed network access, and allows businesses to build
high-performance wireless networks to supplement wired offerings from service
providers. We also offer high-capacity products to transport traffic from a
central base station to a service provider's network. In addition, we
manufacture peripheral products that complete our total network solution.
WAVENET
Our WAVENET broadband wireless access series is a family of systems
providing broadband wireless access using point-to-multipoint, point-to-point
and high-capacity transport technology that can transmit data over distances of
up to 20 miles. These systems allow a service provider to offer broadband
wireless access as an economic alternative to cable, DSL and fiber optic
technologies. This series includes the following products:
WAVENET ACCESS. Our WAVENET ACCESS point-to-multipoint system
interconnects a large number of facilities in a relatively small area. In
order to serve a larger geographic region and a larger number of
facilities, multiple WAVENET ACCESS systems are interconnected using
point-to-point technology. Connection into the end user's local area
network from the remote WAVENET ACCESS terminal is accomplished through
an industry standard Ethernet cable.
o WAVENET ACCESS 3500. The WAVENET ACCESS 3500, which is currently
under development, will operate in the international 3.5
gigahertz, or GHz, band currently accepted as the preferred
frequency assignment for fixed broadband radio access. Once
completed, up to 3.25 Mbps of throughput will be available to the
user. Central base stations will be able to be scaled to support
transmission rates from 2 Mbps to 26 Mbps. This system is being
specifically designed for point-to-multipoint applications in
markets outside the United States.
o WAVENET ACCESS 2458. The WAVENET ACCESS 2458 operates as a full
duplex radio by using both the 2.4 GHz and 5.8 GHz license-exempt
bands. Using the 2.4 GHz band for downstream transmission and the
5.8 GHz band for upstream transmission provides a unique solution
in high interference environments. Up to 1.2 Mbps throughput is
available to each user. Central base stations can be scaled to
support transmission rates from 1 to 7 Mbps. This system is
designed for point-to-multipoint applications in the United
States and selected international markets.
o WAVENET ACCESS 2400. The WAVENET ACCESS 2400 operates in the 2.4
GHz license-exempt band and is European Telecommunications
Standards Institute, or ETSI-approved. With user throughput of up
to 1 Mbps and central base stations which are scaled to support
transmission rates of up to 10 Mbps, it allows an economical
alternative to T-1 and other dedicated leased lines.
WAVENET LINK. The WAVENET LINK series is a family of point-to-point
products using the license-exempt 5 GHz band, available in the United
States and in an increasing number of other countries. Our WAVENET LINK
system transports data traffic from one location to another, typically in
local distribution applications. Our WAVENET LINK systems can
interconnect high-speed data networks between buildings or facilities
within the same metropolitan area and are characterized by low end-to-end
signal delay, ease of installation and simplicity in use.
o WAVENET LINK EX. The WAVENET LINK EX is a cost-effective product
capable of transporting up to 16 Mbps over a distance of up to 10
miles. The radio is mounted outdoors, close to the antenna, to
minimize transmission losses, and is connected to the user's
local access network or in-building distribution system with an
industry standard Ethernet cable. Although primarily used in
point-to-point applications, the product can be used to implement
a point-to-multipoint system with a 100 Mbps effective central
base station capacity and a 16 Mbps user throughput.
o WAVENET LINK 4X. The WAVENET LINK 4X provides a cost-effective
solution for access requirements as well as cellular base station
connectivity with capacities of up to 4 x 2.048 Mbps. This system
features an embedded simple network management protocol. The
indoor unit, or IDU, provides all user interfaces including 2.048
Mbps ports, simple network management protocol access and
external alarm input.
WAVENET TRANSPORT. Our WAVENET TRANSPORT high-capacity wireless
systems are similar to our point-to-point systems but provide
considerably higher data transport rates. These systems transfer
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aggregated traffic between base stations and service providers' backbone
systems. Like our point-to-point systems, our WAVENET TRANSPORT systems
are characterized by low end-to-end signal delay and simple installation.
o WAVENET TRANSPORT DX. The WAVENET TRANSPORT DX series is a family
of licensed digital microwave radios operating from 13 to 38 GHz,
with digital capacities of up to 34 Mbps. This system is targeted
toward high-speed data transport in selected international
markets.
o WAVENET TRANSPORT MX. The WAVENET TRANSPORT MX is a line-of-sight
digital radio transmission solution operating in millimeter wave
frequency bands for voice, high-speed data, Internet and video
traffic. The WAVENET TRANSPORT MX supports extensive scalable
data rates up to 100 Mbps.
STARPORT
We are currently testing in the field a new system called STARPORT,
which, once the system is completed, we intend to commercially introduce during
2000. STARPORT is a point-to-multipoint broadband wireless access system that
does not require a line-of-sight between transmission and reception points and
supports high-speed IP-over-ATM traffic. The current architecture supports
operation in the 5.8 GHz license-exempt frequency band and we expect future
development to support operation in additional frequency bands. STARPORT is
designed as a cost-effective alternative to wire-based cable, DSL or fiber-optic
technologies and is intended to allow a service provider to rapidly supply
services, such as high-speed Internet access, throughout a service area.
STARPORT is designed to be installed by the consumer without the need for the
communication service provider to supply a professional technician. STARPORT
consists of base station units and customer premises units. STARPORT is
specifically designed for the residential, small office/home office markets. We
expect that the consumer will be able to connect an interface cable from
STARPORT to a personal computer and then automatically receive broadband service
at data rates comparable to typical DSL service. The base station units can
support data rates of up to 4.3 Mbps per end-user. STARPORT uses ATM-based
network architecture allowing communication service providers to deliver
bandwidth on demand to their end-users. The technology used in this system is
licensed from TRW, Inc. and is subject to certain restrictions. See "--Strategic
Relationship with TRW" and "Certain Transactions--StrategiC Relationship with
TRW."
LEGACY PRODUCTS
Multipoint developed, manufactured and marketed point-to-point and
point-to multipoint network products, called the RAN series, prior to its
acquisition by Wireless, Inc. The RAN 64/25 and 128/50 are licensed wireless
systems for low data rate connectivity. The RAN 64/25 and 128/50 support a 64
kilobit per second, or kbps, data circuit in a 25 kilohertz, or kHz, radio
channel or a 128 kbps data circuit in a 50 kHz radio channel, respectively.
These systems are typically used to support low-speed traditional data networks,
such as automated teller machine networks.
CUSTOMERS
We have a globally diversified customer base consisting of Internet and
communication service providers, telephone operating companies and private
network operators. During the 12-month period ended December 31, 1999, 49
customers purchased more than $100,000 each of our products and 8 customers
purchased more than $500,000 each of our products.
SALES AND MARKETING
We market our systems and services globally through our direct sales
force and through a distribution network. We have sales and service offices
located in the United States, Europe, Latin America and Asia. Our distribution
network includes the following channels: systems integrators and distributors,
value added resellers, telephone operating companies and Internet and
communication service providers.
Our direct sales managers provide support to all of the distribution
channels in their geographic territories. They work closely with our channel
partners, participating in end-user briefings, proposals, product training
sessions, end-user seminars, trade shows and other demand-generating activities.
In addition, in partnership with our indirect channels, our direct sales
managers are involved in generating and qualifying end-user leads that result in
sales.
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Our distributors are responsible for identifying potential business
customers, selling our systems as part of complete solutions and installing and
supporting the equipment at end-user sites. We generally establish relationships
with distributors through written agreements that provide pricing, terms and
conditions under which they may purchase our systems for resale. These
agreements are generally non-exclusive, may be terminated at will and do not
prevent these distributors from carrying competing lines or require them to
attain specific sales levels. We provide significant sales, marketing, training
and technical support to our distributors.
CUSTOMER SUPPORT
We complement our products with a worldwide service organization that
provides product support, network and radio system design, turnkey installation,
maintenance and field engineering. Our distributors are typically responsible
for installation, maintenance and support services to their customers, and we
offer our distributors assistance in providing customer service and support 24
hours per day, 7 days a week.
We offer a 12-month warranty on our systems and provide both in-warranty
and out-of-warranty repair and return services. Tracking of field returns is
handled by our on-line return material authorization system. Our manufacturing
department uses an on-line material control system allowing us to track product
and customer trends and history.
Our customer service department also issues technical support notes,
customer service bulletins, and field support notes to keep our customers and
distributors apprised of any changes, issues or concerns regarding product
performance or need for upgrades.
RESEARCH AND DEVELOPMENT
We have assembled a team of engineers with significant telecommunications
and networking industry experience. Our engineers have expertise in radio
design, wireless networking protocols, data networking, hardware and software.
Our current product development plans focus on the commercialization of
our STARPORT point-to-multipoint system and other next generation systems. We
use digital signal processors and other digital components to reduce the cost of
our systems.
We have made, and will continue to make, a substantial investment in
research and development. We believe that our research and development efforts
are key to our ability to maintain technical competitiveness and to deliver
innovative products that address the needs of the market. However, our product
development efforts may not result in commercially successful products and may
be rendered obsolete by changing technology or new product announcements by
other companies.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely upon a combination of patents, trademarks, trade secrets,
copyrights and a variety of other measures to protect our intellectual property.
We currently hold two U.S. patents and have two patent applications pending
before the U.S. Patent and Trademark Office relating to our point-to-point
wireless networking technology. We also share ownership of two patent
applications pending before the U.S. Patent and Trademark Office, obtained under
a purchase and license agreement with TRW, relating to our STARPORT
point-to-multipoint wireless networking technology. In addition, under the
purchase and license agreement with TRW, we obtained rights in technology in the
field of wireless communications systems that may lead to additional patent
applications. We currently also have registered trademarks for the marks
"WAVENET," and "RAN" and applications pending before the U.S. Patent and
Trademark Office for additional marks, including "STARPORT," and the Wireless
logo. Although we rely on patent, copyright, trade secret and trademark laws to
protect our technology, we believe that factors such as the technological and
creative skill of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are more essential to establishing
and maintaining technology leadership position.
We generally enter into confidentiality or license agreements with our
employees, consultants, service providers, customers and corporations with whom
we have strategic relationships, and generally control access to and
distribution of our software, documentation and other proprietary information.
In addition, we often incorporate the network designs of our customers into our
solutions and have obligations with respect to the use and disclosure of this
information.
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We rely on licensed technology for use in our broadband wireless access
systems. We may not be able to maintain these licensing arrangements, or we may
be unable to maintain them on affordable terms. If these license agreements were
not renewed, our business would be severely harmed, and we would not be able to
ship product for the broadband wireless access market. See "Risk Factors--We
depend upon technology licensed from third parties, and if we do not maintain
these license arrangements, our business will be seriously harmed."
The market for broadband wireless access products and systems is
characterized by vigorous protection and pursuit of intellectual property
rights. From time to time, we may receive notice of claims of infringement of
other parties' proprietary rights. Any claims of infringement, whether or not
they have merit, could result in litigation which could severely harm our
business. See "Risk Factors--Our business model depends upon obtaining and
protecting our intellectual property, and if we fail to protect our proprietary
rights, our business could be harmed" and "--We may become involved in costly
and time consuming litigation over proprietary rights which could delay or
prevent sales of our current and future products."
GOVERNMENT REGULATION
Our systems intentionally radiate radio frequency energy, and therefore
must comply with regulations in the countries where we sell and install our
systems. The process of verifying compliance with radio and network regulations
is known as system certification, and this must be granted before a system is
offered commercially for sale. The Federal Communications Commission, or FCC,
certifies systems we sell and install in the United States. Some regions of the
world, such as Latin America and the Philippines, accept FCC certification as
sufficient approval for operation within these regions. The European
Telecommunications Standards Institute, or ETSI, certifies systems we sell and
install in Europe. Many countries also require additional testing to certify
compliance to local standards and requirements, in addition to FCC or ETSI
rules.
Our systems operate in both licensed and license-exempt frequency
assignments. A licensed frequency assignment requires that, prior to installing
our systems, the operator obtain a conditional license from the appropriate
regulatory body for a specific frequency allocation. A license-exempt frequency
assignment allows an operator to install and activate our systems without
notifying any authority. In the United States, operation of unlicensed radio
communications equipment is subject to the conditions that no harmful
interference is caused to authorized users of the band, and that interference,
including interference that may cause undesired operation, must be accepted from
all other users of the band. This includes other unlicensed operators,
authorized operators such as amateur licensees, industrial, scientific and
medical equipment, and U.S. Government operations. Unlicensed operators that
cause harmful interference to authorized users, or that exceed permitted radio
frequency emission levels, may be required to cease operations until the
condition causing the harmful interference or excessive emissions has been
corrected.
The delays inherent in this regulatory approval process may cause the
rescheduling, postponement or cancellation of the installation of
telecommunications systems by our customers which, in turn, may significantly
reduce sales of systems to these customers. The failure to comply with current
or future regulations or changes in the interpretation of existing regulations
in a particular country could result in the suspension or cessation of sales in
that country, restrictions on our development efforts and those of our
customers, render current systems obsolete, or increase the opportunity for
additional competition. These regulations or changes in interpretation of these
regulations could require us to modify our products and incur substantial
compliance costs.
MANUFACTURING
Our manufacturing operations occupy 38,000 square feet of our facility in
Santa Clara, California and consist of planning, procurement, final assembly,
testing, quality control, shipping, receiving and stock management.
We design and develop a number of the key components of our products,
including printed circuit boards, mechanical enclosures and software. We
outsource the majority of our sub-assembly operations, and we utilize strategic
ISO 9000 certified local and offshore manufacturing partners to provide
sub-assembly of the printed circuit boards and key components. We also outsource
the sub-assembly of the printed circuit boards for some of our WAVENET ACCESS
and WAVENET LINK systems. We provide exact specifications to our manufacturing
partners that provide the sub-assemblies and components for each product. We
then conduct final assembly, burn-in, test and shipment of our products from our
headquarters in Santa Clara, California.
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Our manufacturing team works closely with our engineers to manage the
supply chain. We determine the components that are incorporated in our products
and select the appropriate suppliers of these components. All materials used in
our products are processed through a full qualification cycle and are controlled
by an approved vendor list.
Our approach to manufacturing provides the flexibility of outsourcing
while maintaining quality control of delivered products to customers. We believe
that this approach allows us to respond to rapid growth and sudden market
shifts. Key factors that influence our manufacturing operations are cost
reduction, quality, time-to-market and supply of materials. Any interruption in
the operations of our manufacturing partners or material suppliers would harm
our ability to meet scheduled product deliveries to our customers.
We use a rolling four-month forecast based upon anticipated product
orders to determine our material requirements. Lead times for the materials and
components that we order vary significantly and depend on factors such as
specific supplier, contract terms and demand for a component at a given time.
We, along with our contract manufacturers, may terminate our contracts without
cause at any time. At that time, the terminating party must honor all open
purchases. We obtain parts and components through purchase orders and have no
long-term commitments regarding supply or price from these suppliers. We have
established second source manufacturing and material suppliers to provide parts
and components within weeks of losing these suppliers. However, the loss of any
of our suppliers could prevent us from meeting our scheduled product deliveries
to our customers and could materially harm our business, results of operations
and financial condition.
STRATEGIC RELATIONSHIP WITH TRW
We entered into a purchase and license agreement with TRW on January 14,
2000. Under the agreement, we purchased and obtained exclusive license rights in
point-to-multipoint wireless networking technology, generally referred to as the
STARPORT technology. Any products we develop based on such technology may only
be sold by us with base stations configured for outdoor use. Sales of products
containing the STARPORT technology with base stations configured for indoor use
or to the U.S. Government--including organizations in which the U.S. is a
member, such as NATO--must be made through TRW or its licensees. TRW also has a
license in any improvements made by us upon the STARPORT technology. If we do
not offer a commercial version of a product containing the STARPORT technology
for sale by July 14, 2001, unless the delay is the fault of TRW or attributable
to specified reasons, we will lose our exclusive license with TRW. The STARPORT
technology was originally developed by TRW Systems and Information Technology
Group for military communications. TRW is an international company that provides
advanced technology products and services. The principal businesses of TRW and
its subsidiaries are the design, manufacture and sale of products and the
performance of systems engineering, research and technical services for industry
and the U.S. Government in the automotive, aerospace and information systems
markets. In connection with this agreement, TRW acquired approximately 18% of
our capital stock outstanding prior to this offering. See "Risk Factors--If the
development of our STARPORT system is materially delayed or fails to perform to
customer expectations, or if our strategic relationship with TRW is terminated,
our business and future growth will be substantially harmed and we may lose our
exclusive license to the technology" and "Certain Transactions--Strategic
Relationship with TRW."
COMPETITION
The broadband wireless access market is rapidly evolving and highly
competitive. We believe that our business is affected by the following
competitive factors:
o cost;
o ease of installation;
o technical support and service;
o sales and distribution capability;
o breadth of product line;
o conformity to industry standards; and
o implementation of additional product features and enhancements.
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We expect that competition in the broadband wireless access market will
increase in the future. We currently compete against wireless broadband access
equipment manufacturers including Adaptive Broadband Corporation, BreezeCom,
Ltd., Gigabit Wireless, Inc., Lucent Technologies, Inc., Netro Corporation, and
Wavtrace, Inc. in the point-to-multipoint market and BreezeCom, Digital
Microwave Corporation, Lucent and P-Com, Inc. in the point-to-point market. In
addition, well capitalized wireless equipment manufacturers including Ericsson,
Inc., Motorola, Inc., Nokia Corporation, QUALCOMM Incorporated and Siemens AG
are potential entrants into either market. Our broadband wireless access
technology also competes with wired solutions such as cable, DSL, fiber optic
systems and high-speed lines leased from communication service providers, such
as T-1 lines.
Increased competition is likely to result in price reductions, shorter
product life cycles, reduced gross margins, longer sales cycles and loss of
market share, any of which would seriously harm our business. Many of our
competitors have longer operating histories, larger installed customer bases,
substantially greater name recognition, and greater financial, sales and
marketing, technical, manufacturing, and distribution resources than us. We may
not be able to compete successfully against current or future competitors and
the competitive pressures we face may seriously harm our business and results of
operations.
FACILITIES
Our principal operations are located in Santa Clara, California. We lease
approximately 55,000 square feet for our corporate headquarters that includes
manufacturing, sales and marketing, research and development, customer service
and support, and finance and administration. This lease expires on July 31,
2006. In addition, we have short-term leases for our various sales offices. We
believe our current facilities will be adequate to meet production needs for the
foreseeable future.
EMPLOYEES
As of March 31, 2000 we had a total of 110 employees, of which 32 were in
operations and manufacturing, 31 were in sales and marketing, 26 were in
research and development, 6 were in customer service and support, and 15 were in
finance and administration. None of our employees is represented by a labor
union. We have not experienced any work stoppages and consider relations with
our employees to be good.
LEGAL PROCEEDINGS
We are not currently a party to any material litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our
executive officers and directors as of April 15, 2000:
<TABLE>
<S> <C> <C>
NAME AGE POSITION
---- --- --------
William E. Gibson................ 60 Chairman of the Board of Directors
William J. Palumbo............... 57 President, Chief Executive Officer and Director
Mark A. Byington................. 48 Executive Vice President
Antonio Canova................... 38 Executive Vice President, Chief Financial Officer and Secretary
William E. Kunz.................. 42 Senior Vice President, Engineering and Chief Technology Officer
Charles C. Pai................... 58 Senior Vice President, Finance
Donald H. MacLeod................ 50 Senior Vice President, International
James D. Bletas.................. 55 Vice President, Sales--Americas
Ralph M. Gushiken................ 56 Vice President, Manufacturing
Thomas L.F. Ohlsson.............. 44 Vice President, Marketing
Andrew I. Fillat................. 52 Director
Denny R.S. Ko.................... 60 Director
David F. Millet.................. 55 Director
Patrick A. Rivelli............... 63 Director
Mark S. Silverman................ 41 Director
</TABLE>
WILLIAM E. GIBSON, a co-founder of our company, has served as Chairman of
our board of directors since our inception. Prior to October 1999, Mr. Gibson
also served as our President and Chief Executive Officer. Mr. Gibson is the
founder and has served as Managing Partner of Crossroads Venture Capital LLC, a
private equity fund, since its inception in October 1996. Since June 1995, Mr.
Gibson has served as President and Chief Executive Officer of Pu'u'ala
Corporation, a certified organic farm and ranch located in Hawaii. Mr. Gibson
was a founder of Digital Microwave Corporation, a manufacturer of high-frequency
digital microwave radios, and served as its President and Chief Executive
Officer from 1984 through 1991 and as President of DMC Telecom International
from August 1991 until June 1995. Previously, Mr. Gibson held various management
positions at the Farinon division of Harris Corporation, a manufacturer of
digital microwave radios, including Vice President and General Manager. He also
serves on the boards of directors of Mobicom Corporation, a designer of GSM
cellular telephone handsets, Momentum Laser, Inc., a manufacturer of laser-based
construction tools and Oncologic, Inc., a biotechnology company focusing on the
development of a cancer detection and therapy process. Mr. Gibson holds a M.B.A.
and a B.S. in Engineering from the College of Notre Dame.
WILLIAM J. PALUMBO has served as our President, Chief Executive Officer
and as a member of our board of directors since October 1999. Mr. Palumbo served
as President and CEO of 2 Dot3.com, a research company focusing on the operation
of broadband services, from April 1998 to October 1999. Mr. Palumbo served as
Vice President of Sales and Marketing of SpectraLink Corp., a manufacturer of
indoor wireless products, from July 1990 to March 1998. From 1987 to 1990, Mr.
Palumbo was the Vice President, Sales and Marketing at Digital Microwave
Corporation. He founded Communication Office Machines, Inc., a virtual network
equipment manufacturer, and served as its President and Chief Executive Officer
from 1983 to 1987. Previously, from 1976 to 1983, Mr. Palumbo held the position
of Vice President of Sales for Honeywell Action Communication. Mr. Palumbo holds
a B.S. in Marketing from Southern Illinois University.
MARK A. BYINGTON has served as our Executive Vice President since
December 1999. From May 1997 to December 1999, Mr. Byington held the positions
of Vice President, Engineering, Senior Vice President, Engineering and Chief
Technology Officer of Wavespan Corporation, a wireless networking equipment
manufacturer. From March 1996 to May 1997, he was the Vice President, Marketing,
Wireless Products of Netro Corporation, a wireless equipment manufacturer.
Previously, from February 1984 to March 1996, he held various managerial and
technical positions at Digital Microwave Corporation including Vice President,
Engineering. From March 1976 to February 1984, Mr. Byington held the positions
of Development Engineer and Senior Development Engineer for the Farinon division
of Harris Corporation. From June 1974 to November 1975, Mr. Byington worked for
Computer
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Curriculum Corporation as a Development Engineer. Mr. Byington holds a
B.S. in Electrical Engineering from Stanford University.
ANTONIO CANOVA has served as our Executive Vice President, Chief
Financial Officer and Secretary since April 2000. From July 1995 to April 2000,
Mr. Canova was an audit partner in the Information, Communication and
Entertainment practice group of KPMG LLP where he focused principally on
telecommunications-related companies. Previously, from July 1990 to July 1995,
Mr. Canova was a Senior Manager with KPMG specializing in technology companies.
Mr. Canova is a certified public accountant and holds a B.S. in Business from
Santa Clara University.
WILLIAM E. KUNZ has served as our Senior Vice President, Engineering and
Chief Technology Officer since January 1999. From May 1998 to January 1999, Mr.
Kunz served as our Vice President, Engineering. From July 1979 to May 1998, Mr.
Kunz held various management and technical positions at Hewlett Packard, Inc.,
including LMDS Base Station Program Manager of Video Division-Wireless Systems,
Engineer Scientist at HP Laboratories and Development Engineer in the Network
Measurements Division. Mr. Kunz holds a B.S.E.E. from the University of
California, Davis and a M.S.E.E. from the University of California, Berkeley.
CHARLES C. PAI, a co-founder of our company, has served as our Senior
Vice President, Finance since our inception. Prior to April 2000, Mr. Pai also
served as our Chief Financial Officer and Secretary. From May 1996 to June 1997,
Mr. Pai was the Vice President, Finance of SSE Telecom Products, a manufacturer
of satellite transceivers and data modems. He was a co-founder of Spatial
Systems, a software mapping company, and served as its Chief Executive Officer
from September 1993 to May 1996. He served as the Vice President, Finance of
Digital Microwave Corporation from January 1985 to September 1993. Previously,
from 1972 to 1984, Mr. Pai held various financial management positions at
Plantronics, Inc., a telephone headset manufacturer, Fairchild Camera and
Instrument, a semiconductor technology developer and fabricator and Xerox
Corporation. Mr. Pai serves as a director of Mobicom Corporation. Mr. Pai holds
a M.B.A. from Columbia University and a B.S. in Electrical Engineering from
Cornell University.
DONALD H. MACLEOD, a co-founder of our company, has served as our Senior
Vice President, International since December 1999. Mr. MacLeod also served as
our Senior Vice President, Sales and Marketing from July 1998 to December 1999
and as our Vice President, Asia from September 1997 to July 1998. From September
1996 to September 1997, Mr. MacLeod was employed as General Manager, Asia by MAS
Technology, Ltd., a manufacturer of digital microwave products. From 1993 to
September 1996, he was employed by Digital Microwave Corporation as Vice
President, Asia. Mr. MacLeod holds an M.B.A. from Concordia University of Canada
and a B. Eng from McMaster University of Canada.
JAMES D. BLETAS has served as our Vice President, Sales--Americas since
June 1999. From September 1998 to May 1999, Mr. Bletas was a consultant to
Comtier Corporation, a satellite network communication system company. From
March 1997 to August 1998, he served as Executive Vice President, Sales and
Marketing, Systems and Customer Services at SSE Telecom Products. From June 1996
to February 1997, Mr. Bletas was the Executive Vice President, Sales, Marketing
and Systems for First Pacific Networks, a service provider in the broadband
cable modem market. From May 1993 to June 1996, Mr. Bletas served as President
of the Telecommunication Transmission System division of California Microwave.
From October 1975 to March 1993, he served in various positions with the Farinon
division of Harris Corporation, including Vice President, International. Mr.
Bletas holds B.A. in Electrical Engineering from Concordia University of Canada.
RALPH M. GUSHIKEN has served as our Vice President, Manufacturing since
August 1997. From February 1989 to August 1997, Mr. Gushiken held various
manufacturing positions at Digital Microwave Corporation including Director of
Manufacturing, Spectrum Division, Director of Technology Transfer and Director
of Production. Previously, from January 1971 to February 1989, Mr. Gushiken
served in various manufacturing positions at the Farinon division of Harris
Corporation. Mr. Gushiken holds a B.S. in Industrial Technology from California
State University, San Jose.
THOMAS L.F. OHLSSON has served as our Vice President, Marketing since
November 1999. From March 1991 to November 1999, he served in various roles with
SpectraLink Corporation, including Director of Marketing. From November 1990 to
March 1991, Mr. Ohlsson served as Senior Product Marketing Manager with Cylink
Corp., a manufacturer of data communication products which is now part of P-Com,
Inc. From November 1987 to November 1990, Mr. Ohlsson served in various roles
with Digital Microwave Corporation, including Director of Product Marketing.
Previously, from 1978 to 1987, Mr. Ohlsson held various product management and
engineering
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positions at the Lenkurt division of GTE Corporation, DSC Communication and
DCA/Cohesive Networks, all manufacturers of telecommunications products. Mr.
Ohlsson holds a M.B.A. and a B.S. in Electrical Engineering from Santa Clara
University.
ANDREW I. FILLAT has served as a member of our board of directors since
August 1998 and served as a member of Multipoint's board of directors from
September 1994 until the acquisition of Multipoint in August 1998. Since 1989,
he has been a Managing Director of Advent International Corporation, a private
equity fund focusing on high growth sectors, including cable media, information
technology, specialty chemicals, health care, consumer products and retailing.
He also serves on the board of Advanced Radio Telecom, a public company that
provides broadband Internet Protocol service, as well as on the boards of
several private companies. Mr. Fillat holds a M.B.A. from Harvard University, a
M.S. in Computer Science from the Massachusetts Institute of Technology and a
B.S. in Computer Science from the Massachusetts Institute of Technology.
DENNY R. S. KO has served as a member of our board of directors since
August 1998. Since August 1997, Dr. Ko has been the Managing General Partner of
DynaFund Ventures, a private equity fund that focuses on internet, software,
communications, electronics, photonics and related fields. Since October 1976 he
has served as the Chairman and Chief Executive Officer of Dynamics Technology.
He serves on the boards of several technology companies, including Gadzoox
Networks, Inc., a developer of hardware and software equipment in the SAN
(storage area network) market. Dr. Ko holds a Ph.D. in Aeronautics & Applied
Math from the California Institute of Technology, a M.S. in Aeronautical
Sciences from the University of California, Berkeley and a B.S. in Mechanical
Engineering from National Taiwan University.
DAVID F. MILLET has served as a member of our board of directors since
September 1999. Since June 1997, he has been a Managing Director of Gemini
Investors, a private equity fund that focuses on middle market companies in
technology and business services. Since August 1993, he has served as the
President of Thomas Emery & Sons. Since 1998, he has also served as President of
Chatham Venture Corporation. Mr. Millet serves on the boards of View Tech, Inc.,
National Telemanagement Corporation, Eloquent, Inc. and Holographix, Inc. Mr.
Millet holds a B.A. in Physical Sciences from Harvard College.
PATRICK A. RIVELLI has served as a member of our board of directors since
September 1999. Since 1987, Mr. Rivelli has been a general partner of Sunwestern
Investment Group, a private equity fund that focuses on data,
telecommunications, and computer related ventures. Mr. Rivelli serves on the
boards of Vista Information Solutions, an Internet-based provider of real estate
information, and several privately-held companies. He holds a M.S. in Electrical
Engineering from the University of Pennsylvania and a B.S. in Electrical
Engineering from Northeastern University.
MARK S. SILVERMAN has served as a member of our board of directors since
January 2000. Since October 1999, Mr. Silverman has served as Vice President,
Strategic Development for the Aerospace and Information Systems Sector of TRW,
Inc. From 1995 to October 1999, Mr. Silverman served as Vice President, Planning
and Development for the Systems and Information Technology Group of TRW, Inc.
From 1993 to 1995, Mr. Silverman became director of planning and business
development for the TRW Engine Components Group, becoming Vice President in
1994. Previously, from 1983 to 1993, Mr. Silverman held various management and
technical positions with TRW. Mr. Silverman holds a M.B.A. from Case Western
Reserve University's Weatherhead School of Management and a B.S. in Management
Information Systems from Case Western Reserve University.
COMPOSITION OF THE BOARD
Immediately prior to the completion of this offering, we will amend and
restate our certificate of incorporation. Under our amended and restated
certificate of incorporation, our board of directors will be divided into three
classes, with each class serving for a term of three years. At each annual
meeting of stockholders, directors will be elected by the holders of common
stock to succeed the directors whose terms are expiring. Our Board has resolved
that Messrs. Millet and Fillat will be Class I directors whose term will expire
in 2001, Mr. Rivelli and Dr. Ko will be Class II directors whose terms will
expire in 2002 and Messrs. Gibson, Palumbo and Silverman will be Class III
directors whose terms will expire in 2003. With respect to each class, a
director's term will be subject to the election and qualification of their
successor, or their earlier death, resignation or removal. In addition, under
our amended and restated certificate of incorporation, cumulative voting for
directors will be eliminated.
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BOARD COMMITTEES
We have established an audit committee composed of independent directors,
which reviews and supervises our financial controls, including the selection of
our auditors, reviews our books and accounts, meets with our officers regarding
our financial controls, acts upon recommendations of our auditors and takes
further actions as the audit committee deems necessary to complete an audit of
our books and accounts, as well as other matters which may come before it or as
directed by the board. The audit committee currently consists of three
directors, Messrs. Millet and Fillat and Dr. Ko.
We have established a compensation committee, which reviews and approves
the compensation and benefits for our executive officers, administers our stock
plans and performs other duties as may from time to time be determined by the
board. The compensation committee currently consists of two directors, Messrs.
Fillat and Rivelli. None of our compensation committee members is, or ever was,
an employee of ours. None of our executive officers serve on the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of our board or compensation committee.
DIRECTOR COMPENSATION
Directors who are also employees do not receive additional compensation
for serving as directors. Non-employee directors receive $10,000 for each year
of board service following each annual meeting. Non-employee directors also
receive $1,000 for attending each regular and special meeting of the full Board
of Directors and $500 for attending each regular or special meeting of a board
committee, plus, in each case, reimbursement for reasonable expenses.
Non-employee directors are also eligible to receive discretionary option grants
and stock issuances under our 2000 stock incentive plan. In addition, under the
2000 stock incentive plan, non-employee directors receive automatic option
grants to purchase 30,000 shares of common stock upon becoming directors and
automatic option grants to purchase 5,000 shares of common stock on the date of
each annual meeting of stockholders. The 2000 stock incentive plan also contains
a director fee option grant program. Should this program be activated in the
future, each non-employee board member will have the opportunity to apply all or
a portion of any annual retainer fee otherwise payable in cash to the
acquisition of an option with an exercise price below the then fair market
value. See "Executive Compensation and Other Information--Employee Benefit
Plans."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
o any breach of their duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an
improper personal benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as a
director or executive officer of Wireless, any subsidiary of Wireless or any
other entity to which the person provides services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
51
<PAGE>
EXECUTIVE OFFICERS
Our executive officers are appointed by and serve at the discretion of
our board of directors. There are no family relationships among any of our
directors, officers or key employees.
52
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth the compensation paid or awarded by us in
1999 to our Chief Executive Officer, our former Chief Executive Officer and each
of our four other most highly compensated executive officers for the year ended
December 31, 1999. These individuals are referred to in this prospectus as the
named executive officers. The compensation table below excludes other
compensation in the form of perquisites and other personal benefits that
constitutes the lesser of $50,000 or ten percent of the total annual salary and
bonus of each of the named executive officers in 1999.
No individual who would otherwise have been includable in the compensation
table on the basis of salary and bonus earned during 1999 has resigned or
otherwise terminated his or her employment during 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
YEAR BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ENDED SALARY($) ($) (#) ($)
------------------------------------- ----- -------- ------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
William J. Palumbo (1).............. 1999 $34,597 $25,000 1,250,000 (2) --
President and Chief Executive
Officer
William E. Gibson (3)............... 1999 180,000 -- 850,961 --
Chairman of the Board of
Directors and former Chief
Executive Officer
William E. Kunz..................... 1999 143,058 -- 93,055 --
Senior Vice President,
Engineering and Chief
Technology Officer
Charles C. Pai...................... 1999 125,112 -- 63,697 (4) --
Senior Vice President, Finance
Donald H. MacLeod................... 1999 108,750 -- 59,380 $ 38,621 (5)
Senior Vice President,
International
</TABLE>
--------------
(1) Mr. Palumbo has served as our President and Chief Executive Officer
since October 1999 and, therefore, these amounts are for less than a
full year.
(2) 250,000 of these shares become immediately vested upon the successful
consummation of our initial public offering prior to December 31,
2000 or meeting certain revenue and profit targets in 2000.
(3) Mr. Gibson served as our President and Chief Executive Officer from
May 1997 until October 1999.
(4) In January 2000 our board of directors resolved to accelerate all of
Mr. Pai's unvested options such that 100% of his options become fully
vested as of September 30, 2000.
(5) Consists of rent payments for corporate housing of $30,380 and lease
payments for a company car of $8,241.
53
<PAGE>
STOCK OPTION GRANTS AND STOCK APPRECIATION RIGHTS
The following table sets forth summary information with respect to stock
options granted to each of our named executive officers in 1999, including the
potential realizable value over the term of the options, based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. Each option represents
the right to purchase one share of our common stock. No stock appreciation
rights were granted during 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT
ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE APPRECIATION
NUMBER OF TOTAL FOR OPTION TERM
SECURITIES OPTIONS EXERCISE AT INITIAL PUBLIC OFFERING
UNDERLYING GRANTED TO PRICE PRICE ($)
OPTIONS EMPLOYEES PER EXPIRATION ----------------------------
NAME GRANTED IN 1999 SHARE DATE 5% 10%
------------------------ ---------- ------------ -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Palumbo..... 1,250,000 (1) 30.1 % $0.27 9/15/09 7,075,065 17,929,603
William E. Gibson...... 48,961 1.2 % 0.297 3/13/04 121,743 269,021
287,739 7.0 % 0.297 9/15/04 715,473 1,581,008
514,261 12.5 % 0.297 9/15/09 2,910,717 7,376,354
William E. Kunz........ 43,055 1.0 % 0.27 3/19/09 243,691 617,567
50,000 1.2 % 0.27 9/15/09 283,000 717,184
Charles C. Pai......... 13,697 (2) 0.3 % 0.27 3/19/09 77,525 196,465
50,000 (2) 1.2 % 0.27 9/15/09 283,000 717,184
Donald H. MacLeod...... 9,380 0.2 % 0.27 3/19/09 53,091 134,544
50,000 1.2 % 0.27 9/15/09 283,000 717,184
</TABLE>
--------------
(1) 250,000 of such shares become immediately vested upon the successful
consummation of our initial public offering prior to December 31, 2000
or meeting certain revenue and profit targets in 2000.
(2) In January 2000 our board of directors resolved to accelerate all of Mr.
Pai's unvested options such that 100% of his options become fully vested
as of September 30, 2000.
In 1999, we granted options to purchase up to an aggregate of 4,124,209
shares of our common stock to employees, directors and consultants under our
1997 stock plan. Under our 1997 stock plan, options were granted to employees,
officers, directors and consultants. Only employees, including officers and
employee members of our board of directors, were eligible to receive incentive
stock options, which qualify for favorable income tax treatment under the
federal tax laws. As a result of this treatment, no income is recognized for
regular tax purposes upon the exercise of the option and a long-term capital
gain is realized upon the sale of the shares purchased under the option if those
shares are held for the required period following exercise. Non-employee members
of our board of directors and consultants were eligible to receive non-statutory
stock options, which do not qualify for such treatment. The exercise price of
incentive stock options under the 1997 stock plan must be at least equal to the
fair market value of our common stock on the date of grant, as determined in
good faith by our board of directors, while the exercise price of nonstatutory
options must be at least equal to 85% of the fair market value. Holders of more
than 10% of the outstanding voting shares were only granted options with an
exercise price of at least 110% of the fair market value of the underlying stock
on the date of grant, and if such holder has incentive stock options, the term
of the options must not exceed five years. Options granted under the 1997 stock
plan generally vest over a four-year period and must be exercised within ten
years.
The potential realizable value is calculated assuming the aggregate
exercise price on the date of grant appreciates at the indicated rate for the
entire term of the option and that the option is exercised and sold on the last
day of its term at the appreciated price. Stock price appreciation of 5% and 10%
is assumed under the rules of the Securities and Exchange Commission. We can
give no assurance that the actual stock price will appreciate over the term of
the options at the assumed 5% and 10% levels or at any other defined level.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock. Unless the market price of the common stock
appreciates over the option term, no value will be realized from the option
grants made to the named executive officers.
54
<PAGE>
The following table sets forth summary information with respect to stock
options granted from January 1, 2000 through March 31, 2000 to each of our named
executive officers, directors and all other executive officers as a group in
2000. Each option represents the right to purchase one share of our common
stock. No stock appreciation rights were granted during this period. Except as
otherwise noted, all options vest over a four-year period and must be exercised
within ten years.
<TABLE>
<CAPTION>
OPTION GRANTS IN 2000
(1/1/00 - 3/31/00)
INDIVIDUAL GRANTS
----------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES IN PER EXPIRATION
NAME GRANTED 2000 SHARE DATE
--------------------------------------------------- ------------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
William J. Palumbo................................. -- -- -- --
William E. Gibson.................................. -- -- -- --
William E. Kunz.................................... -- -- -- --
Charles C. Pai..................................... -- -- -- --
Donald MacLeod..................................... -- -- -- --
Andrew I. Fillat................................... -- -- -- --
Denny R. S. Ko..................................... -- -- -- --
David F. Millet.................................... -- -- -- --
Patrick A. Rivelli................................. -- -- -- --
Mark S. Silverman.................................. -- -- -- --
All Other Executive Officers as a Group
(5 persons)........................................ 30,000 2.6 % $5.00 (1) (2)
(1) The exercise price represents the weighted average exercise price of the outstanding options.
(2) All options expire ten years from the date of grant.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information with respect to the named
executive officers concerning their exercise of stock options during the year
ended December 31, 1999 and the number and value of shares of common stock
underlying the unexercised options held by them at the close of such year. No
stock appreciation rights were exercised during 1999 and no stock appreciation
rights were outstanding as of December 31, 1999. The value realized is
calculated as the difference between the fair value of the shares at the time of
exercise less the exercise price paid for the shares. The value of unexercised
in-the-money options at December 31, 1999 is calculated on the basis of the
assumed initial public offering price of $9.00, less the aggregate exercise
price of the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($)
ACQUIRED ON REALIZED -------------------------- ----------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- -------------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William J. Palumbo...... 1,250,000 (1) $ -- -- -- -- --
William E. Gibson....... 1,400,961 -- -- -- -- --
William E. Kunz......... 173,055 3,500 -- -- -- --
Charles C. Pai.......... 135,447 (2) 5,303 -- -- -- --
Donald H. MacLeod....... -- -- 162,430 -- 1,418,014 --
</TABLE>
--------------
(1) 250,000 of these shares become immediately vested upon the successful
consummation of our initial public offering prior to December 31,
2000 or meeting certain revenue and profit targets in 2000.
(2) In January 2000 our board of directors resolved to accelerate all of Mr.
Pai's unvested options such that 100% of his options become fully vested
as of September 30, 2000.
55
<PAGE>
EMPLOYEE BENEFIT PLANS
2000 STOCK INCENTIVE PLAN.
INTRODUCTION. The 2000 stock incentive plan is intended to serve as the
successor program to our 1997 stock option/stock issuance plan. The 2000 plan
was adopted by the board on January 18, 2000 and was approved by our
stockholders in May 2000. The 2000 plan will become effective when the
underwriting agreement for this offering is signed. At that time, all
outstanding options under our existing 1997 plan will be transferred to the 2000
plan, and no further option grants will be made under the 1997 plan. The
transferred options will continue to be governed by their existing terms, unless
our compensation committee decides to extend one or more features of the 2000
plan to those options. Except as otherwise noted below, the transferred options
have substantially the same terms as will be in effect for grants made under the
discretionary option grant program of our 2000 plan.
SHARE RESERVE. 8,750,000 shares of our common stock have been authorized
for issuance under the 2000 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1997 plan plus an additional
increase of approximately 1,300,000 shares. The share reserve under our 2000
plan will automatically increase on the first trading day in January each
calendar year, beginning with calendar year 2001, by an amount equal to three
percent of the total number of shares of our common stock outstanding on the
last trading day of December in the prior calendar year, but in no event will
this annual increase exceed 2,000,000 shares. In addition, no participant in the
2000 plan may be granted stock options or direct stock issuances for more than
875,000 shares of common stock in total in any calendar year.
PROGRAMS. Our 2000 plan has five separate programs:
o the discretionary option grant program, under which eligible
individuals in our employ may be granted options to purchase shares of
our common stock at an exercise price not less than the fair market
value of those shares on the grant date;
o the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or the completion of a specified period of
service or as a bonus for past services;
o the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants;
o the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
o the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
ELIGIBILITY. The individuals eligible to participate in our 2000 plan
include our officers and other employees, our board members and any consultants
we hire.
ADMINISTRATION. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
56
<PAGE>
PLAN FEATURES. Our 2000 plan will include the following features:
o the exercise price for any options granted under the 2000 plan may be
paid in cash or in shares of our common stock valued at fair market
value on the exercise date. The option may also be exercised through a
same-day sale program without any cash outlay by the optionee;
o the compensation committee will have the authority to cancel
outstanding options under the discretionary option grant program,
including any transferred options from our 1997 plan, in return for
the grant of new options for the same or different number of option
shares with an exercise price per share based upon the fair market
value of our common stock on the new grant date; and
o stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from us equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the
payment in cash or in shares of our common stock. None of the options
under our 1997 plan have any stock appreciation rights.
CHANGE IN CONTROL. The 2000 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
o in the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which
is not to be assumed by the successor corporation will immediately
become exercisable for all the option shares, and all outstanding
unvested shares will immediately vest, except to the extent our
repurchase rights with respect to those shares are to be assigned to
the successor corporation;
o the compensation committee will have complete discretion to grant one
or more options which will become exercisable for all the option
shares in the event those options are assumed in the acquisition but
the optionee's service with us or the acquiring entity is subsequently
terminated. The vesting of any outstanding shares under our 2000 plan
may be accelerated upon similar terms and conditions; and
o the compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase
rights will immediately vest in connection with a successful tender
offer for more than fifty percent of our outstanding voting stock or a
change in the majority of our board through one or more contested
elections. Such accelerated vesting may occur either at the time of
such transaction or upon the subsequent termination of the
individual's service.
SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $10,000 nor more than $50,000. Each selected individual who makes such
an election will automatically be granted, on the first trading day in January
of the calendar year for which his or her salary reduction is to be in effect,
an option to purchase that number of shares of common stock determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of our common stock on the grant date. The option will have exercise price
per share equal to one-third of the fair market value of the option shares on
the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the amount of the salary reduction.
The option will become exercisable in a series of twelve equal monthly
installments over the calendar year for which the salary reduction is to be in
effect.
AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive an option grant to purchase 30,000 shares of common stock on the
date such individual joins the board. In addition, on the date of each annual
stockholders meeting held after the effective date of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 5,000 shares of common stock,
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. One-third of the shares subject to
the initial
57
<PAGE>
30,000 share grant will be fully vested at the time of the grant. The remaining
two-thirds of such shares will vest in a series of two successive annual
installments upon the optionee's completion of each year of board service over
the two-year period measured from the grant date. However, the shares will
immediately vest in full upon certain changes in control or ownership or upon
the optionee's death or disability while a board member. The shares subject to
each annual 5,000-share automatic grant will vest upon the optionee's completion
of the one year period measured from the grant date.
DIRECTOR FEE OPTION GRANT PROGRAM. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
serving as a board member.
ADDITIONAL PROGRAM FEATURES. Our 2000 plan will also have the following
features:
o outstanding options under the salary investment and director fee
option grant programs will immediately vest if we are acquired by a
merger or asset sale or if there is a successful tender offer for more
than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections;
o limited stock appreciation rights will automatically be included as
part of each grant made under the salary investment option grant
program and the automatic and director fee option grant programs, and
these rights may also be granted to one or more officers as part of
their option grants under the discretionary option grant program.
Options with this feature may be surrendered to us upon the successful
completion of a hostile tender offer for more than 50% of our
outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount
per surrendered option share based upon the highest price per share of
our common stock paid in that tender offer;
o the board may amend or modify the 2000 plan at any time, subject to
any required stockholder approval; and
o the 2000 plan will terminate no later than January 18, 2010.
2000 EMPLOYEE STOCK PURCHASE PLAN.
INTRODUCTION. Our 2000 employee stock purchase plan was adopted by our
board of directors on January 18, 2000 and was approved by our stockholders in
May 2000. The plan will become effective when the underwriting agreement for
this offering is signed. The plan is designed to allow our eligible employees
and the eligible employees our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
SHARE RESERVE. 250,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to two percent of the total number of outstanding shares of our
common stock on the last trading day in December in the prior calendar year. In
no event will any such annual increase exceed 1,300,000 shares.
OFFERING PERIODS. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for the offering covered is
signed and will end on the last business day in July 2002. The next offering
period will start on the first business day in August 2002, and subsequent
offering periods will set by our compensation committee.
ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period.
58
<PAGE>
Semi-annual entry dates will occur on the first business day of February and
August each year. Individuals who become eligible employees after the start date
of an offering period may join the plan on any subsequent semi-annual entry date
within that offering period.
PAYROLL DEDUCTIONS. A participant may contribute up to 10% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of April and October each
year. However, a participant may not purchase more than 800 shares on any
purchase date, and not more than 150,000 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
CHANGE IN CONTROL. Should we be acquired by merger or sale of all or
substantially all of our assets or more than fifty percent of our voting
securities, then all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of the acquisition. The purchase price
will be equal to 85% of the market value per share on the participant's entry
date into the offering period in which an acquisition occurs or, if lower, 85%
of the fair market value per share immediately prior to the acquisition.
PLAN PROVISIONS. The following provisions will also be in effect under the
plan:
o the plan will terminate no later than the last business day of July
2010; and
o the board may at any time amend, suspend or discontinue the plan,
subject to any required stockholder approval.
MULTIPOINT 1996 STOCK OPTION PLAN.
The Multipoint 1996 stock option plan was assumed in connection with our
acquisition of Multipoint. The 1996 stock option plan was terminated following
the acquisition and no further option grants will be made under the plan,
however, 85,545 options are outstanding under the plan which continue to be
governed by their existing terms. The outstanding options are either incentive
stock options or non-statutory stock options which were granted at an exercise
price of not less than 100% of the fair market value of the Multipoint common
stock on the grant date. In accordance with the terms of the individual stock
option agreements, in the event that we are acquired by merger or asset sale,
the options under the 1996 stock option plan will become fully vested and
exercisable unless they are either:
o assumed or continued by the successor corporation;
o replaced with a comparable option to purchase capital stock of the
successor corporation;
o replaced with a cash incentive program which preserves the spread
existing on the option shares at the time of the acquisition and
provides for subsequent payout in accordance with the same vesting
schedule applicable to such option; or
o the acceleration of such options was subject to additional limitations
imposed by the Multipoint board of directors at the time of the option
grant.
All repurchase rights shall lapse except to the extent assigned to the
successor corporation in such acquisition.
59
<PAGE>
CERTAIN TRANSACTIONS
SALES OF SECURITIES
The following table and text describes the equity issuances that have
funded our operations from inception through March 31, 2000. All of the equity
issuances described were sold or exchanged at their fair market value.
<TABLE>
<CAPTION>
PREFERRED COMMON
VALUE OF STOCK STOCK WARRANT
CONSIDERATION FORM OF WARRANTS WARRANTS EXERCISE
DATE CLOSED SERIES RECEIVED CONSIDERATION PRICE/SHARE SHARES ISSUED ISSUED ISSUED PRICE/SHARE
---------------- ------ ----------- ------------ ----------- ------------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May, 1997 ...... A $ 3,000,000 Cash/License $0.50 6,000,000 -- -- --
October, 1997 .. B $ 1,500,000 Cash $2.00 750,000 -- -- --
August, 1998 ... C $ 2,855,334 Stock $1.33 2,146,868 -- -- --
August, 1998 ... Common $ 741,542 Stock $0.27 2,746,452 -- -- --
March, 1999 .... D $ 8,176,266 Cash $1.25 6,541,013 48,000 $1.25
September, 1999. E $ 9,003,620 Cash $2.50 3,600,000 20,000 362,000 $0.75
January, 2000 .. F $15,000,000 Cash $5.00 3,000,000 -- -- --
January, 2000 .. Common $17,146,760 License $5.00 3,429,352 -- -- --
</TABLE>
SERIES A PREFERRED STOCK. In May 1997, we issued 6,000,000 shares of our
Series A preferred stock, of which 3,000,000 shares were issued to Crossroads
Venture Investors II, L.P. at a price of $0.50 per share, resulting in aggregate
proceeds of $1,500,000 and 3,000,000 shares valued at $0.50 per share were
issued to Wi-LAN, Inc. under the terms of a technology license and manufacturing
agreement. As a result of a subsequent restructuring of this license agreement,
1,700,000 of the shares held by Wi-LAN were returned to us, of which 1,400,000
shares were related to the technology license and manufacturing agreement and
300,000 shares were related to the cancellation of a note payable from Wi-LAN to
us. The license agreement with Wi-LAN was terminated in February 2000.
SERIES B PREFERRED STOCK. In October 1997, we issued 750,000 shares of
our Series B preferred stock at a price of $2.00 per share to Crossroads Venture
Investors III, L.P., resulting in aggregate proceeds of $1.5 million.
SERIES C PREFERRED STOCK. In August 1998, in connection with the
acquisition of Multipoint Networks, Inc., or Multipoint, all outstanding shares
of the former Series 1 preferred stock of Multipoint were exchanged for an
aggregate of 2,146,868 shares of our Series C preferred stock. In November 1999,
we repurchased 59,983 shares of our Series C preferred stock from one investor
for a price of $1.33 per share.
SERIES D PREFERRED STOCK. In March 1999, we issued 6,541,013 shares of
our Series D preferred stock at a price of $1.25 per share, resulting in
aggregate proceeds of $8.2 million. Major investors included Crossroads Venture
Investors VI, L.P., DynaFund International, L.P., and Dynamics Technology, Inc.
In connection with a loan agreement we also issued warrants to purchase an
additional 48,000 shares of our Series D preferred stock to Silicon Valley Bank
at an exercise price of $1.25 per share.
SERIES E PREFERRED STOCK. In September 1999, we issued 3,600,000 shares
of our Series E preferred stock at a price of $2.50 per share, resulting in
aggregate proceeds of $9.0 million and issued warrants at a price of $0.01 per
warrant to purchase an additional 360,000 shares of common stock at an exercise
price of $0.75 per share. GMN Investors II, L.P. was among the major investors.
The conversion price of our Series E preferred stock was subsequently reduced to
$2.42 per share by a resolution of the board of directors adopted on December
21, 1999 following the realization that shares of common stock issuable upon the
exercise of options granted to certain officers should have been considered
outstanding when determining our capitalization for purposes of establishing the
purchase price of the Series E preferred stock. In connection with a loan
agreement we also issued warrants to purchase an additional 20,000 shares
of our Series E preferred stock to Silicon Valley Bank at an exercise price of
$2.50 per share.
SERIES F PREFERRED STOCK. In January 2000, we issued 3,000,000 shares of
our Series F preferred stock at a price of $5.00 per share, resulting in
aggregate proceeds of $15.0 million. TRW and CECAP Wireless Group, LLC were the
only investors.
The securities described above were sold under the terms of preferred
stock purchase agreements and an investors' rights agreement on substantially
similar terms, except for terms relating to date and price, under which we made
standard representations, warranties, and covenants, and in which we provided
the purchasers thereunder
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<PAGE>
with registration rights, information rights, and rights of first refusal,
among other provisions standard in venture capital financings. Each share of our
Series A, Series D and Series F preferred stock will automatically convert into
one share of our common stock upon the completion of the offering. Each share of
our Series B preferred stock will automatically convert into 1.1078 shares of
our common stock and each share of our Series C preferred stock will
automatically convert into 1.0153 shares of our common stock, in each case after
giving effect to an anti-dilution adjustment resulting from the sales of the
Series C and Series D preferred stock, respectively. Each share of our Series E
preferred stock will automatically convert into 1.0331 shares of our common
stock after giving effect to a price adjustment approved by our board of
directors in December 1999, as discussed above.
COMMON STOCK. In addition to the foregoing, we have issued 8,603,462
shares of our common stock to various investors at prices ranging from $0.27 per
share to $5.00 per share in connection with the exercise of warrants and options
we granted. In August 1998, in connection with the acquisition of Multipoint,
all outstanding shares of Multipoint common stock were exchanged for 2,746,452
shares of our common stock. In January 2000, in connection with a purchase and
license agreement with TRW, we issued 3,429,352 shares of our common stock to
TRW for a price of $5.00 per share. The shares of common stock issued or
issuable upon the exercise of common stock purchase warrants enjoy certain
registration rights different from those enjoyed by holders of our preferred
stock. See "Description of Capital Stock--Registration Rights."
The purchasers of the securities described above included, among others,
the following holders of 5% or more of our capital stock, named executive
officers, directors, and entities associated with them:
<TABLE>
<CAPTION>
TOTAL SHARES
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F COMMON ON AN
COMMON PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCK AS-CONVERTED
INVESTOR STOCK STOCK STOCK STOCK STOCK STOCK STOCK WARRANTS BASIS
-------- --------- -------- ------- ---------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advent Entities(1) 1,310,426 -- -- 349,344 259,310 61,984 -- 6,000 1,987,064
Crossroads
Entities (2) ... 46,000 3,000,000 835,875 -- 1,534,767 475,226 -- 10,000 5,901,868
DynaFund
Entities (3) ... 50,000 -- -- -- 1,671,562 -- -- 10,000 1,731,562
GMN Investors II,
L.P (4) ........ -- -- -- -- -- 1,652,960 -- 170,000 1,822,960
William E.
Gibson (5) ..... 985,961 -- -- 92,113 244,537 -- -- -- 1,322,611
William J.
Palumbo (6) .... 1,250,000 -- -- -- -- -- -- -- 1,250,000
William E. Kunz (7) 173,055 -- -- -- -- -- -- -- 173,055
Charles C. Pai (8). 210,447 -- -- 7,612 -- -- -- -- 218,059
Donald H.
MacLeod (9) .... 162,430 -- -- 19,031 -- -- -- -- 181,461
TRW (10) .......... 3,429,352 -- -- -- -- -- 2,300,000 10,000 5,739,352
</TABLE>
------------------
(1) Consists of 141,530 shares held by Adtel, L.P., 191,527 shares held by
Advent Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V.,
480,490 shares held by Advent International Investors II, L.P., 1,001,741
shares held by Global Private Equity II, L.P., 156,603 shares held by
Golden Gate Development and Investment, L.P., a warrant exercisable for
4,488 shares of common stock held by Global Private Equity II, L.P., a
warrant exercisable for 624 shares held by Adtel, L.P. and a warrant
exercisable for 888 shares held by Advent Crown Fund II, C.V. Andrew J.
Fillet, a member of our board of directors, is Managing Director of the
Advent Entities.
(2) Consists of 334,767 shares held by Crossroads Venture Capital LLC,
3,000,000 shares held by Crossroads Venture Investors II, L.P., 835,875
shares held by Crossroads Venture Investors III, L.P., 1,200,000 shares
held by Crossroads Venture Investors VI, L.P., 521,226 shares held by
Crossroads Venture Investors VII, L.P. and a warrant exercisable for 10,000
shares of common stock held by Crossroads Venture Capital, LLC. William E.
Gibson, a founder of our company and the Chairman of our board of
directors, is a member of Crossroads Venture Capital, LLC. and Managing
Partner of the other Crossroads Entities.
(3) Consists of 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P., 914,658 shares held by Dynamics Technology,
Inc. and a warrant exercisable for 10,000 shares of common stock held by
DynaTech Capital, LLC. Denny R. S. Ko, a member of our board of directors,
is a General
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<PAGE>
Partner of DynaFund International, L.P. and DynaFund, L.P. and is a member
of the board of directors of Dynamics Technology, Inc.
(4) David F. Millet, a member of our board of directors, is General Partner of
GMN Investors II, L.P.
(5) Consists of 1,405,498 shares held by Mr. Gibson, 92,113 shares held jointly
by Mr. Gibson and his wife, Kahala-Ann Trask Gibson and 240,000 shares held
by the William E. and Kahala-Ann Trask Gibson Charitable Remainder Trust.
Excludes 334,767 shares held by Crossroads Venture Capital LLC, 3,000,000
shares held by Crossroads Venture Investors II, L.P., 835,875 shares held
by Crossroads Venture Investors III, L.P., 1,200,000 shares held by
Crossroads Venture Investors VI, L.P., 521,226 shares held by Crossroads
Venture Investors VII, L.P. and a warrant exercisable for 10,000 shares of
common stock held by Crossroads Venture Capital LLC. Mr. Gibson, Managing
Partner of each of the Crossroads Entities, disclaims beneficial ownership
of the shares held by the Crossroads Entities except to the extent of his
pecuniary interest therein.
(6) Mr. Palumbo is our President and Chief Executive Officer.
(7) Mr. Kunz is our Senior Vice President, Engineering and Chief Technology
Officer.
(8) Mr. Pai is one of our founders and our Senior Vice President, Finance
and was our Chief Financial Officer and Secretary until April, 2000.
(9) Mr. MacLeod is one of our founders and our Senior Vice President,
International.
(10) TRW holds more than 5% of our capital stock and is entitled to designate
one member of our board of directors. TRW has designated Mark Silverman as
its designee to our board.
OPTIONS GRANTED TO FOUNDERS
The following individuals were founders of our company and have been
granted the options set forth below since our company was founded in 1997:
NAME OPTIONS EXERCISE PRICE
William E. Gibson.............................. 1,250,961 $ 0.297 per share
150,000 $ 0.20 per share
Charles C. Pai................................. 88,697 $ 0.27 per share
45,750 $ 0.16 per share
75,000 $ 0.05 per share
Donald H. MacLeod.............................. 84,380 $ 0.27 per share
3,050 $ 0.16 per share
75,000 $ 0.05 per share
In addition we have granted the following directed stock issuances to our
founders:
NAME COMMON STOCK
Charles C. Pai........................................... 1,000 shares
LEASE AGREEMENT
In May 1997, we leased 12,800 square feet of office space at 3285 Scott
Boulevard, Santa Clara, California. Since 1999, we have subleased the facility
to Momentum Laser, Inc., a company in which Mr. Gibson and the Crossroads
Entities have an ownership interest. Mr. Gibson's son, William Trask Gibson, is
the Vice President, Sales of Momentum Laser. Pursuant to its sublease with us,
Momentum Laser pays all costs related to the lease of the facility, including
monthly lease payments of $18,560 plus maintenance, property tax and insurance
charges. We remain obligated under the master lease which expires in April 2002.
We believe that the arrangement is no less favorable to us than that which would
otherwise be entered into with unaffiliated third parties.
MULTIPOINT NETWORKS, INC. ACQUISITION
In August 1998, we acquired Multipoint. In connection with this
acquisition, the former common stockholders of Multipoint exchanged all
outstanding shares of common stock of Multipoint for an aggregate of 2,746,053
shares of our common stock. The former Multipoint Series 1 preferred
stockholders exchanged all outstanding shares of their Multipoint Series 1
preferred stock for an aggregate of 2,146,838 shares of our Series C preferred
stock. In November 1999, we repurchased 59,983 shares of Series C preferred
stock from one investor. Certain holders of 5% or more of our capital stock,
executive officers, directors and persons associated with them acquired our
Series C preferred stock as a result of the Multipoint acquisition. Among the
parties participating in
62
<PAGE>
this exchange, Mr. Gibson, the Chairman of our board of directors, received
90,725 shares of our Series C preferred stock. Charles C. Pai, our Senior Vice
President, Finance, received 7,498 shares of our Series C preferred stock.
Donald MacLeod, our Senior Vice President, International, received 18,745 shares
of our Series C preferred stock. Adtel L.P. received 32,324 shares of our Series
C preferred stock. Advent Crown Fund C.V. received 45,829 shares of our Series C
preferred stock. Global Private Equity II, L.P. received 228,484 shares of our
Series C preferred stock and Golden Gate Development and Investment, L.P.
received 37,445 shares of our Series C preferred stock. At the time of the
acquisition, Mr. Gibson was our Chief Executive Officer and was also serving as
the Chief Executive Officer of Multipoint, Mr. Pai was our Chief Financial
Officer and was also serving as the Chief Financial Officer of Multipoint and
Mr. Gushiken was our Vice President, Manufacturing and was also serving as the
Vice President, Manufacturing of Multipoint. See "--Sales of Securities."
STRATEGIC RELATIONSHIP WITH TRW
We entered into a purchase and license agreement with TRW on January 14,
2000. Under the agreement, we purchased and obtained an exclusive, including as
to TRW, royalty-free worldwide license in point-to-multipoint wireless
networking technology, generally referred to in this prospectus as the STARPORT
technology. Any products we develop based on such technology may only be sold
with base stations configured for outdoor use. Sales of products containing the
STARPORT technology with base stations configured for indoor use or to the U.S.
Government--including organizations in which the U.S. is a member, such as
NATO--must be made through TRW or its licensees. The agreement provides TRW with
a royalty-free worldwide non-exclusive license in any improvements made by us
upon the STARPORT technology for the manufacture and sale of products to the
U.S. Government. If we do not offer a commercial version of a product containing
the STARPORT technology for sale by July 14, 2001, unless the delay is the fault
of TRW or attributable to certain specified reasons, we will lose our exclusive
license with TRW.
The STARPORT technology was originally developed by TRW Systems and
Information Group for military communications. TRW is an international company
that provides advanced technology products and services. The principal
businesses of TRW and its subsidiaries are the design, manufacture and sale of
products and the performance of systems engineering, research and technical
services for industry and the United States Government in the automotive,
aerospace and information systems markets. In connection with this agreement,
TRW acquired approximately 18% of our capital stock outstanding prior to the
offering, including 2,300,000 shares of our Series F preferred stock and
3,429,352 shares of common stock.
Under the terms of the purchase and license agreement, TRW has agreed to
establish an office for the continued development of STARPORT products to be
staffed by employees of both us and TRW and managed by us. TRW has agreed to
provide substantially all of the supplies, infrastructure and services for this
office. TRW will charge us for services performed by its employees at negotiated
rates, including expenses for overhead, facilities, equipment and general and
administrative expenses. TRW will also provide, at no additional charge, 24
person-months of consultation advice and 12 person-months of assistance in
responding to actual and potential claims regarding infringements of third-party
intellectual property rights in connection with the STARPORT technology. TRW is
required to pay for certain field trials of the STARPORT technology and all
products purchased or manufactured for use in these trials.
The purchase and license agreement also provides that, until January 14,
2003, at our option, TRW will purchase from L3 Communications, Inc. products and
components needed for use in, as well as services to develop and manufacture,
our STARPORT system at a negotiated markup. TRW will also pass through to us any
rights of exclusivity granted to TRW by L3 and any representations and
warranties granted in favor of TRW by L3.
In consideration of the right and licenses provided under the purchase
and license agreement and the technical assistance to be provided by TRW, we
have agreed to pay TRW 10% of the net proceeds of this offering or any private
placement of equity occurring on or before October 14, 2000, until we have paid
TRW an aggregate of $2.5 million. The balance of this amount is due on January
1, 2001, if it has not been paid prior to that date.
The purchase and license agreement terminates upon the expiration of the
last patent licensed under the agreement unless terminated earlier by either
party 30 days following a default by the other party. Liability for breaches
under the agreement by either party to the other is limited to $17.0 million
with the exception of, in our case, additional money to be paid by us to TRW
under the agreement or a related time and materials agreement.
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<PAGE>
COMMITMENTS TO PROVIDE CAPITAL
In February 2000, we received capital commitments of $2.5 million each
from Dynamics Technology, Inc., Gemini Investors LLC, Stratford Equity Partners,
L.P., Crossroads Venture Capital, LLC and TRW in the event that we did not
complete an initial public offering with gross proceeds of $25 million by May
31, 2000. Except for Stratford Equity Partners, each of these entities holds
more than 5% of our capital stock and is affiliated with a member of our board
of directors. To date, we have not needed to call upon these capital
commitments. The $12.5 million in commitments, if required, will be documented
in the form of convertible promissory notes bearing interest at a fixed rate of
10% per annum. If not prepaid, the notes will convert into shares issued in our
next round of equity financing of at least $15.0 million. In connection with
obtaining these commitments, we issued warrants to purchase 10,000 shares of our
common stock to each of these five investors at a price of $4.00 per share and
agreed to issue additional warrants for 30,000 shares of our common stock to
each of these five investors at the then fair market value per share if the loan
commitments are exercised, for each $2,500,000 borrowed. These warrants expire
upon the earlier of 5 years or 30 days after the consummation of an initial
public offering.
AGREEMENTS WITH OFFICERS AND DIRECTORS
On December 10, 1999, Wireless made a full recourse loan to William J.
Palumbo in the amount of $168,750 to fund the exercise of his option to purchase
625,000 shares of common stock. The loan bears interest at the rate of 6.47% per
year compounded annually, and principal and interest due under the loan are
payable on the earlier to occur of December 10, 2009, default on the loan, sale
of any of the underlying securities or termination of Mr. Palumbo's employment
with us. The loan is secured by a lien on the option shares.
We have an agreement with William E. Gibson under which Mr. Gibson is
paid $15,000 per month for his services as Chairman of our board of directors.
OTHER RELATED PARTY TRANSACTIONS
We have granted options and issued common stock to our executive officers
and directors. See "Management--Director Compensation" and "Principal
Stockholders."
Holders of shares of preferred stock and certain holders of warrants for
the issuance of common stock are entitled to registration rights in respect of
the common stock issued or issuable upon conversion or exercise thereof. See
"Description of Capital Stock--Registration Rights."
We have entered into an indemnification agreement with each of our
executive officers and directors containing provisions that may require us,
among other things, to indemnify our officers and directors against liabilities
that may arise by reason of their status or service as officers or directors
(other than liabilities arising from willful misconduct of a culpable nature)
and to advance expenses incurred as a result of any proceeding against them as
to which they could be indemnified. See "Management--Limitation of Liability and
Indemnification."
We have entered into non-competition and confidentiality agreements with
some of our officers.
We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between us and our officers, directors and principal stockholders and their
affiliates and any transactions between us and any entity with which our
officers, directors or five percent stockholders are affiliated will be approved
by a majority of the board of directors, including a majority of the independent
and disinterested outside directors of the board of directors and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of March 31, 2000, by the following individuals or
groups:
o each person or entity who is known by us to own beneficially more than
5% of our outstanding stock;
o each of the named executive officers;
o each of our directors; and
o all directors and executive officers as a group.
Each stockholder's percentage ownership prior to the offering in the
following table is based on 32,849,348 shares of common stock outstanding as of
March 31, 2000, and 41,349,348 shares of common stock outstanding after the
offering, assuming in each case the conversion of all outstanding shares of
preferred stock upon the closing of this offering, the exercise of all
outstanding warrants to purchase preferred stock and the exercise of all
outstanding warrants to purchase common stock which, by their terms, expire or
convert within 30 days of the completion of this offering, plus any outstanding
options and any other warrants to purchase common stock exercisable within 60
days of March 31, 2000held by the particular stockholder that are included in
the first column. The numbers shown in the table below assume no exercise by the
underwriters of their over-allotment option.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Wireless, Inc., 5452 Betsy Ross Drive, Santa Clara, CA
95054. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock held by them.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES BENEFICIALLY OWNED
NUMBER OF SHARES ------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO OFFERING AFTER THE OFFERING
-------------------------------------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
Crossroads Entities (1)........................... 5,901,868 18.0% 14.3%
TRW (2)........................................... 5,739,352 17.5% 13.9%
DynaFund Entities (3)............................. 1,731,562 5.3% 4.2%
GMN Investors II, L.P. (4)........................ 1,822,960 5.6% 4.4%
Advent Entities (5)............................... 1,987,064 6.1% 4.8%
William E. Gibson (6)............................. 7,639,479 23.3% 18.5%
William J. Palumbo(7)............................. 1,250,000 3.8% 3.0%
Charles C. Pai.................................... 218,059 * *
William E. Kunz................................... 173,055 * *
Donald H. MacLeod................................. 181,461 * *
Patrick A. Rivelli (8)............................ 315,000 * *
Denny R.S. Ko (9)................................. 1,801,562 5.5% 4.4%
David F. Millet (10).............................. 1,892,960 5.8% 4.6%
Andrew I. Fillat (11)............................. 2,067,066 6.3% 5.0%
Mark S. Silverman(12)............................. -- * *
All directors and executive officers as a group
(14 persons) (13).............................. 16,186,844 49.3% 39.2%
</TABLE>
--------------
* Less than one percent.
(1) Consists of 334,767 shares held by Crossroads Venture Capital LLC,
3,000,000 shares held by Crossroads Venture Investors II, L.P., 835,875
shares held by Crossroads Venture Investors III, L.P., 1,200,000 shares
held by Crossroads Venture Investors VI, L.P., 521,226 shares held by
Crossroads Venture Investors VII, L.P. and a warrant exercisable for 10,000
shares of common stock held by Crossroads Venture Capital LLC
(collectively, the Crossroads Entities). The address for the Crossroads
Entities is 155 Montgomery Street, Suite 603, San Francisco, California
94104.William E. Gibson and his wife, Kahala-Ann Trask Gibson, are the sole
members of Crossroads Venture Capital LLC. Mr. Gibson exercises control
over the shares held by the other Crossroads Entities.
(2) Includes a warrant exercisable for 10,000 shares of common stock. The
address for TRW is 12011 Sunset Hills Road, Reston, Virginia 20190.
Executive officers of TRW designated from time to time by the board of
65
<PAGE>
directors of TRW have the power and authority to vote and/or dispose of, on
behalf of TRW, shares of stock owned by TRW.
(3) Consists of 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P. and 914,658 shares held by Dynamics
Technology, Inc. and a warrant exercisable for 10,000 shares of common
stock held by DynaTech Capital, LLC. (collectively, the DynaFund Entities).
The address for the DynaFund Entities is 21311 Hawthorne Blvd, Suite 300,
Torrance, California 90503. Denny R. S. Ko, James Liao and Richard Whiting
are the General Partners of DynaFund International L.P. and DynaFund, L.P.
who exercise control over shares held by those funds. Executive officers of
Dynamics Technology designated from time to time by the board of directors
of Dynamics Technology have the power and authority to vote and/or dispose
of, on behalf of Dynamics Technology, shares of our stock owned by Dynamics
Technology. Dr. Ko is Chairman of the board of directors of, Dynamics
Technology, Inc.
(4) Includes warrants exercisable for an aggregate of 170,000 shares of common
stock. The address for GMN Investors II, L.P. is 20 William Street,
Wellesley, Massachusetts 12481. David F. Millet, James Goodman and Jeffery
Newton are the Partners of GMN Investers II, L.P. who exercise control over
the shares held by the fund.
(5) Consists of 141,530 shares held by Adtel, L.P., 191,527 shares held by
Advent Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V.,
480,490 shares held by Advent International Investors II, L.P., 1,001,741
shares held by Global Private Equity II, L.P., 156,603 shares held by
Golden Gate Development and Investment, L.P., a warrant exercisable for
4,488 shares of common stock held by Global Private Equity II, L.P., a
warrant exercisable for 624 shares of common stock held by Adtel, L.P. and
a warrant exercisable for 888 shares of common stock held by Advent Crown
Fund II, C.V. (collectively, the Advent Entities). Andrew I. Fillet is the
Managing Director of the Advent Entities who exercises control over the
shares held by the Advent Entities.
(6) Includes 1,497,611 shares held jointly by Mr. Gibson and his wife,
Kahala-Ann Trask Gibson, 240,000 shares held by the William E. and
Kahala-Ann Trask Gibson Charitable Remainder Trust, 334,767 shares held by
Crossroads Venture Capital LLC, 3,000,000 shares held by Crossroads Venture
Investors II, L.P., 835,875 shares held by Crossroads Venture Investors
III, L.P., 1,200,000 shares held by Crossroads Venture Investors VI, L.P.,
521,226 shares held by Crossroads Venture Investors VII, L.P. and a warrant
exercisable for 10,000 shares of common stock held by Crossroads Venture
Capital LLC. William E. and Kahala-Ann Trask Gibson are the sole members of
Crossroads Venture Capital LLC. Mr. Gibson, Managing Partner of each of the
Crossroads Entities, disclaims beneficial ownership of the shares held by
the Crossroads Entities except to the extent of his pecuniary interest
therein. Further, Mr. Gibson disclaims beneficial ownership of 96,900
shares held by Crossroads Venture Investors II in which he holds a
pecuniary interest, such shares being held in the Gibson Family Trust, an
educational trust for Ho'okele O Kamakani Trask Gibson Granroos, Kalae
Ola'a Ku'upoki'ialoha Kamaka'alohi o Pu'ulena Trask Sharpe, Mililani
Kaleionaona Trask-Batti, Kawehi Lakea Imaikalani Trask-Batti, Hulali Kakea
I Mahealani Trask, Kaiana Kaukaohu Trask, Mahi Lee William Cooper and
Kauakea Ian Bucken Cooper. See Footnote 1.
(7) Includes 250,000 shares which we have the right to repurchase if we have
not completed a successful initial public offering on or before December
31, 2000.
(8) Consists of 315,000 shares held by the Patrick A. Rivelli Senior and Yvonne
D. Rivelli Trust. The address for Mr. Rivelli is 12221 Merit Drive, #935,
Dallas, Texas 75251.
(9) Includes 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P., 914,658 shares held by Dynamics Technology,
Inc. and a warrant exercisable for 10,000 shares of common stock held by
DynaTech Capital, LLC. Dr. Ko, Chairman of the board of directors of
Dynamics Technology, Inc. and a General Partner of DynaFund International
and DynaFund, L.P., disclaims beneficial ownership of the shares held by
the DynaFund Entities except to the extent of his pecuniary interest
therein. See Footnote 3.
(10) Consists of 1,652,960 shares held by GMN Investors II, L.P. and warrants
exercisable for 170,000 shares held by GMN Investors II, L.P. Mr. Millet,
General Partner of GMN Investors II, L.P., disclaims beneficial ownership
of the shares held by GMN Investors II, L.P. except to the extent of his
pecuniary interest therein. See Footnote 4
(11) Includes 141,530 shares held by Adtel, L.P., 191,527 shares held by Advent
Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V., 480,490
shares held by Advent International Investors II, L.P., 1,001,741 shares
held by Global Private Equity II, L.P., 156,603 shares held by Golden Gate
Development and Investment, L.P., a warrant exercisable for 4,488 shares of
common stock held by Global Private Equity II, L.P., a warrant exercisable
for 624 shares of common stock held by Adtel, L.P. and a warrant
exercisable for 888 shares of common stock held by Advent Crown Fund II,
C.V. Mr. Fillat, Managing Director of the
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Advent Entities, disclaims beneficial ownership of shares held by the
Advent Entities except to the extent of his pecuniary interest therein. See
Footnote 5.
(12) Mr. Silverman serves on our board of directors as the designee of TRW. See
Footnote 2.
(13) Includes options exercisable for 705,000 shares of common stock within 60
days of March 31, 2000 under the 1997 stock option/stock issuance plan and
warrants exercisable for196,000 shares of common stock within 60 days of
March 31, 2000. See Footnotes 6-11.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
At the closing of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.001 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.001 par value per share, after giving
effect to the amendment of our certificate of incorporation to delete references
to the existing preferred stock following conversion of that stock. The
following description of capital stock gives effect to the certificate of
incorporation to be filed upon closing of this offering. Immediately following
the completion of this offering, and assuming no exercise of the underwriters'
over-allotment option, an aggregate of shares of common stock will be issued and
outstanding, and no shares of preferred stock will be issued and outstanding.
The following provides a summary description of our capital stock and our
certificate of incorporation and bylaws, which are included as exhibits to the
registration statement of which this prospectus forms a part, and the provisions
of applicable Delaware law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock that may come into existence, the
holders of common stock are entitled to receive ratably those dividends, if any,
as may be declared from time to time by the board of directors out of funds
legally available for dividends. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. Our common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock.
PREFERRED STOCK
Our board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, any or all of our
authorized but unissued shares of preferred stock with any dividend, redemption,
conversion and exchange provisions as may be provided in the particular series.
Any series of preferred stock may possess voting, dividend, liquidation and
redemption rights superior to those of the common stock. The rights of the
holders of our 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. Issuance of a new series of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of entrenching our board of directors and making
it more difficult for a third-party to acquire, or discourage a third-party from
acquiring, a majority of our outstanding voting stock. We have no present plans
to issue any shares of or designate any series of preferred stock.
WARRANTS
As of March 31, 2000, we had outstanding warrants to purchase an
aggregate of 565,122 shares of our common stock on an as-converted basis,
including:
o Warrants to purchase 316,000 shares of common stock at $0.75 per share
which will expire on March 31, 2005;
o Warrants to purchase 30,460 shares of common stock at $1.22 per share
which will expire on May 5, 2002;
o Warrants to purchase 48,000 shares of common stock at $1.25 per share,
which will expire on October 16, 2003;
o Warrants to purchase 20,662 and 100,000 shares of common stock at $2.50
per share, which will expire on September 13, 2004 and upon the closing
of this offering, respectively; and
o Warrants to purchase 50,000 shares of common stock at $4.00 per share,
which will expire 30 days after the closing of this offering.
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CONVERTIBLE PROMISSORY NOTE
AMT Capital, Ltd. holds a promissory note, dated as of August 17, 1999 in
the principal amount of $1,000,000 which note is convertible into 320,000 shares
of Series E preferred stock and upon conversion the holder will receive a
warrant to purchase 32,000 shares of common stock at an exercise price of $0.75
per share. The note matures on September 1, 2004, bears interest at a fixed rate
of 10% per annum and may be converted at any time at or prior to maturity.
REGISTRATION RIGHTS
After this offering, under the terms of an investors' rights agreement,
holders of 20,509,837 shares of our common stock and 468,960 shares of our
common stock issuable upon the exercise of outstanding warrants will be entitled
to certain registration rights with respect to their capital stock of Wireless.
Under the investors' rights agreement, at any time after the earlier of January
31, 2001 or three months after our initial public offering, holders of more than
30% of these shares may require us to effect registration under the Securities
Act, subject to the board of directors' right if such registration would harm
us, to defer such registration for up to 60 days. In addition, if we propose to
issue equity securities under the Securities Act for our own account in an
underwritten public offering, then any of the investors has a right, subject to
quantity limitations determined by the underwriters, to request that we register
such investor's registrable securities. Once we qualify to register the sale of
securities on Form S-3, under the investors rights agreement, investors
proposing to sell an aggregate of at least $2,000,000 of registrable securities
may require us to effect one S-3 registration per year. All registration
expenses incurred in connection with any of the registrations described above
will be borne by us. The participating investors will pay for underwriting
discounts and commissions incurred in connection with any such registrations. We
have agreed to indemnify the investors against liabilities such as Securities
Act liabilities in connection with any registration effected by us in which
their shares are included under the investors' rights agreement. Registration of
any of the shares of common stock held by security holders with registration
rights would result in such shares becoming freely tradeable without restriction
under the Securities Act immediately upon effectiveness of such registration.
These registration rights terminate once all shares of our stock may be sold
under Rule 144 during any 90 day period. In addition, holders of 96,162 shares
of our common stock issuable upon the exercise of outstanding warrants will be
entitled to registration rights different from those described above. In
particular, these holders are entitled to include their shares in any
registration initiated by us or by other holders on Forms S-1 or S-3 (excluding
registrations relating to stock plans) without being subject to underwriters'
quantity limitations. Holders of an additional 133,000 shares issuable upon the
exercise of outstanding options will be entitled to require us to register their
shares pursuant to a Form S-3 reoffer prospectus beginning one year after the
date of this prospectus.
COMPLIANCE WITH CALIFORNIA LAW
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of our outstanding voting securities are held of record
by persons having addresses in California and the majority of the company's
operations occur in California. For example, while we are subject to Section
2115, stockholders may cumulate votes in electing directors. This means that
each stockholder may vote the number of votes equal to the number of candidates
multiplied by the number of votes to which the stockholder's shares are normally
entitled in favor of one candidate. This potentially allows minority
stockholders to elect some members of the board of directors. When we are no
longer subject to Section 2115, unless our certificate of incorporation is
amended to provide for cumulative voting, cumulative voting will not be allowed
and a holder of 50% or more of our voting stock will be able to control the
election of all directors. In addition to this difference, Section 2115 has the
following additional effects:
o enables removal of directors with or without cause with majority
stockholder approval;
o places limitations on the distribution of dividends;
o extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and
o provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
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We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we may have at
least 800 stockholders by the record date for our 2000 annual meeting of
stockholders. If these two conditions occur, then we will no longer be subject
to Section 2115 as of the record date for our 2000 annual meeting of
stockholders.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Our certificate of incorporation authorizes our board to issue up to
5,000,000 shares of undesignated preferred stock after the offering. Further,
without any further vote or action on the part of our stockholders, our board of
directors will have the authority to determine the rights, preferences,
privileges and restrictions of the undesignated preferred stock. See
"--Preferred Stock." Our certificate of incorporation also provides that all
stockholder action must be effected at a duly called meeting of stockholders and
not by written consent. In addition, our certificate of incorporation and bylaws
do not permit our stockholders to call a special meeting of stockholders. Only
our Chief Executive Officer, President, Chairman of the Board or a majority of
the board of directors are permitted to call a special meeting of stockholders.
Our certificate of incorporation also provides that the board of directors is
divided into three classes, with each director assigned to a class with a term
of three years, and that the number of directors may only be determined by the
board of directors. Our bylaws require that stockholders give advance notice to
our secretary of any nominations for director or other business to be brought by
stockholders at any stockholders' meeting, and that the chairman of the board
has the authority to adjourn any meeting called by the stockholders. Our bylaws
also require a supermajority vote of members of the board of directors and/or
stockholders to amend certain bylaw provisions. These provisions of our restated
certificate of incorporation and our bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
company. These provisions also may have the effect of preventing changes in our
management. See "Risk Factors--Our certificate of incorporation and bylaws may
discourage potential acquisitions of our business by third parties that
stockholders may consider favorable and this may reduce the price of our
common stock."
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
o prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by:
o persons who are directors and also officers; and
o employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or
o on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder.
Section 203 defines a business combination to include the following:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
o subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
o any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; or
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o the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.
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MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of the common stock
applicable to holders who are not U.S. persons within the meaning of the
Internal Revenue Code. A U.S. person is any person who is:
o a citizen or resident of the U.S.;
o a corporation, partnership, unless otherwise provided by Treasury
regulations, or other entity created or organized in the U.S. or under
the laws of the U.S. or any political subdivision thereof;
o an estate whose income is included in gross income for U.S. federal
income tax purposes regardless of
its source; or
o a trust whose administration is subject to the primary supervision
of a U.S. court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust.
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant in light of a holder's particular facts and
circumstances, such as being a U.S. expatriate, and does not address any tax
consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect. We have
not and will not seek a ruling from the Internal Revenue Service with respect to
the U.S. federal income and estate tax consequences described below, and as a
result, there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions set forth in this discussion.
In addition, the Internal Revenue Service is not precluded from adopting a
contrary position.
DIVIDENDS
Any dividend paid to a holder of common stock who is not a U.S. person
generally will be subject to U.S. withholding tax either at a rate of 30% of the
gross amount of the dividend or such lower rate as may be specified by an
applicable tax treaty. Dividends received by a holder that are effectively
connected with a U.S. trade or business conducted by the holder are exempt from
such withholding tax. However, those effectively connected dividends, net of
certain deductions and credits, are taxed at the same graduated rates applicable
to U.S. persons.
In addition to the graduated rates described above, dividends received by
a corporate holder that are effectively connected with its U.S. trade or
business may also be subject to a branch profits tax at a rate of 30% or such
lower rate as may be specified by an applicable tax treaty.
A holder of common stock that is eligible for a reduced rate of
withholding tax under the terms of a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A holder of common stock who is not a U.S. person generally will not be
subject to U.S. federal income tax on any gain realized upon the sale or other
disposition of his common stock unless:
o the gain is effectively connected with a U.S. trade or business of the
holder, which gain, in the case of a corporate holder, must also be
taken into account for branch profits tax purposes;
o the holder is an individual who holds his or her common stock as a
capital asset and who is present in the U.S. for a period or periods
aggregating 183 days or more during the calendar year in which the sale
or disposition occurs and certain other conditions are met; or
o we are or have been a United States real property holding corporation
within the meaning of the Internal Revenue Code at any time within the
shorter of the five-year period preceding the disposition or the
holder's holding period for its common stock. We have determined that
we are not and do not believe that we will become a United States real
property holding corporation.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder of the common
stock. Under tax treaties or other agreements, the Internal Revenue Service may
make its reports available to tax authorities in the recipient's country of
residence.
Dividends paid to a holder who is not a U.S. person at an address within
the U.S. may be subject to backup withholding at a rate of 31% if the holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payer. Backup
withholding will generally not apply to dividends paid to holders who are not
U.S. persons at an address outside the U.S. on or prior to December 31, 2000,
unless the payer has knowledge that the payee is a U.S. person. Final Treasury
Regulations regarding withholding and information reporting provide that
payments of dividends to a holder who is not a U.S. person at an address outside
the U.S. after December 31, 2000, may be subject to backup withholding at a rate
of 31% unless such holder satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the U.S. office of a broker is subject
to information reporting and backup withholding at a rate of 31% unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a holder of common stock who is not a U.S. person outside the
U.S. to or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is a U.S. person, a controlled foreign corporation as defined in the
Internal Revenue Code, or a foreign person 50% or more of whose gross income for
certain periods is from the conduct of a U.S. trade of business, unless the
broker has documentary evidence in its files of the holders' non-U.S. status and
certain other conditions are met, or the holder otherwise establishes an
exemption. Neither backup withholding nor information reporting generally will
apply to a payment of the proceeds of a disposition of common stock by or
through a foreign office of a foreign broker not subject to the preceding
sentence.
In general, the final Treasury Regulations applicable to payments made
after December 31, 2000, described above, do not significantly alter the
substantive withholding and information reporting requirements but do alter the
procedures for claiming benefits of an income tax treaty and change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of the beneficial owner of shares of common stock. Holders should
consult their tax advisors regarding the effect, if any, of those final Treasury
Regulations on an investment in the common stock.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment, a refund may be obtained,
provided that the required information is furnished to the Internal Revenue
Service.
ESTATE TAX
An individual holder who owns common stock at the time of his death or
had made one or more of certain lifetime transfers of an interest in common
stock will be required to include the value of that common stock in such
holder's gross estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
THE FOREGOING IS A DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF COMMON
STOCK BY HOLDERS WHO ARE NOT U.S. PERSONS WITHIN THE MEANING OF THE INTERNAL
REVENUE CODE. ACCORDINGLY, INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE,
LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.
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SHARES AVAILABLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and we do not know the effect, if any, that market sales of shares of our
common stock or the availability of shares of our common stock for sale will
have on the market price of common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the completion of this offering we will have 41,349,348 shares of
common stock outstanding assuming no exercise of the underwriters over-allotment
option. The number of shares of common stock to be outstanding after this
offering is based on the number of shares outstanding as of March 31, 2000, and
excludes:
o 1,444,975 shares of common stock issuable upon the exercise of stock
options outstanding as of March 31, 2000 at a weighted average exercise
price of $2.18 per share;
o 390,460 shares of common stock issuable upon the exercise of
outstanding warrants as of March 31, 2000 at a weighted average
exercise price of $0.79 per share;
o 330,592 shares of common stock issuable upon conversion of an
outstanding convertible promissory note, as of March 31, 2000;
o 8,750,000 shares of common stock reserved for issuance under our 2000
stock incentive plan that incorporates our 1998 stock plan; and
o 250,000 shares of common stock reserved for issuance under our 2000
employee stock purchase plan.
Of the outstanding shares, all of the shares sold in this offering will
be freely tradable, except that any shares held by our affiliates, as that term
is defined in Rule 144 promulgated under the Securities Act, may only be sold in
compliance with the limitations described below. The remaining 32,849,348 shares
of common stock will be deemed restricted securities as defined under Rule 144.
Restricted shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the lock-up agreements described below and the provisions of Rules 144,
144(k) and 701, additional shares will be available for sale in the public
market as follows:
NUMBER OF
SHARES DATE
-------------- --------------------------------------------------------------
189,779 After the date of this prospectus, shares saleable under Rule
144(k) that are not subject to the 180-day lock-up
37,269 After 90 days from the date of this prospectus, shares
saleable under Rule 701 that are not subject to the 180-day
lock-up
5,957,586 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under
Rule 701, subject to repurchase by us
25,845,241 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under
Rule 144, subject, in some cases, to volume limitations, or
Rule 144(k)
6,475,325 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not
yet saleable under Rule 144
RULE 144
In general, under Rule 144 as currently in effect, a person, or group of
persons whose shares are required to be aggregated, including any of our
affiliates, who has beneficially owned shares for at least one year, including
the holding period of any prior owner who is not an affiliate, is entitled to
sell within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of one percent
of the then-outstanding shares of our common stock, which will be approximately
413,000 shares immediately after this offering, or the average weekly trading
volume in our common stock during the four calendar weeks preceding the date on
which notice of such sale is filed, subject to certain restrictions. In
addition, a person who is not deemed to have been an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner who is
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not an affiliate, would be entitled to sell these shares under Rule 144(k)
without regard to the requirements described above, unless otherwise
contractually restricted. To the extent that shares were acquired from one of
our affiliates, a person's holding period for the purpose of effecting a sale
under Rule 144 would commence on the date of transfer from the affiliate.
STOCK OPTIONS
As of March 31, 2000, options to purchase a total of 1,444,975 shares of
common stock were outstanding, all of which were currently exercisable. Only a
portion of the shares issuable upon exercise of these options were vested. We
intend to file a Form S-8 registration statement under the Securities Act to
register all shares of common stock issuable under our 2000 stock incentive plan
and our 2000 employee stock purchase plan. Accordingly, shares of common stock
underlying these options will be eligible for sale in the public markets,
subject to vesting restrictions or the lock-up agreements described below. See
"Executive Compensation and other information--Employee Benefit Plans."
In general, under Rule 701 of the Securities Act of 1933 as currently in
effect, each of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the date of this prospectus in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
LOCK-UP AGREEMENTS
We have agreed, and each of our officers and directors and substantially
all of our securityholders have agreed, subject to specified exceptions, not to,
without the prior written consent of Salomon Smith Barney Inc., sell, otherwise
dispose of any shares of our common stock or options to acquire shares of our
common stock or take any action to do any of the foregoing during the 180-day
period following the date of this prospectus. Salomon Smith Barney Inc. may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. See "Underwriting."
REGISTRATION RIGHTS
Following this offering, under specified circumstances and subject to
customary conditions, holders of approximately 20,509,837 shares of our
outstanding common stock and warrants to purchase up to 468,960 shares of our
common stock will have demand registration rights with respect to their shares
of common stock, subject to the 180-day lock-up arrangement described above, to
require us to register their shares of common stock under the Securities Act,
and rights to participate in any future registrations of our securities. Holders
of an additional 96,162 shares of our common stock issuable upon exercise of
outstanding warrants will be entitled to participate in any future registrations
of our securities without being subject to underwriters' quantity limitations,
but will not possess demand registration rights. Holders of an additional
133,000 shares of our common stock issuable upon exercise of outstanding options
will be entitled to require us to register their shares of common stock pursuant
to a Form S-3 reoffer prospectus beginning one year after the date of this
prospectus. If the holders of these registrable securities request that we
register their shares, and if the registration is effected, these shares will
become freely tradable without restriction under the Securities Act. Any sales
of securities by these stockholders could have a material adverse effect on the
trading price of our common stock. See "Description of Capital
Stock--Registration Rights."
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
each underwriter named below has severally agreed to purchase, and we have
agreed to sell to such underwriter, the number of shares set forth opposite the
name of such underwriter.
NUMBER OF
NAME SHARES
------- ----------------
Salomon Smith Barney Inc.............................
CIBC World Markets Corp..............................
Prudential Securities Incorporated...................
----------------
Total............................................. 8,500,000
================
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and other conditions. The underwriters are
obligated to purchase all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc., CIBC World Markets
Corp. and Prudential Securities Incorporated are acting as representatives,
propose to offer some of the shares directly to the public at the public
offering price set forth on the cover page of this prospectus and some of the
shares to certain dealers at the public offering price less a concession not in
excess of $ ______________ per share. The underwriters may allow, and such
dealers may reallow, a concession not in excess of $ ___________ per share on
sales to other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and the
other selling terms. The representatives have advised us that the underwriters
do not intend to confirm any sales to any accounts over which they exercise
discretionary authority.
We have granted the underwriters a 30-day option to purchase up to an
additional 1,275,000 shares to cover over-allotments, if any. The underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, in connection with this offering. To the extent such option is exercised,
each underwriter will be obligated, subject to the conditions stated above, to
purchase a number of additional shares approximately proportionate to such
underwriter's initial purchase commitment.
Our officers, directors and substantially all of our stockholders have
agreed that, for a period of 180 days from the date of this prospectus, they
will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities convertible
into or exchangeable for common stock. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.
The underwriters have reserved for sale, at the initial public offering
price, up to _______________ common shares for customers, directors, employees
and other persons associated with us who have expressed an interest in
purchasing common shares in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent these
persons purchase these reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our shares will be
determined by negotiations among us and the representatives. Among the factors
to be considered in determining the initial public offering price will be our
record of operations, our current financial condition, our future prospects, our
markets, the economic conditions in and future prospects for the industry in
which we compete, our management, and currently prevailing general conditions in
the equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. There can
76
<PAGE>
be no assurance, however, that the prices at which our shares will sell in the
public market after this offering will not be lower than the price at which they
are sold by the underwriters or that an active trading market in our common
stock will develop and continue after this offering.
We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "WLSS."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
PAID BY WIRELESS
------------------------------
NO EXERCISE FULL EXERCISE
------------ --------------
Per share............................ $ $
Total................................ $ $
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market of price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters. The underwriters may agree to
allocate a number of shares to underwriters for sale to their online brokerage
account holders. The representatives will allocate shares to underwriters that
may make Internet distribution on the same basis as other allocations.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
AdvisorSM, a full service brokerage firm program, may view offering terms and a
prospectus online and place orders through their financial advisors.
We estimate that the total expenses, excluding underwriting discounts and
commissions, of this offering will be approximately $2.3 million.
We have agreed to indemnify the underwriters against liabilities to which
they may become subject, including liabilities that may arise under the
Securities Act of 1933, the Securities Exchange Act of 1934 or other federal or
state statutory law or regulation, at common law or otherwise or to contribute
to payments the underwriters may be required to make in respect of any of those
liabilities.
77
<PAGE>
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, Palo Alto, California. Attorneys associated
with Brobeck, Phleger & Harrison LLP and two investment funds associated with
Brobeck, Phleger & Harrison LLP beneficially own 200,000 shares of our common
stock. Pillsbury Madison & Sutro LLP, Palo Alto, California is acting as counsel
for the underwriters in connection with selected legal matters relating to the
shares of common stock offered by this prospectus.
EXPERTS
The financial statements and the related financial statement schedule of
Wireless, Inc. as of December 31, 1998 and 1999 and for the period May 7, 1997
(inception) to December 31, 1997 and the years ended December 31, 1998 and 1999
have been included in this prospectus and registration statement in reliance
upon the reports of KPMG LLP, independent auditors, appearing elsewhere in the
prospectus and registration statement, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Multipoint Networks, Inc. for the period
January 1, 1998 to August 25, 1998 have been included in this prospectus and
registration statement in reliance upon the report of KPMG LLP, independent
auditors, appearing elsewhere in the prospectus, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, under the Securities Act a registration statement on Form S-1
relating to the common stock offered. This prospectus does not contain all of
the information set forth in the registration statement and its exhibits and
schedules. For further information with respect to us and the shares we are
offering through this prospectus, you should refer to the registration statement
and its exhibits and schedules. You may read or obtain a copy of the
registration statement at the commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the public reference room by calling the commission at
1-800-SEC-0330. The commission maintains a web site that contains reports, proxy
information statements and other information regarding registrants that file
electronically with the commission. The address of this web site is
http://www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish other reports as we may determine or as may be
required by law.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WIRELESS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Form of Independent Auditors' Report................................................................... F-2
Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000 and pro forma stockholders'
equity as of March 31, 2000......................................................................... F-3
Statements of Operations for the period from May 7, 1997 (inception) to December 31,1997, the years
ended December 31, 1998 and 1999 and the three month periods ended March 31, 1999 and 2000.......... F-4
Statements of Stockholders' Equity for the period from May 7, 1997 (inception) to December 31, 1997,
the years ended December 31, 1998 and 1999 and the three month periods ended March 31, 1999 and
2000................................................................................................ F-5
Statements of Cash Flows for the period from May 7, 1997 (inception) to December 31, 1997, the years
ended December 31, 1998 and 1999 and the three month periods ended March 31, 1999 and 2000.......... F-6
Notes to Financial Statements.......................................................................... F-7
MULTIPOINT NETWORKS, INC.
PAGE
----
Independent Auditors' Report.......................................................................... F-25
Statement of Operations for the period from January 1, 1998 to August 25, 1998........................ F-26
Statement of Stockholders' Equity for the period from January 1, 1998
to August 25, 1998................................................................................. F-27
Statement of Cash Flow for the period from January 1, 1998 to August 25, 1998......................... F-28
Notes to the Statement of Operations.................................................................. F-29
</TABLE>
F-1
<PAGE>
FORM OF INDEPENDENT AUDITORS' REPORT
When the event referred to in Note 11(e) of the Wireless, Inc. financial
statements has been consummated, we will be in a position to render the
following report.
/s/ KPMG LLP
The Board of Directors
Wireless, Inc.:
We have audited the accompanying balance sheets of Wireless, Inc. as of December
31, 1998 and 1999, and the related statements of operations, stockholders'
equity, and cash flows for the period from May 7, 1997 (inception) to December
31, 1997 and the years ended December 31, 1998 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wireless, Inc. as of December
31, 1998 and 1999, and the results of their operations and their cash flows for
the period from May 7, 1997 (inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999 in conformity with generally accepted accounting
principles.
Mountain View, California February 23, 2000, except for Note 11 which is as of
June , 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
WIRELESS, INC.
BALANCE SHEETS
MARCH 31,
2000
-------------
PRO FORMA
DECEMBER 31, MARCH 31, STOCKHOLDERS'
------------------------- ----------- EQUITY
1998 1999 2000 (NOTE 1)
------------ ------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents, including restricted cash of $80,000
at December 31, 1998, 1999 and March 31, 2000................. $ 357,580 $ 1,140,409 $10,692,204
Accounts receivable, net of allowance of $299,223, $1,193,635
and $1,349,365 at December 31, 1998, 1999, and March 31,
2000, respectively.......................................... 3,732,846 4,877,834 4,633,949
Inventory....................................................... 3,787,376 4,962,346 5,302,660
Prepaid expenses and other current assets....................... 416,840 1,148,724 1,560,824
------------ ------------ -----------
Total current assets...................................... 8,294,642 12,129,313 22,189,637
------------ ------------ -----------
Lease receivable, long-term........................................ -- 184,077 115,000
Property and equipment, net........................................ 692,640 1,245,350 1,616,464
Goodwill and intangible assets net of amortization................. 4,228,103 3,125,939 14,395,243
------------ ------------ -----------
Total assets.............................................. $13,215,385 $16,684,679 $38,316,344
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 5,129,710 $ 3,420,662 $ 2,582,157
Line of credit.................................................. 1,500,000 -- --
Accrued liabilities............................................. 832,790 1,458,653 1,730,898
Due to TRW...................................................... -- -- 7,204,000 --
Sales commission payable........................................ 804,086 1,512,882 611,693
Current portion of capital lease obligations.................... 41,128 171,254 152,437
Convertible notes payable....................................... 4,161,064 1,000,000 1,000,000
------------ ------------ -----------
Total current liabilities................................. 12,468,778 7,563,451 13,281,185
Capital lease obligations, less current portion ................... 84,193 239,306 239,306
------------ ------------ -----------
Total liabilities......................................... 12,552,971 7,802,757 13,520,491
------------ ------------ -----------
Commitments
Stockholders' equity:
Series A convertible preferred stock; 6,000,000 shares --
authorized; 4,300,000 shares issued and outstanding at
December 31, 1998 and 1999 and March 31, 2000; aggregate
liquidation preference of $2,150,000 for all periods
presented and 1999 ($0.50 per share) ......................... 2,150,000 2,150,000 2,150,000 $
Series B convertible preferred stock; 750,000 shares authorized;
750,000 shares issued and outstanding at December 31, 1998 and
1999 and March 31, 2000; aggregate liquidation preference of
$1,500,000 for all periods presented ($2.00 per share)........ 1,500,000 1,500,000 1,500,000 --
Series C convertible preferred stock, 2,400,000 shares
authorized; 2,146,868 at December 31, 1998 and 2,086,885
shares issued and outstanding at December 31, 1999 and
March 31, 2000; aggregate liquidation preference of
$2,855,333, $2,775,556 and $2,775,556 at December 31, 1998,
1999 and March 31, 2000 respectively ($1.33 per share)........ 2,855,333 2,775,556 2,775,556 --
Series D convertible preferred stock, 6,600,000 shares
authorized; 6,541,013 issued and outstanding at December 31,
1999 and March 31, 2000, aggregate liquidation preference of
$8,176,266 at December 31, 1999 and March 31, 2000 ($1.25 per
share)........................................................ -- 8,161,966 8,161,966 --
Series E convertible preferred stock, 4,000,000 shares
authorized; 3,600,000 issued and outstanding at December 31,
1999 and March 31, 2000; aggregate liquidation preference of
$9,000,000 at December 31, 1999 and March 31, 2000 ($2.50 per
share)........................................................ -- 8,173,442 8,173,442 --
Series F convertible preferred stock, 3,000,000 shares 14,536,287
authorized; 3,000,000 issued and outstanding at March 31,
2000; aggregate liquidation preference of $15,000,000 at
March 31, 2000 ($5.00 per share)............................. -- --
Common stock, $0.001 par value; 30,000,000 shares authorized at
December 31, 1998 and 50,000,000 shares authorized at December 31, 1999 and
March 31, 2000; 3,625,702, 7,894,548 and 12,115,824 shares issued and
outstanding at December 31, 1998, 1999 and March 31, 2000, actual;
100,000,000 shares authorized, 32,849,348 shares issued and outstanding,
pro
forma......................................................... 3,626 7,895 12,116 32,849
Additional paid-in capital...................................... 5,985,597 16,553,996 34,946,262 72,784,434
Note receivable from stockholder................................ -- (168,750) (168,750) (168,750)
Deferred stock-based compensation............................... (711,867) (5,286,105) (4,727,887) (4,727,887)
Accumulated deficit............................................. (11,120,275) 24,986,078 (42,563,13) (42,563,139)
------------ ------------ ----------- -------------
Total stockholders' equity................................ 662,414 8,881,922 24,795,853 $ 25,357,507
------------ ------------ ----------- -------------
Total liabilities and stockholders' equity ............... $13,215,385 $16,684,679 $38,316,344
============ ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
WIRELESS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM
MAY 7,
1997
(INCEPTION)
TO THREE MONTH PERIOD
DECEMBER 31, YEARS ENDED DECEMBER 31, ENDED MARCH 31
---------------------------- -------------------------
1997 1998 1999 1999 2000
------------ ------------- ------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 200,736 $ 11,172,235 $ 20,328,854 $6,275,511 $ 5,534,738
Cost of revenue (excludes amortization of
deferred stock-based compensation of
$12,972, $47,699, $252,563, $35,635 and
$82,292, respectively)................. 420,906 9,091,133 15,356,585 3,758,474 4,563,862
------------ ------------- ------------- ----------- -------------
Gross profit (loss).............. (220,170) 2,081,102 4,972,269 2,517,037 970,876
------------ ------------- ------------- ----------- -------------
Operating expenses:
Research and development (excludes
amortization of deferred stock-based
compensation of $13,672, $119,874,
$1,517,576, $89,556 and $494,467,
respectively)........................ 708,278 2,323,589 3,220,850 743,977 6,090,151
Sales and marketing (excludes
amortization of deferred stock-based
compensation of $19,266 and $81,366,
$513,033, $60,787, and $167,160,
respectively)........................ 902,004 3,811,338 7,443,454 1,862,461 2,014,692
General and administrative (excludes
amortization of deferred stock-based
compensation of $23,090, $391,254,
$1,672,715, $292,299 and $545,016,
respectively)........................ 258,412 1,316,072 2,688,924 210,257 834,804
In-process research and development
costs acquired....................... -- 817,058 -- -- 7,600,000
Amortization of intangibles............ -- 359,097 1,102,164 194,490 777,455
Impairment of an intangible asset...... 1,500,000 -- -- -- --
Amortization of deferred stock
compensation......................... 69,000 640,193 3,955,887 478,277 1,288,935
------------ ------------- ------------- ----------- -------------
Total operating expenses........... 3,437,694 9,267,347 18,411,279 3,489,462 18,606,037
------------ ------------- ------------- ----------- -------------
Operating loss............................ (3,657,864) (7,186,245) (13,439,010) (972,425) (17,635,161)
Interest expense (income), net............ (13,953) 290,119 426,793 59,556 (58,100)
------------ ------------- ------------- ----------- -------------
Net loss........................... $(3,643,911) $ (7,476,364) $(13,865,803) (1,031,981) (17,577,061)
============ ============= ============= =========== =============
Net loss per share:
Basic and diluted...................... $ -- $ (6.02) $ (4.18) $ (0.36) $ (2.17)
============ ============= ============= =========== =============
Weighted average number of shares used -- 1,242,617 3,316,344 2,844,902 8,081,497
in computation.......................
============ ============= ============= =========== =============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
WIRELESS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY PERIOD FROM MAY 7, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND THE
YEARS ENDED DECEMBER 31, 1998 AND 1999, AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000 (UNAUDITED)
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series A
convertible preferred
stock................. 6,000,000 $3,000,000 -- $ -- -- $ --
Issuance of Series B
convertible preferred
stock................. -- -- 750,000 1,500,000 -- --
Unearned compensation
for options granted
to employees and
nonemployees..........
Amortization of unearned
compensation..........
Exercise of stock
options............... -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1997.............. 6,000,000 3,000,000 750,000 1,500,000 -- --
Redemption of Series A
convertible preferred
stock................. (1,700,000) (850,000) -- -- --
Exercise of stock
options............... -- -- -- -- -- --
Issuance of common stock
for interest on
financing and
consulting services... -- -- -- -- -- --
Issuance of Series C
convertible preferred
stock, common stock,
warrants and stock
options as
consideration for the
acquisition of
Multipoint............ -- -- -- -- 2,146,868 2,855,333
Unearned compensation
for options granted
to employees and
nonemployees.......... -- -- -- -- -- --
Amortization of unearned
compensation.......... -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1998.............. 4,300,000 2,150,000 750,000 1,500,000 2,146,868 2,855,333
Issuance of Series D
convertible preferred
stock, net of
issuance costs........ -- -- -- -- -- --
Issuance of Series E
convertible preferred
stock, net of
issuance costs........ -- -- -- -- -- --
Repurchase of Series C
convertible preferred
and common shares..... -- -- -- -- (59,983) (79,777)
Exercise of stock
options............... -- -- -- -- -- --
Exercise of stock
options for note
receivable............ -- -- -- -- -- --
Unearned compensation
for options granted
to employees and
nonemployees.......... -- -- -- -- -- --
Amortization of unearned
compensation.......... -- -- -- -- -- --
Warrants issued for
services..............
Net loss................. -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1999.............. 4,300,000 2,150,000 750,000 1,500,000 2,086,885 2,775,556
Exercise of Stock
Options............... -- -- -- -- -- --
Issuance of Series F
Convertible Preferred
Stock, net of
issuance costs........ -- -- -- -- -- --
Common Stock issued for
License agreement..... -- -- -- -- -- --
Unearned compensation
for options granted
to employees and
non-employees......... -- -- -- -- -- --
Warrants issued for
services.............. -- -- -- -- -- --
Amortization of unearned
compensation.......... -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
Balance as of March 31,
2000.................. 4,300,000 $2,150,000 750,000 $1,500,000 2,086,885 $2,775,556
========== ========== ========== ========== ========== ==========
<CAPTION>
SERIES D SERIES E SERIES F
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series A
convertible preferred
stock................. -- $ -- -- $ -- -- $ --
Issuance of Series B
convertible preferred
stock................. -- -- -- -- -- --
Unearned compensation
for options granted
to employees and
nonemployees..........
Amortization of unearned
compensation..........
Exercise of stock
options............... -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1997.............. -- -- -- -- -- --
Redemption of Series A
convertible preferred
stock................. -- -- -- -- -- --
Exercise of stock
options............... -- -- -- -- -- --
Issuance of common stock
for interest on
financing and
consulting services... -- -- -- -- -- --
Issuance of Series C
convertible preferred
stock, common stock,
warrants and stock
options as
consideration for the
acquisition of
Multipoint............ -- -- -- -- -- --
Unearned compensation
for options granted
to employees and
nonemployees.......... -- -- -- -- -- --
Amortization of unearned
compensation.......... -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1998.............. -- -- -- -- -- --
Issuance of Series D
convertible preferred
stock, net of
issuance costs........ 6,541,013 8,161,966 -- -- -- --
Issuance of Series E
convertible preferred
stock, net of
issuance costs........ -- -- 3,600,000 8,173,442 -- --
Repurchase of Series C
convertible preferred
and common shares..... -- -- -- -- -- --
Exercise of stock
options............... -- -- -- -- -- --
Exercise of stock
options for note
receivable............ -- -- -- -- -- --
Unearned compensation
for options granted
to employees and
nonemployees.......... -- -- -- -- -- --
Amortization of unearned
compensation.......... -- -- -- -- -- --
Warrants issued for
services..............
Net loss................. -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1999.............. 6,541,013 8,161,966 3,600,000 8,173,442 -- --
Exercise of Stock
Options............... -- -- -- -- -- --
Issuance of Series F
Convertible Preferred
Stock, net of
issuance costs........ -- -- -- -- 3,000,000 14,536,287
Common Stock issued for
License agreement..... -- -- -- -- -- --
Unearned compensation
for options granted
to employees and
non-employees......... -- -- -- -- -- --
Warrants issued for
services.............. -- -- -- -- -- --
Amortization of unearned
compensation.......... -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
Balance as of March 31,
2000.................. 6,541,013 $8,161,966 3,600,000 $8,173,442 3,000,000 $14,536,287
========= ========== ========== ========== ========== ==========
<CAPTION>
DEFERRED NOTE
COMMON STOCK ADDITIONAL STOCK-BASED RECEIVABLE TOTAL
--------------------- PAID-IN COMPENSA- FROM ACCUMULATED ST0CKHOLERS'
SHARES AMOUNT CAPITAL TION STOCKHOLDER DEFICIT EQUITY
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
convertible preferred
stock................. -- $ -- $ -- $ -- $ -- $ -- $ 3,000,000
Issuance of Series B
convertible preferred
stock................. -- -- -- -- -- -- 1,500,000
Unearned compensation
for options granted
to employees and
nonemployees.......... 152,000 (152,000) --
Amortization of unearned
compensation.......... 69,000 -- -- 69,000
Exercise of stock
options............... 599,500 600 29,375 -- -- -- 29,975
Net loss................. -- -- -- -- -- (3,643,911) (3,643,911)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1997.............. 599,500 600 181,375 (83,000) -- (3,643,911) 955,064
Redemption of Series A
convertible preferred
stock................. -- -- 630,210 -- -- -- (219,790)
Exercise of stock
options............... 229,750 230 24,487 -- -- -- 24,717
Issuance of common stock
for interest on
financing and
consulting services... 50,000 50 37,698 -- -- -- 37,748
Issuance of Series C
convertible preferred
stock, common stock,
warrants and stock
options as
consideration for the
acquisition of
Multipoint............ 2,746,452 2,746 3,842,767 -- -- -- 6,700,846
Unearned compensation
for options granted
to employees and
nonemployees.......... -- -- 1,269,060 (1,269,060) -- -- --
Amortization of unearned
compensation.......... -- -- -- 640,193 -- -- 640,193
Net loss................. -- -- -- -- -- (7,476,364) (7,476,364)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1998.............. 3,625,702 3,626 5,985,597 (711,867) -- (11,120,275) 662,414
Issuance of Series D
convertible preferred
stock, net of
issuance costs........ -- -- -- -- -- -- 8,161,966
Issuance of Series E
convertible preferred
stock, net of
issuance costs........ -- -- 691,200 -- -- -- 8,864,642
Repurchase of Series C
convertible preferred
and common shares..... (118,239) (118) (88,562) -- -- -- (168,457)
Exercise of stock
options............... 4,387,085 4,387 899,686 -- -- 904,073
Exercise of stock
options for note
receivable............ -- -- 168,750 -- (168,750) -- --
Unearned compensation
for options granted
to employees and
nonemployees.......... -- -- 8,530,125 (8,530,125) -- -- --
Amortization of unearned
compensation.......... -- -- -- 3,955,887 -- -- 3,955,887
Warrants issued for
services.............. 367,200 367,200
Net loss................. -- -- -- -- -- 13,865,803 (13,865,803)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Balance as of December
31, 1999.............. 7,894,548 7,895 16,553,996 (5,286,105) (168,750) (24,986,078) 8,881,922
Exercise of Stock
Options............... 791,924 792 271,418 -- -- -- 272,210
Issuance of Series F
Convertible Preferred
Stock, net of
issuance costs........ -- -- -- 14,536,287
Common Stock issued for
License agreement..... 3,429,352 3,429 17,143,331 -- -- -- 17,146,760
Unearned compensation
for options granted
to employees and
non-employees......... -- -- 730,717 (730,717) -- -- --
Warrants issued for
services.............. -- -- 246,800 -- -- -- 246,800
Amortization of unearned
compensation.......... -- -- -- 1,288,935 -- -- 1,288,935
Net loss................. -- -- (17,577,061) (17,577,061)
Balance as of March 31,
2000.................. 2,115,824 $12,116 $34,946,262 $(4,727,887) $ (168,750)$(42,563,139) $(24,795,853)
========= ========== ========== ========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
WIRELESS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1997 THREE MONTH PERIOD ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ --------------------------
1997 1998 1999 1999 2000
-------------- ----------- ----------- ---------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(3,643,911) $(7,476,364) $(13,865,803) $(1,031,981) $(17,577,061)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 29,746 238,188 335,249 91,956 154,772
Amortization of deferred stock-based
compensation.............................. 69,000 640,193 3,955,887 478,277 1,288,935
In-process research and development costs
acquired.................................. -- 817,058 -- -- 7,600,000
Amortization of intangibles................. -- 359,097 1,102,164 194,490 777,455
Impairment of an intangible asset........... 1,500,000 -- -- -- --
Allowance for doubtful accounts............. -- 299,223 894,412 82,452 155,730
Noncash deferred stock-based compensation... -- 246,799
Noncash interest expense.................... -- 25,348 283,248 224,280 --
Changes in operating assets and liabilities
(net of effect of non-cash investing and
financing activities):
Accounts receivable..................... (145,805) (1,766,384) (2,039,400) (2,023,327) 88,155
Inventory............................... (244,382) (507,796) (1,174,970) 281,396 (340,314)
Prepaids and other current assets....... (424,195) 147,982 (423,652) (38,125) (412,100)
Long-term lease receivable.............. -- -- (184,077) --
Accounts payable........................ 273,642 3,719,729 (1,709,048) (1,534,428) (838,505)
Accrued liabilities..................... 350,201 709,255 1,334,659 783,691 4,075,058
Lease receivable........................ -- 69,077
------------ ------------ ------------ ----------- ------------
Net cash used in operating activities.. (2,235,704) (2,794,471) (11,491,333) (2,491,319) (4,711,999)
------------ ------------ ------------ ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment.............. (173,453) (178,539) (481,883) -- (525,886)
Proceeds from sale of equipment................. 23,142
Acquisition of cash from Multipoint............. -- 237,781 -- -- --
Advance to Multipoint........................... (300,000) -- -- -- --
------------ ------------ ------------ ----------- ------------
Net cash (used in) provided by
investing activities................ (473,453) 59,242 (481,883) 23,142 (525,886)
------------ ------------ ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from (payments of) lines of credit..... -- 415,897 (1,500,000) (453,693) --
Proceeds from (payments of) bridge financing
and convertible notes......................... -- 2,411,064 1,820,461 929,092 --
Proceeds from issuance of common stock.......... 29,975 24,717 904,074 -- 272,210
Proceeds from issuance of preferred stock, net
of issuance costs............................. 3,000,000 -- 11,820,803 2,350,721 14,536,287
Repurchase of common and preferred stock........ -- -- (168,457) -- --
Payments for capital lease obligations.......... (24,071) (55,616) (120,836) (17,416) (18,817)
------------ ------------ ------------ ----------- ------------
Net cash provided by financing
activities.......................... 3,005,904 2,796,062 12,756,045 2,808,704 14,789,680
------------ ------------ ------------ ----------- ------------
Net increase in cash and cash equivalents.......... 296,747 60,833 782,829 357,580 9,551,795
Cash and cash equivalents, beginning of period..... -- 296,747 357,580 698,107 1,140,409
------------ ------------ ------------ ----------- ------------
Cash and cash equivalents, end of period........... $ 296,747 $ 357,580 $ 1,140,409 $ 340,527 $10,692,204
============ ============ ============ =========== ============
Supplementary cash flow information:
Cash paid for interest.......................... $ 2,423 $ 81,762 $ 63,020
Supplementary disclosure of non-cash investing and
financing activities:
The Company acquired Multipoint Networks, Inc.
during 1998. Note 4 outlines details of the
purchase price and the allocation of the
purchase price to the net assets acquired.
Property and equipment acquired under capital
lease obligations............................. $ 36,255 168,753 406,075 -- --
Redemption of Series A preferred stock.......... -- 219,790 -- -- --
Unearned compensation for options granted to
employees and nonemployees.................... 152,000 1,269,060 9,022,663 -- 730,717
Licensed technology acquired for issuance of
preferred stock............................... 1,500,000 -- -- -- 17,146,760
Issuance of Series D preferred stock for
convertible notes and accrued interest........ -- -- 5,205,805 5,205,805 --
Warrants issued for services.................... -- -- 367,200 -- --
Options exercised for note receivable........... -- -- 168,750 -- --
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) THE COMPANY
Wireless, Inc. (the Company) was incorporated in California on May
7, 1997 to develop broadband wireless access solutions that enable
Internet and communication service providers, telephone operating
companies and private network operators to deliver voice and
high-speed data services to their customers. The operations of the
Company include the design, manufacture and marketing of
high-speed, wireless, point-to-point and point-to-multipoint
telecommunications access equipment. The Company's products are
distributed through a network of worldwide independent
distributors, system integrators, local resellers and a direct
sales force.
The financial information for the three-months ended March 31, 1999
and 2000 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers
necessary for the fair presentation of the financial position at
such dates and the operations and cash flows for the periods then
ended. Operating results for the three-months ended March 31, 2000
are not necessarily indicative of results that may be expected for
the entire year.
(B) REVENUE RECOGNITION
Revenue on products is recognized when all of the following have
occurred: the product has been shipped; title and risk of loss have
passed to the customer; the Company has the right to invoice the
customer and collection of the receivable is probable; and all
obligations have been fulfilled. The only post-sale obligation is a
12 month warranty. Revenue from services is recognized when the
service is completed. Trial sales made directly to the end users
are not recognized as revenue until the trial has been completed
and the product has been accepted.
Estimated warranty costs are accrued at the time of the sale based
upon the Company's historical experience.
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period. Actual
results could differ from these estimates.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments at
the inception of the lease. Depreciation and amortization of
property and equipment is provided using the straight-line method
over the estimated useful lives of the respective assets, which
range from three to five years. Equipment held under capital leases
is amortized using the straight-line method over the shorter of the
lease term or the estimated useful life of the asset.
(E) INTANGIBLE ASSETS
Intangible assets include developed technology, assembled
workforce, core technology and goodwill all related to the
acquisition of Multipoint Networks, Inc. as discussed in notes 3
and 4. Intangibles are amortized on a straight line basis over
their estimated useful lives which range from two to five years.
(F) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with remaining
maturities of three months or less at the date of acquisition to be
cash equivalents.
F-7
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
WIRELESS, INC.
Restricted cash consists of amounts held as security for an
outstanding letter of credit.
(G) CONCENTRATION OF RISK
Financial instruments, which potentially subject the Company to a
concentration of credit risk, principally consist of accounts
receivable. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral on accounts
receivable.
The following table summarizes information relating to the
Company's significant customers with revenues comprising greater
than 10% of total revenue for the period and/or balances greater
than 10% of accounts receivable at year end:
<TABLE>
<CAPTION>
REVENUE FOR ACCOUNTS RECEIVABLE AT
PERIODS ENDED DECEMBER 31, DECEMBER 31,
---------------------------------------
CUSTOMER 1997 1998 1999 1999
------------- ----------- ------------ ------------- ----------------------
<S> <C> <C> <C> <C>
A....... $ * $ * $2,955,072 *
B....... * * * 903,900
C....... 21,158 2,563,290 * *
D....... 108,609 2,354,907 * *
E....... * 1,881,258 * *
-------------
</TABLE>
* Revenue and/or accounts receivable accounted for less than 10% in these years.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable, accounts
payable, and borrowings approximate their carrying values due to
their short maturity or variable-rate structure. The interest rates
on the capital lease obligations are deemed to be at market rates
and the carrying amounts approximate fair value.
(I) RESEARCH AND DEVELOPMENT
Costs incurred in the research and development of new products and
enhancements to existing products are expensed as incurred until
the technological feasibility of the product or enhancement has
been established. Technological feasibility is established when a
product design and a working model have been completed and the
completeness of the working model, and its consistency with the
product design, have been confirmed by testing. After establishing
technological feasibility, material development costs are
capitalized. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or is
amortized based on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period between
completion of a working model and the general release of the
product has been short and development costs qualifying for
capitalization have been insignificant. Accordingly, the Company
has not capitalized any development costs.
(J) INVENTORY
Inventory is stated at the lower of cost, determined on a first-in
first-out basis or net realizable value.
(K) INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be recovered.
F-8
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(L) STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION. This
statement establishes financial accounting and reporting standards
for stock based compensation, including employee stock option
plans. As allowed by SFAS 123, the Company measures compensation
expense under the provisions of Accounting Principles Board (APB)
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25),
and related interpretations. The Company follows Financial
Accounting Standards Board Interpretation No. 28, ACCOUNTING FOR
STOCK APPRECIATION RIGHTS AND OTHER VARIABLE STOCK OPTION OR AWARD
PLANS in amortizing unearned compensation during the service
period.
(M) COMPREHENSIVE INCOME
The Company does not have any components of comprehensive income,
consequently comprehensive loss consists entirely of net loss for
all periods presented.
(N) LONG-LIVED ASSETS, INCLUDING INTANGIBLE ASSETS
The Company accounts for long-lived assets under SFAS No. 121,
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment loss to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. The Company estimates fair value based on the best
information available, making judgments and projections as
considered necessary.
(O) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. For
a derivative not designated as a hedging instrument, changes in the
fair value of the derivative are recognized in earnings in the
period of change. This statement will be effective for all annual
and interim periods beginning after January 1, 2001. Management
does not believe the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated financial position or results
of operations.
F-9
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(P) NET LOSS PER SHARE
Net loss per share is computed based on SFAS No. 128, EARNINGS PER
SHARE. The basic net loss per share is computed by dividing the net
loss attributable to common stockholders by the weighted average
number of common shares outstanding. Potential weighted average
common shares relating to stock options, convertible preferred
stock and weighted average unvested restricted shares have been
excluded from the calculations of net loss per share as their
impact would be anti-dilutive. Thus, the diluted net loss per share
in these years is the same as the basic net loss per share. The
potentially dilutive average common shares excluded are as follows:
<TABLE>
<CAPTION>
PERIOD FROM MAY 7,
1997 (INCEPTION) TO THREE MONTH PERIOD ENDED
DECEMBER 31, YEARS ENDED DECEMBER 31, MARCH 31,
------------------- --------------------------- ------------------------
1997 1998 1999 1999 2000
------------------- --------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Stock options................... 63,000 214,000 845,000 2,128,000 1,445,000
Convertible preferred stock..... 6,243,000 5,858,000 13,115,000 6,836,000 20,048,000
Unvested restricted shares...... 405,000 531,000 735,000 423,000 3,294,000
------------------- ----------- ----------- ------------ -----------
6,711,000 6,603,000 14,695,000 9,387,000 24,787,000
=================== =========== =========== ============ ===========
</TABLE>
Net loss per share is not presented in the period from May 7, 1997
(inception) to December 31, 1997 as all common share as of December
31, 1997 were unvested and subject to repurchase and accordingly
are not considered outstanding for the computations of net loss per
share.
(Q) PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Unaudited pro forma basic and diluted net loss per share was $0.85
and $0.62 for the year ended December 31, 1999 and for the three
month period ended March 31, 2000 based on pro forma
weighted-average shares outstanding of 16,334,797 and 28,129,693
for the year and the period. This information reflects per share
data assuming the conversion of all outstanding shares of
convertible preferred stock at the respective conversion rate for
each preferred share of Series A, B, C, D and E as if the
conversion of the preferred stock had taken place at January 1,
1999 or at the date of issuance, if later. Pro forma common
equivalent shares, comprised of incremental common shares issuable
upon exercise of stock options and warrants are not included in pro
forma diluted net loss per share because they would be
antidilutive.
(R) PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
The unaudited pro forma stockholders' equity gives effect to (1)
the exercise of warrants to purchase 48,000 shares of Series D
convertible preferred stock at $1.25 per share and 20,000 shares of
Series E convertible preferred stock at $2.50 per share and (2) the
exercise of warrants to purchase 150,000 shares of common stock at
an average exercise price of $3.06, prior to the consummation of
the Company's initial public offering. It also gives effect to the
conversion of Series A, B, C, D, E, and F convertible preferred
stock expected to be outstanding at the consummation of the
Company's initial public offering, into 20,578,499 shares of common
stock, upon the closing of the Company's initial public offering.
F-10
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Office furniture and equipment........................ $ 74,941 $ 185,623
Machinery equipment and fixtures...................... 574,139 829,852
Computer equipment and software....................... 207,750 363,303
Leasehold improvements................................ 79,147 425,454
----------- ------------
935,977 1,804,232
Less: accumulated depreciation and amortization...... (243,337) (558,882)
----------- ------------
Property and equipment, net.......................... $ 692,640 $1,245,350
=========== ============
</TABLE>
(3) INTANGIBLE ASSETS
All intangible assets relate to the acquisition of Multipoint and
technology acquired from TRW, Inc. A summary of intangibles is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, ESTIMATED
---------------------------- --------------
1998 1999 2000 USEFUL LIVES
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Developed technology.............. $ 3,175,590 $ 3,175,590 3,175,590 5 years
Assembled workforce............... 610,208 610,208 610,208 2 years
Core technology................... 463,169 463,169 463,169 5 years
Goodwill.......................... 338,233 338,233 338,233 5 years
TRW license and technology (Note 4) -- -- 12,046,759 5 years
----------- ------------ ------------
4,587,200 4,587,200 16,633,959
Less: accumulated amortization....... (359,097) (1,461,261) (2,238,716)
----------- ------------ ------------
$ 4,228,103 $ 3,125,939 14,395,243
=========== ============ ============
</TABLE>
In May 1997, the Company acquired licensed technology for the issuance of
3,000,000 shares of Series A Convertible Preferred Stock valued at $0.50
per share. An intangible asset of $1,500,000 was recorded for the
acquired technology. Subsequent to its acquisition, it was determined
that the licensed technology did not have value to the Company,
accordingly, the Company began negotiations to restructure the licensed
technology agreement. For the year ended December 31, 1997, the Company
recorded an impairment charge of $1,500,000 related to the acquired
technology.
(4) ACQUISITION AND STRATEGIC INVESTMENT
(A) MULTIPOINT ACQUISITION
On August 26, 1998 Wireless, Inc. acquired the net assets of
Multipoint Networks, Inc. (Multipoint). Multipoint was incorporated
in California in 1987 and designed, manufactured and marketed
wireless metropolitan-area data network products based on unique
patented digital transceiver technology. The acquisition has been
accounted for by the purchase method and accordingly, the operating
results of Multipoint form part of the operating results of the
Company from August 26, 1998.
The $7,253,312 purchase price for the acquisition was comprised as
follows:
Issuance of Series C preferred stock................. $2,855,333
Issuance of common stock............................. 3,481,198
Receivable forgiven.................................. 300,000
Issuance of stock options............................ 326,754
Issuance of stock warrants........................... 37,561
Acquisition costs.................................... 252,466
-----------
$7,253,312
===========
F-11
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
There were no contingent payments or other commitments specified in the
acquisition agreement.
The purchase price was more than the fair value of the net assets
acquired of $6,915,079 resulting in goodwill of $338,233. This goodwill
is included as a component of intangibles and is being amortized over its
useful life of five years.
The purchase price was allocated as follows:
Cash and cash equivalents.......................... $ 237,781
Inventory.......................................... 3,035,198
Accounts receivable................................ 2,082,035
Prepaid expenses and other current assets.......... 398,260
Property and equipment............................. 395,287
Developed technology............................... 3,175,590
In-process research and development................ 817,058
Assembled workforce................................ 610,208
Core technology.................................... 463,169
Goodwill........................................... 338,233
Liabilities........................................ (4,299,507)
-------------
$ 7,253,312
=============
In-process research and development was fully expensed upon acquisition
as the Company determined that the acquired technology had not yet
achieved technological feasibility and that the technology did not have
an alternative future use. As a result, the purchased in-process research
and development was fully expensed upon acquisition in accordance with
FASB Interpretation No. 4. The in-process research and development was
specifically related to Multipoint's WaveNet Access 2458 technology which
was under development at the time of acquisition. WaveNet Access was a
new technology and was designated to be the next generation,
high-capacity point-to-multipoint router with greater bandwidth than the
existing WaveNet Access 2400.
The value of the purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products; estimating the resulting net cash flows
from WaveNet Access 2458 and related products; and discounting the net
cash flows back to its present value. The technology was approximately
85% complete as of the acquisition date. A discount rate of 25% was used
for the developed technology and 30% was used for the in-process
technology. These rates of return reflected Multipoint's historical
results as of the acquisition date, and the risks associated revenue
growth and profitability. These rates of return were also consistent with
the Company's overall weighted average cost of capital due to the
estimated revenues attributable to future, as yet unidentified, products.
The estimated costs to be incurred to develop the purchased in-process
technology into commercially viable products were approximately $1.0
million in the aggregate through 1999. The Company completed the
development of WaveNet Access 2458 in March 1999 with actual costs
incurred since the acquisition for approximately $840,000.
Developed and core technology are being amortized on a straight-line
basis over five years. Assembled workforce is being amortized on a
straight line basis over two years.
F-12
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The following table shows unaudited pro forma results of operations for
the Company, assuming the acquisition of Multipoint had been consummated
as of January 1, 1998 and excludes the write-off of in-process research
and development costs because of the non-recurring nature of this charge.
The unaudited pro forma information is not necessarily indicative of the
combined results that would have occurred had the acquisition taken place
as of the beginning of the period presented, nor is it necessarily
indicative of results that may occur in the future:
YEAR ENDED
DECEMBER 31,
1998
--------------
(UNAUDITED)
Pro forma basis:
Total revenue.................................. $ 17,044,735
Net loss....................................... 8,809,019
Net loss per share:
Basic and diluted............................ $ 3.02
Weighted-average shares outstanding:
Basic and diluted............................ 2,917,000
(B) TRW AGREEMENTS
In January 2000 the Company entered into the following agreements
with TRW which resulted in an investment by TRW in the Company in
the form of Series F preferred stock, a technology purchase and
license agreement giving the Company rights to TRW developed
technology being the foundation to the Company's StarPort product
offering, and a letter agreement specifying a time and materials
based agreement for TRW to perform contract research and
development services for the Company. A summary of the agreements
follows:
1) The Company sold 2,300,000 shares of Series F preferred stock
to TRW for cash of $5 per share. The preferred stock has a
liquidation preference equal to its purchase price and is
convertible into common stock. The Company also sold 700,000
shares of Series F preferred stock to CECAP Wireless; a
company unrelated to TRW.
2) The Company issued 3,429,352 of common stock valued at $5 per
share in exchange for the purchase and license agreement
granting the Company the right to further develop and
commercialize TRW technology, the result of which the Company
and TRW would jointly own. Under the agreement, the Company
purchased and obtained an exclusive royalty-free worldwide
license in a point-to-multipoint wireless networking
technology. Any products developed by the Company based on
such technology may only be sold with base stations configured
for outdoor use. Sales of products containing the technology
with base stations configured for indoor use or sales to the
U.S. Government, including organizations in which the U.S.
Government is a member, must be made through the owner of the
technology (TRW) or its licensees. The agreement provides TRW
with a royalty-free worldwide non-exclusive license in any
improvements made by the Company upon the technology for the
manufacture and sale of products to the U.S. Government. The
license agreement calls for revocation in the event that a
commercial version of the technology is not achieved by July
2001, unless the delay is the fault of TRW or attributable to
certain specified reasons. Additionally, in consideration of
the rights and licenses provided under the agreement and the
technical assistance to be provided by TRW, the Company has
agreed to pay TRW 10% of the net proceeds of the initial
public offering or any private placement of equity occurring
on or before October 14, 2000, until the Company has paid TRW
an aggregate of $2.5 million. The balance of this amount is
due on January 1, 2001, if it has not previously been paid.
3) The Company entered into a letter contract specifying a time
and materials arrangement for TRW to perform research and
development services for the Company to commercialize
certain TRW technology. The rates contained in this time and
materials arrangement are believed to be the
F-13
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
same as standard rates useD by TRW for other unrelated
agreements. This agreement is cancelable by either party and
if canceled would not negaTE the license agreement.
While the Company and TRW entered into the three agreements at the same
time, the negotiations that lead to the agreements were determined based
on reasonable and fair values related to each of the agreements entered
into. The Company has accounted for the technology and license agreements
based upon a value of common stock of $5 per share and the $2.5 million
commitment, resulting in a value assigned to the technology of $19.6
million. The Company conducted an independent valuation of the value of
the technology which corroborates the value of the common stock issued
and liability incurred.
As part of the Company's independent valuation of the technology, the
Company also conducted an independent valuation of the acquired
technology resulting in a $7.6 million allocation to in-process
technology which was immediately expensed. At the time of the agreement,
StarPort technology was an in-process technology under development for a
number of years at TRW which had not yet achieved technology feasibility
and was not expected to generate any significant sales for one to three
years.
The value of the purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
a commercially viable product. The Company estimated the resulting net
cash flows from StarPort, assuming an expected economic product life of 5
years, the revenue generated in each future period and the corresponding
operating expenses. These cash flows were adjusted for taxes and charges
related to fixed assets and working capital. These cash flows were then
discounted to their present value to estimate the fair market value of
the acquired in-process technology. The technology was approximately 45%
complete as of the acquisition date based on the ratio of costs incurred
to total development. A discount rate of 25% was used for the in-process
technology, reflecting a weighted average cost of capital of 17% for
industry comparable companies and an 8% premium for technological and
market risk associated with commercializing the acquired technology.
The estimated costs to be incurred to develop the purchased in-process
technology into commercially viable products were approximately $25-30
million in the aggregate through 2001. The Company expected to begin
realizing the benefit of the purchased in-process research and
development during 2001 with estimated total revenues from the purchased
in-process technology expected to peak in its as- developed state during
2004. The estimated selling, general and administrative costs were
expected to more closely approximate the Company's future cost structure.
These projections of revenue growth and ultimate earning projections are
only achievable based on the assumptions that the purchased in-process
technology could be commercialized and mass produced by the Company.
The Company has capitalized approximately $12 million as capitalized
license and technology which it expects to amortize over a period of 5
years representing what the Company believes to be a reasonable estimate
of the technology life. Costs incurred associated with the letter
agreement with TRW will be charged to research and development expense as
incurred or capitalized upon the technology achieving commercial
feasibility.
(5) BORROWINGS
(A) LINE OF CREDIT
The Company had available a line of credit which allowed for
borrowings up to 80% of eligible accounts receivable with a maximum
borrowing of $2,000,000. The line is renewable annually at the
option of the bank and the Company. In consideration for the
renewal in 1999, the Company issued the bank a warrant to purchase
48,000 shares of the Series D Convertible Stock at $1.25 per share.
The warrant value of $37,400 is being amortized as interest expense
over the term of the line of credit. The amount of $37,400 ascribed
to the warrants was estimated using the Black-Scholes option
valuation model with the following assumptions: no expected
dividend yield; risk free interest rate of 5.5%; expected
volatility of 70%; and contractual term of 5 years. The line is
secured by substantially all of the Company's assets. Borrowings
under the line of
F-14
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
credit bear interest at 2.5% above the bank's prime rate. At
December 31, 1999 and March 31, 2000, no borrowings were
outstanding on the line of credit.
The line of credit was renewed on February 23, 2000 with the credit
limit increased to $5 million in the event that the Company
receives at least $10 million in net cash proceeds from the issue
of equity or subordinated debt, or in the event that the Company
raises at least $50 million in net cash proceeds from the
consummation of the initial public offering before May 31, 2000.
The terms of the line of credit remain unchanged with exception of
an additional requirement for the Company to maintain tangible net
worth of $15 million. The Company issued a five year warrant to
purchase 37,500 shares of common stock at $4.00 per share in
connection with the increased credit limit.
(B) CONVERTIBLE NOTES PAYABLE
During 1998, the Company assumed $1,950,000 of short-term financing
as part of the acquisition of Multipoint and obtained $2,004,400
from existing Wireless shareholders in exchange for convertible
notes payable. The bridge loans carried an interest rate of 10%.
The convertible notes stated that the outstanding principal and
interest would be convertible at the option of the holder into
shares of the Company's equity at the closing of the Company's next
equity financing. The conversion price was to be determined at the
time of the next equity financing and was to be consistent with the
price and terms of that financing.
On May 21, 1999, the notes and related accrued interest were
converted to Series D preferred stock at a price of $1.25 per
share.
In August 1999, the Company borrowed $1,000,000 under a convertible
promissory note. The principal amount, together with interest
accrued at 10% per annum, will become due and payable on September
1, 2004. At the option of the holder, the note may be converted
into shares of the next series of the Company's preferred stock at
a conversion price based on the underlying terms of that financing.
In September 1999, the Company issued Series E Convertible
Preferred stock at $2.50 per share with an attached 10% warrant to
purchase common stock at $0.75 per share. This financing qualified
as the next financing in accordance with the terms of the
promissory note. Based on this financing, the promissory note is
convertible into 320,000 shares of Series E Convertible Preferred
Stock at $3.125 per share and, if converted, the holder will
receive a warrant to purchase 32,000 shares of common stock at
$0.75 per share. These Series E preferred shares will be
convertible at any time into common shares at a rate of 1.0331
common shares for each preferred share.
(C) BANK LOAN
In 1999, the Company borrowed $1,000,000 at an interest rate of
prime plus 3%. As additional consideration, the Company issued the
bank a warrant to purchase 20,000 shares of Series E Convertible
Preferred Stock at $2.50 per share. The warrant is valued at
$27,800 and has been recorded as interest expense. The amount of
$27,800 ascribed to the warrants was estimated using the
Black-Scholes option pricing model with the following assumptions:
no expected dividend yield; risk free interest rate of 5.5%;
expected volatility of 70%; and contractual term of 5 years. All
principal and interest was repaid from proceeds of the Series E
financing.
(D) LETTERS OF CREDIT
The Company has letters of credit outstanding instead of security
deposits on leased facilities. Letters of credit outstanding were
$80,000 and $302,000 at December 31, 1998 and 1999, respectively.
F-15
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(6) STOCKHOLDERS' EQUITY
(A) CONVERTIBLE PREFERRED STOCK
The Company designated and issued convertible preferred stock as
follows:
In May 1997, the Company issued 6,000,000 shares of Series A
Preferred at $0.50 per share of which 3,000,000 shares were issued
for cash and 3,000,000 shares were issued in exchange for a
technology license agreement. In 1998, as a result of a subsequent
restructuring of the license agreement and cancellation of a note
receivable, 1,700,000 shares were returned to the Company.
In October 1997, the Company issued 750,000 shares of Series B
Preferred Stock for $2.00 per share.
In August 1998, the Company issued 2,146,868 shares of Series C
Preferred Stock at $1.33 per share in connection with the
acquisition of Multipoint.
In March 1999, the Company issued 6,541,013 shares of Series D
Preferred Stock for $1.25 per share. In connection with this
issuance, convertible notes and accrued interest of $5,205,805 was
converted to Series D Preferred Stock. The Series D Preferred Stock
has been recorded net of issuance costs.
In September 1999, the Company issued 3,600,000 shares of Series E
Preferred Stock for $2.50 per share and warrants to purchase
360,000 shares of common stock at $0.75 per share. The conversion
price was subsequently reduced to $2.42 per share by a resolution
by the board of directors on December 21, 1999. The net proceeds
were allocated to the preferred shares and the warrants based on
their respective fair values. The warrants were valued at $691,200
which is recorded as additional paid in capital. The warrants
expire 5.5 years from the date of issue. The amount of $691,200
ascribed to the warrants was estimated using the Black-Scholes
option pricing model with the following assumptions: no expected
dividend yield; risk free interest rate of 6.0%; expected
volatility of 70%; and contractual term of 5.5 years.
On January 14, 2000, the Company issued 3,000,000 shares of Series
F Preferred Stock for $5.00 per share.
The rights, preferences, and privileges of the holders of Series A,
B, C, D, E and F preferred stock are as follows:
The holders of Series A and B preferred stock are entitled to
receive dividends in an amount equivalent to that which they
would receive if their shares were converted to common stock.
The holders of Series C, D, E and F preferred stock are
entitled to receive preferential dividends at a rate of $0.12,
$0.11, $0.23 and $0.45 per share, respectively. All dividends
require board of director approval and are noncumulative. The
conversion price is the original issue price subject to
adjustments for dilution in the event that there is a stock
split, subdivision or combination of the outstanding shares of
common stock. In addition the conversion price is subject to
adjustment in the event that securities are subsequently sold
at a lower price, subject to certain exceptions. Holders of
Series E have the right to reduce the conversion price to as
low as $1.25 in the event the Company fails to achieve certain
performance criteria relative to its December 31, 2000
financial results and fails to complete an initial public
offering in which gross proceeds exceeds $25,000,000 and the
offering price equals or exceeds $7.50 per share (Qualified
IPO) by March 31, 2001. In addition, in the event that the
Company fails to conclude a Qualified IPO by March 31, 2001, a
change in control will likewise reduce the conversion price to
$1.25. No dividends are paid or set aside for holders of
common stock until all dividends have been paid or set aside
for holders of Series A, B, C, D, E and F preferred stock. No
dividends have been declared to date.
F-16
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Shares of Series A, B, C, D, E and F preferred stock have a
liquidation preference of $0.50, $2.00, $1.33, $1.25, $2.50
and $5.00 per share, respectively, plus any declared but
unpaid dividends.
Each holder of preferred stock has voting rights equal to
common stock on an "as if converted" basis.
Each share of preferred stock is convertible at any time into
one share of common stock at the option of the holder with the
exception of Series B, C and E which each share converts into
1.1078, 1.0153 and 1.0331 shares of common stock. All shares
of preferred stock automatically convert upon the closing of
the sale of the Company's common stock in a public offering in
which gross proceeds exceed $25,000,000 and the offering price
equals or exceeds $7.50 per share. Each series of preferred
stock also converts upon the written consent of a specified
majority of the holders of such series into common stock.
(B) WARRANTS
As of December 31, 1999, there were warrants outstanding to
purchase 390,460 shares of common stock at a weighted average
exercise price of $2.34 per share, 48,000 shares of Series D
preferred stock at $1.25 per share, and 20,000 shares of Series E
preferred stock at $2.50 per share. The warrants contain provisions
for the adjustment of the exercise price and the aggregate number
of shares issuable upon the exercise of the warrant under certain
circumstances, including stock dividends, stock splits,
reorganizations, consolidations and certain dilutive issuances of
securities at prices below the then existing warrant exercise
price.
In November 1999, the Company issued warrants to purchase 100,000
common shares for $2.50 per share for fees related to the Series F
Convertible Preferred Stock financing that is discussed in note 11.
The warrants are valued at $302,000 which is recorded as a deferred
financing fee at December 31, 1999. The amount of $302,000 ascribed
to the warrants was estimated using the Black-Scholes option
pricing model with the following assumptions: no expected dividend
yield; risk free interest rate of 5.5%; expected volatility of 70%;
and contractual term of 3 years.
(C) COMMON STOCK
The Company is authorized to issue 50,000,000 shares of common
stock.
During 1997, 1998 and 1999 the Company issued 599,500, 229,750 and
4,387,085 shares of common stock upon the exercise of stock options
granted under the Company's 1997 Incentive Stock Option Plan.
Shares issued under the Plan are subject to repurchase until they
are fully vested.
Of the 1999 stock option exercises, 625,000 shares were issued to
an officer of the Company in exchange for a full recourse
promissory note. The recourse promissory note bears interest at
6.47% per year and is due on December 10, 2009.
(D) 1997 STOCK PLAN
By resolution of the Board of Directors (the Board), effective June
11, 1997 the Company adopted the 1997 Stock Plan (the 1997 Plan)
which allowed for the issuance of up to 1,500,000 shares of common
stock. The 1997 plan has subsequently been amended, increasing the
authorized number of shares to 3,650,000 and 7,450,000 at December
31, 1998 and 1999. The 1997 Plan will terminate on June 11, 2007,
or an earlier date when all of the shares of common stock set aside
for issuance under the 1997 Plan have been issued, or when there
has been a merger, sale, transfer, or other disposition of all or
substantially all of the Company's assets in a liquidation or
dissolution of the Company.
At the Board's discretion, employees, directors, and consultants
may be granted options that allow for the purchase of shares of the
Company's common stock, or they may be issued
F-17
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
common stock directly, either through the immediate purchase of
such shares, or as a bonus for services rendered to the Company.
Both non-statutory and incentive options may be granted under the
1997 Plan. Incentive options are options which satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986,
as amended. Non-statutory options do not satisfy these
requirements. Non-statutory options may be granted to employees,
directors, and consultants at a price not less than 85% of the fair
market value of common stock on the date the option is granted, or
110% of the fair market value of common stock where the options are
granted to those individuals owning more than 10% of the total
combined voting power of all classes of stock of the Company (a 10%
shareholder). Incentive options may only be granted to employees at
a price not less than 100% of the fair market value of common stock
on the date the option is granted.
Direct issues of shares of the Company's common stock may be
granted to employees, directors, and consultants at a price not
less than 85% of the fair market value of common stock on the date
of grant, or 110% of the fair market value of common stock where
the shares are granted to a 10% shareholder.
Vesting schedules may vary at the Board's discretion however, no
option shall have a term in excess of ten years from the date of
grant, except where incentive options are granted to a 10%
shareholder, then the option term shall not exceed five years.
Shares of common stock issued to employees must vest at a rate of
at least 20% per year from the date of issuance. Stock options are
immediately exercisable for all of the option shares. The Company
has the right to repurchase, at the exercise price paid per share,
any shares purchased under the option which are not vested. Shares
subject to repurchase at December 31, 1999 was 2,348,380.
The Company has reserved 7,450,000 common shares for issuance under
the 1997 Plan. A summary of the Company's share option plan
activity is as follows:
<TABLE>
<CAPTION>
1997 1998 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 the year/period -- $ -- 902,000 $0.09 2,076,607 $0.16
Granted.................................... 1,501,500 0.08 1,681,620 0.26 4,149,209 0.42
Exercised.................................. (599,500) 0.05 (229,750) 0.11 (4,387,085) 0.26
Cancelled.................................. -- -- (277,263) 0.16 (132,684) 0.22
---------- ---------- ---------- ---------- ----------- ----------
Outstanding at year-end 902,000 0.09 2,076,607 0.16 1,706,047 0.53
========== ========== ========== ========== =========== ==========
Options outstanding for which vested
shares are issuable at period/year end.. -- $ -- 1,011,140 $0.24 664,190 $0.25
========== ========== ========== ========== =========== ==========
</TABLE>
The options assumed from the Multipoint acquisition are included in
the 1998 shares granted.
At the time of grant, all stock options were granted at the then
determined fair value. In consideration of the Company's proposed
initial public offering, the Company re-evaluated all option grants
and determined that all stock options had been granted when the
fair value of the underlying common stock on the grant date had
exceeded the exercise price of the stock option. During fiscal
1997, 1998 and 1999, the Company granted options with a
weighted-average exercise price of $0.08, $0.26 and $0.42,
respectively, compared to the weighted-average fair value of
approximately $0.19, $1.07 and $2.31 for the same periods.
F-18
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The following table summarizes information about stock options
outstanding and exercisable under the 1997 Plan as of December 31,
1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------ --------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------- -------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$0.05 191,042 7.54 $0.05 147,812 $0.05
0.16 84,840 7.92 0.16 47,472 0.16
0.20 32,854 8.06 0.20 23,697 0.20
0.27 946,304 9.29 0.27 440,313 0.27
1.00 163,500 9.88 1.00 -- 1.00
2.00 282,500 9.97 2.00 -- 2.00
4.10 1,840 6.50 4.10 1,840 4.10
5.74 3,167 6.50 5.74 3,056 5.74
-------------- ------------- ----------- ------------- -----------
1,706,047 8.76 $0.53 664,190 $0.25
============== ============= =========== ============= ===========
</TABLE>
At December 31, 1999, options available for grant under the 1997
Plan were 828,000.
A portion of the Company's shares of common stock was not qualified
or exempted under applicable state securities laws and so a portion
of the stock option grants may be in violation of those laws. If it
is determined that the issuance of the affected options constitutes
a violation of state securities laws, certain shareholders may have
the right to recover from the Company any consideration paid for
those shares which were not qualified or exempted under applicable
state securities laws. The outcome of this matter has not yet been
determined, however any potential liability is not expected to
exceed $275,000 in the aggregate.
(E) 2000 STOCK INCENTIVE PLAN
On January 18, 2000, the Company's board of directors adopted and
its shareholders subsequently approved, the 2000 Stock Incentive
Plan (the 2000 Plan). The 2000 Plan will become effective upon the
signing of the underwriting agreement for the Company's initial
public offering. At that time, all outstanding options under the
1997 Plan will be transferred to the 2000 Plan and no further
grants shall be made under the 1997 Plan. Transferred options shall
continue to be governed by their existing terms, unless the
compensation committee decides to extend one or more features of
the 2000 Plan to those options.
A total of 8,750,000 shares of the Company's common stock have been
reserved for issuance under the 2000 Plan. The initial share
reserve includes 7,450,000 shares which are expected to be
available under the 1997 Stock Plan upon the closing of the
Company's initial public offering. The share reserve will be
increased annually on the first trading day in January of each
calendar year, by an amount equal to 3% of the total number of
shares of common stock outstanding on the last trading day of
December in the prior calendar year, up to a maximum of 2,000,000
shares per year. When a grant expires or is terminated before it is
exercised, the shares not acquired pursuant to the grants shall
again become available for issuance under the 2000 Plan.
(F) 2000 EMPLOYEE STOCK PURCHASE PLAN
On January 18, 2000, the Company's board of directors adopted and
its shareholders subsequently approved the 2000 Employee Stock
Purchase Plan (the Employee Plan). The Employee Plan will become
effective upon the signing of the underwriting agreement for the
Company's initial public offering. A total of 250,000 shares of the
Company's common stock have been reserved for issuance under the
Employee Plan. The share reserve will be increased annually on the
first trading day in January of each calendar year, by an amount
equal to 2% of the total number of shares of common stock
outstanding on the last trading day of December in the prior
calendar year, up to a maximum of 1,300,000 shares per year.
F-19
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The Employee Plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial
offering period will commence upon the signing of the underwriting
agreement for the Company's initial public offering and will end on
the last business day in July 2002. Individual employees who are
scheduled to work more than 20 hours per week for more than five
calendar months per year are eligible to purchase shares during the
offering periods. Participants may contribute up to 10% of their
cash earnings through payroll deductions. The accumulated payroll
deductions will be applied to the purchase of shares at the
semi-annual entry date which occur on the first business day of
February and August each year. The purchase price will be equal to
the lower of 85% of the fair market value per share on the
participant's entry date into the offering period, or 85% of the
fair market value on the semi-annual entry date.
(G) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for its
option plan. Deferred stock-based compensation cost has been
recognized for stock option grants to employees when the fair value
of the underlying common stock on the grant date, or other
measurement date, exceeds the exercise price of each stock option.
Deferred stock-based compensation is amortized using the
accelerated method set for in Financial Accounting Standards Board
Interpretation No. 28.
Under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company is required to disclose the pro forma effects on net loss
and net loss per share as if the Company had elected to use the
fair value approach to account for its employee stock-based
compensation plan. Had compensation cost for the Company's plans
been determined consistently with the fair value approach described
in SFAS 123, the Company's pro forma net loss and pro forma net
loss per share for the years ended December 31, 1997, 1998, and
1999, would have been changed as indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
Net loss:
As reported...................... $3,643,911 $ 7,476,364 $ 13,865,803
Pro forma........................ $3,647,677 $ 7,491,029 $ 13,944,985
Net loss per share:
As reported...................... $ -- $ 6.18 $ 4.35
Pro forma........................ $ -- $ 6.19 $ 4.38
</TABLE>
The fair value of options granted was estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1997,
1998, and 1999.
1997 1998 1999
------ ------ ------
Weighted average risk-free rate.................. 5.5% 5.5% 5.5%
Expected life (years)............................ 5 5 5
Volatility....................................... -- -- --
Dividend yield................................... -- -- --
F-20
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(7) INVENTORIES
Inventories consist of the following:
DECEMBER 31,
----------------------------
1998 1999
------------- -------------
Raw materials............................ $ 2,709,906 $ 2,065,910
Work in process.......................... 282,558 361,175
Finished goods........................... 794,912 2,535,261
------------- -------------
Inventories, net....................... $ 3,787,376 $ 4,962,346
============= =============
(8) INCOME TAXES
The Company has incurred significant losses since inception and has not
incurred any income tax expense to date. The income tax benefit differed
from the amounts computed by applying the U.S. Federal income tax rate of
34% to pretax loss as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Expected tax benefit at U.S. Federal statutory rate of $ (1,238,930) $ (2,541,964) $(4,714,373)
34%.................................................
Current year net operating losses and temporary
differences for which no tax benefit is recognized.. 719,126 1,912,937 3,147,200
Permanent differences.................................. 519,804 629,027 1,567,173
------------- ------------- ------------
Total............................................. $ -- $ -- $ --
============= ============= ============
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and liabilities are
presented below.
1998 1999
------------- --------------
------------- --------------
Deferred tax assets:
Net operating loss carryforwards............ $ 10,902,372 $12,171,670
Reserves and accrued expenses............... 1,167,453 2,558,402
Deferred stock-based compensation........... -- 378,660
Fixed assets and intangibles................ 50,633 143,290
------------- --------------
Total gross deferred tax assets........... 12,120,458 15,252,022
Valuation allowance......................... (12,120,458) (15,252,022)
------------- --------------
Total deferred tax assets...................... $ -- $ --
============= ==============
</TABLE>
Management has established a valuation allowance for the full amount of
the deferred tax assets. The net change in the total valuation allowance
for the periods ended December 31, 1997, 1998 and 1999 were net increases
of approximately $909,000, $11,211,000 and $3,132,000, respectively.
As of December 31, 1999, the Company has research and other credit
carryforwards available to reduce future income taxes for federal and
California income tax purposes of approximately $760,000 and $500,000,
respectively. The research credit carryforwards expire from 2003 to 2019
for Federal purposes and are available indefinitely for California.
At December 31, 1999, the Company had net operating loss carryforwards
for Federal and California income tax purposes of approximately
$30,000,000 and $17,000,000, respectively, available to reduce future
income subject to income taxes. The Federal net operating loss
carryforwards expire beginning 2003 through 2019. The California net
operating loss carryforwards expire in 2004.
F-21
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(9) COMMITMENTS
(A) LEASE COMMITMENTS
The Company is obligated under operating leases for certain
equipment and its facility in Santa Clara, California, and capital
leases for certain equipment. The operating leases require the
Company to pay certain maintenance costs, property taxes, and
insurance.
Future minimum lease payments under capital and operating leases as
of December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
Year ending December 31: LEASES LEASES
---------- ------------
<S> <C> <C>
2000.................................................. $ 203,252 $ 1,150,240
2001.................................................. 187,533 1,179,559
2002.................................................. 81,003 1,211,176
2003.................................................. -- 1,101,068
2004.................................................. -- 1,044,612
---------- ------------
Total............................................... 471,788 $ 5,686,655
============
Less amount representing interest..................... 61,228
----------
Present value of minimum capital lease payments....... 410,560
Less current portion of capital lease obligations..... 171,254
----------
Long-term portion of capital lease obligations........ $ 239,306
==========
</TABLE>
Total rent expense for all operating leases was approximately
$183,000, $441,000 and $1,207,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
Included in the future minimum lease payments is a lease obligation
for a facility subleased on an informal basis to a company owned by
an officer of the Company. This company pays all costs related to
this facility. The sublease arrangement has been conducted at arms
length such that the Company believes that the terms are the same
as would be offered to unrelated entities. The Company remains
obligated under the lease for monthly lease payments of $18,560
plus certain maintenance, property tax and insurance charges. The
lease expires April 2002.
Equipment recorded under capital leases is included in property and
equipment as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Manufacturing equipment...................................... $ 168,753 $ 340,719
Computer and related equipment............................... -- 123,910
Furniture.................................................... -- 92,225
----------- -----------
168,753 556,854
Accumulated depreciation.................................. (31,515) (131,656)
----------- -----------
$ 137,238 $ 425,198
=========== ===========
</TABLE>
Amortization expense associated with assets acquired under capital
leases is included in depreciation expense in the accompanying
financial statements.
(B) CONTRACT MANUFACTURERS
The Company generally commits to purchase products from its
contract manufacturers to be delivered within the next 120 days
covered by forecasts. As of December 31, 1999, the Company has
committed to make purchases totaling $5 million from these
manufacturers. In some instances, the Company issues blanket
purchase orders for specific quantities and delivery schedules over
12 to 18 months to obtain price discounts. If the Company cancels
the purchase order before its term, it would be obligated for the
difference between the regular price and the discounted price plus
the cost of components bought by the manufacturer specifically for
the Company's products. Based on current sales
F-22
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
projections, the Company does not believe that they will incur any
material obligations under these purchase orders.
(10) GEOGRAPHIC SEGMENT INFORMATION
The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards
for the manner in which public companies report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. The method for
determining what information to report is based on the way management
organizes the operating segments within the Company for making operating
decisions and assessing financial performance. The Company's chief
operating decision-maker is considered to be the chief executive officer
(CEO). The financial information that the CEO reviews is identical to the
information presented in the accompanying statements of operations.
Therefore, the Company has determined that it operates in a single
operating segment: manufacturing and sale of broadband wireless access
equipment.
The following table presents information about the Company by geographic
area:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
---------- ------------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues.. $ 16,038 $ 129,767 $ -- -- $ -- $ 54,931 $ 200,736
Net loss............ (291,134) (2,355,628) -- -- -- (997,149) (3,643,911)
Property &
equipment, net...... 179,960 -- -- -- -- -- 179,960
Percentage of
reported net
revenue............. 8% 65% -- -- -- 27% 100%
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
---------- ----------- ----------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues.. $1,003,438 $ 6,082,476 $1,642,374 1,938,627 $ 172,768 $ 332,552 $ 11,172,235
Net loss............ (671,492) (4,070,341)(1,099,063) (1,299,320) (130,050) (206,098) (7,476,364)
Property &
equipment, net...... 692,640 -- -- -- -- -- 692,640
Percentage of
reported net
revenue............. 9% 54% 15% 17% 2% 3% 100%
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
---------- ----------- ----------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues.. $2,638,265 $ 7,638,139 $3,892,572 2,953,235 $ 952,183 $2,254,460 $ 20,328,854
Net loss............ (2,485,923) (4,913,409) 2,503,987) (1,899,737) (612,514) (1,450,233) (13,865,803)
Property &
equipment, net...... 1,245,350 -- -- -- -- -- 1,245,350
Percentage of
reported net
revenue............. 13% 38% 19% 14% 5% 11% 100%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
(UNAUDITED)
----------------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
---------- ----------- ----------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues.. $ 579,116 $ 3,249,843 $1,000,551 $ 27,403 $ 258,041 $ 419,784 $ 5,534,738
Net loss............ (1,340,672) (10,647,647)(3,278,163) (89,782) (845,435) (1,375,362) (17,577,061)
Property &
equipment, net...... 1,616,464 -- -- -- -- -- 1,616,464
Percentage of
reported net
revenue............. 10% 59% 18% --% 5% 8% 100%
</TABLE>
F-23
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Revenue information by product category is as follows:
THREE MONTH
PERIOD ENDED
MARCH 31,
1997 1998 1999 2000
-------- ----------- ----------- -------------
(UNAUDITED)
WaveNet Transport............ $200,736 $ 8,472,101 $8,621,635 1,526,321
WaveNet Access............... -- 806,268 5,503,895 1,907,550
WaveNet Link................. -- 302,706 2,359,221 1,264,001
Other........................ -- 1,591,160 3,844,103 836,866
-------- ----------- ----------- -------------
$200,736 $11,172,235 $20,328,854 $ 5,534,738
======== =========== =========== =============
(11) SUBSEQUENT EVENTS (UNAUDITED)
(A) FINANCING COMMITMENTS
In February 2000, the Company received financing commitments from
certain shareholders for $12.5 million in the event that the
Company does not complete an initial public offering with gross
proceeds of $25 million by May 31, 2000. The $12.5 million in
commitments, if required, will be in the form of convertible
promissory notes bearing interest at a fixed rate of 10% per annum.
If not prepaid, the notes will convert into shares of the Company's
next round of equity financing of at least $12.5 million. In
connection with obtaining these commitments, the Company issued
warrants to purchase 50,000 shares of common stock at a price of
$4.00 per share and agreed to issue additional warrants for 150,000
shares of common stock at the then fair market value per share if
the loan commitments are exercised. These warrants expire upon the
earlier of 5 years or 30 days after the consummation of an initial
public offering.
(B) REINCORPORATION
On January 18, 2000, the Company's board of directors approved, and
its shareholders subsequently approved the reincorporation of the
Company in Delaware. In conjunction with the reincorporation, the
authorized number of common shares will be increased to
100,000,000, and preferred stock of 5,000,000 shares will be
authorized. The par value of the common shares will decrease to
$0.001 per share. The effects of the reincorporation have been
reflected in the accompanying financial statements.
(C) STOCK OPTION GRANTS
In April and May 2000, the Company granted options to purchase
511,700 shares of common stock to employees at $5.00 per share. The
Company also granted options to its outside counsel for 180,000
shares of common stock at $5.00 per share. Such options were fully
vested on the date of grant. One third (1/3) of such options are
immediately exercisable. The remaining two thirds (2/3) are
exercisable at the end of two years subject to earlier
exercisability upon the occurrence of certain events. The Company
will expense the fair value of such options in the quarter in which
they were granted. The fair value of the unexercisable shares will
be expensed over their exercise period.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Multipoint Networks, Inc.
We have audited the accompanying statement of operations of Multipoint Networks,
Inc., and the related statements of stockholders' equity and cash flows for the
period from January 1, 1998 to August 25, 1998. 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 audit.
We conducted our audit in accordance with generally accepted standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Multipoint
Networks, Inc. for the period January 1, 1998 to August 25, 1998 in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
February 18, 2000
F-25
<PAGE>
<TABLE>
<CAPTION>
MULTIPOINT NETWORKS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
<S> <C>
Revenue........................................................................................ $ 5,872,500
Cost of revenue................................................................................ 4,355,426
---------------
Gross profit............................................................................ 1,517,074
---------------
Operating expenses:
Research and development.................................................................... 954,120
Sales and marketing......................................................................... 1,740,433
General and administration.................................................................. 249,963
---------------
Total operating expenses................................................................ 2,944,516
---------------
Operating loss................................................................................. (1,427,442)
===============
Interest expense, net.......................................................................... 46,003
Other income................................................................................... (66,799)
---------------
Net loss................................................................................ $ (1,406,646)
===============
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
MULTIPOINT NETWORKS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
SERIES I NONREDEEMABLE
PREFERRED STOCK COMMON STOCK TOTAL
--------------------------- ------------------------- SUBSCRIPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT EQUITY
-------------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1998..... 19,534,200 $ 3,146,304 30,806,754 $18,914,000 $ (5,000) $(19,124,791) $ 2,930,513
Proceeds from issuance of common
stock........................... -- -- -- 11,894 5,000 -- 16,894
Net loss ......................... -- -- -- -- -- (1,406,646) (1,406,646)
--------------
-------------- ------------ ----------- ------------ ------------ ------------- ------------
Balance as of August 25, 1998..... 19,534,200 $ 3,146,304 30,806,754 $18,925,894 $ -- $(20,531,437) $ 1,540,761
============== ============ =========== ============ ============ ============= ============
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
MULTIPOINT NETWORKS, INC.
STATEMENT OF CASH FLOW
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
<S> <C>
Cash flows from operating activities:
Net loss...................................................................................... $ (1,406,646)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation.................................................................................. 164,969
Provision for excess and obsolete inventory................................................... (27,211)
Changes in operating assets and liabilities:
Accounts receivable......................................................................... (1,158,035)
Inventory................................................................................... (1,010,985)
Prepaids and other current assets........................................................... (136,781)
Accounts payable............................................................................ (291,758)
Accrued liabilities......................................................................... 269,487
--------------
Net cash used in operating activities......................................................... (3,596,960)
--------------
Cash flows used in investing activities:
Purchase of property and equipment............................................................ (163,256)
--------------
Cah flows from financing activities:
Proceeds from lines of credit................................................................. 1,084,103
Proceeds from bridge financing................................................................ 1,750,000
Proceeds from issuances of common stock....................................................... 16,894
--------------
Cash provided by financing activities..................................................... 2,850,997
--------------
Net decrease in cash and cash equivalents........................................................ (909,219)
Cash and cash equivalents, beginning of period................................................... 1,147,000
--------------
Cash and cash equivalents, end of period......................................................... $ 237,781
==============
</TABLE>
F-28
<PAGE>
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) THE COMPANY
Multipoint Networks, Inc. (the "Company") was incorporated in
California in 1987 and designed, manufactured and marketed wireless
metropolitan-area data network products based on unique patented
digital transceiver technology. The Company's products were
distributed through a network of independent distributors and
value-added resellers located throughout Latin America, North
America and Asia-Pacific.
On August 26, 1998 the Company was acquired by Wireless, Inc.
(B) REVENUE RECOGNITION
Revenues are recognized upon product shipment, provided that
significant support obligations, if any, are satisfied and
collection of the resulting receivables is probable. Estimated
warranty costs are accrued at the time of sale based upon the
Company's historical experience.
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(D) PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is provided
using the straight-line method over the estimated useful lives of
the respective assets, which range from three to five years.
Equipment held under capital leases is amortized using the
straight-line method over the shorter of the lease term or the
estimated useful life of the asset.
(E) CASH EQUIVALENTS
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Cash and cash equivalents are deposited with high credit quality
financial institutions.
(F) RESEARCH AND DEVELOPMENT
Costs incurred in the research and development of new products and
enhancements to existing products are expensed as incurred until
the technological feasibility of the product or enhancement has
been established. Technological feasibility is established when a
product design and a working model have been completed and the
completeness of the working model, and its consistency with the
product design, have been confirmed by testing. After establishing
technological feasibility, material development costs are
capitalized. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or is
amortized based on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period between
completion of a working model and the general release of the
product has been short and development costs qualifying for
capitalization have been insignificant. Accordingly, the Company
has not capitalized any development costs.
F-29
<PAGE>
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998-(Continued)
(G) INVENTORIES
Inventory is stated at the lower of cost, determined on a first-in
first-out basis or net realizable value.
(H) INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be recovered.
(I) COMPREHENSIVE INCOME
The Company does not have any components of comprehensive income,
consequently comprehensive loss consists entirely of net loss for
all periods presented.
(2) STOCKHOLDERS' EQUITY
(A) SERIES 1 NONREDEEMABLE PREFERRED STOCK
At August 25, 1998, the Company had 19,534,200 shares of Series 1
Nonredeemable Convertible Preferred Stock issued and outstanding.
Holders of Series 1 Preferred Stock are entitled to a noncumulative
dividend, when and if declared by the Board of Directors, at the
minimum rate of $0.02 per share per annum, prior and in preference
to any distribution on the Common Stock. In the event of any
liquidation, dissolution or winding up of the Company, the holders
of Series 1 Preferred Stock shall be entitled to receive, prior and
in preference to any distribution on the Common Stock, the amount
of $0.4875 per share plus an amount equal to all declared but
unpaid dividends on such shares.
Each share of Series 1 Preferred Stock is convertible at the option
of the holder at any time in Common Stock at the initial conversion
rate of one share Common Stock for each share of Series 1 Preferred
Stock. The initial conversion rate of the Series 1 Preferred Stock
is subject to adjustment as provided in the Articles of
Incorporation. Each share of Series 1 Preferred Stock shall
automatically be converted into shares of Common Stock at the then
effective conversion rate upon the closing of a firm commitment
underwritten initial public offering of the Company's Common Stock
at a price per share not less than $0.75 per share and an aggregate
offering price to the public of not less than $10,000,000,
exclusive of underwriting commissions and offering expenses.
Each share of Series 1 Preferred Stock is entitled to the number of
votes equal to the number of share of Common Stock into which the
shares of Series 1 Preferred Stock could be converted.
(B) COMMON STOCK
The Company is authorized to issue 60,000,000 shares of no par
value common stock. At January 1, 1998 and August 25, 1998, the
number of shares of common stock outstanding was 30,806,754.
F-30
<PAGE>
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998-(Continued)
(3) INCOME TAXES
The Company has incurred significant losses since inception and has
not incurred any income tax expense to date. The income tax benefit
differed from the amounts computed by applying the U.S. Federal
income tax rate of 34% to pretax loss as a result of the following:
<TABLE>
<S> <C>
Expected tax benefit at U.S. Federal statutory rate of 34%.............................. (478,260)
Current year net operating losses and temporary differences for which no tax benefit is
recognized.......................................................................... 344,347
Permanent differences.................................................................... 133,913
-------
Total................................................................................. $ --
========
</TABLE>
F-31
<PAGE>
INSIDE BACK COVER
The page consists of a map of the planet with clusters of yellow dots
appearing in various countries which are colored blue. Below the map are the
words "Wireless Inc. installations highlighted in yellow." Above the map are the
words "Wireless, Inc. delivers broadband wireless access to more than 200
customers in over 50 countries around the globe." In the top left corner of the
page on the purple background is the Wireless logo, which consists of the word
"Wireless" with the first four letters in black and the last four in blue,
multi-colored dots appearing above the "i", "r" and "e", the capital letters
"INC" in the top right corner, the letters "TM" in the lower right corner and a
semi-circular blue line underneath. Underneath the logo are the words "Broadband
without Boundaries."
<PAGE>
================================================================================
8,500,000 SHARES
WIRELESS, INC.
COMMON STOCK
[WIRELESS LOGO]
--------------
P R O S P E C T U S
, 2000
--------------
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
================================================================================
<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 the
underwriting discounts 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 fees and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 25,806
NASD Filing Fee.................................................. 10,275
Nasdaq National Market Listing Fee............................... 95,000
Printing and Engraving Expenses.................................. 50,000
Legal Fees and Expenses.......................................... 1,350,000
Accounting Fees and Expenses..................................... 630,000
Blue Sky Fees and Expenses....................................... 10,000
Transfer Agent Fees.............................................. 8,000
Miscellaneous.................................................... 120,919
-----------
Total......................................................... 2,300,000
===========
</TABLE>
-------------------
* To be filed by amendment
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 indemnification to
directors and officers in terms sufficiently broad to permit the indemnification
under certain circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 6 of our bylaws provides for mandatory
indemnification of our directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law Our certificate of incorporation provides that, subject
to Delaware law, our directors will not be personally liable for monetary
damages for breach of the directors' fiduciary duty as directors to Wireless,
Inc. and its stockholders. This provision in the certificate of incorporation
does not eliminate the directors' fiduciary duty, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the company or our stockholders for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. We have entered into indemnification
agreements with our officers and directors, a form of which is attached as
Exhibit 10.3 hereto and incorporated herein by reference. The indemnification
agreements provide our officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. We
maintain directors and officers liabilities insurance. Reference is made to
Section 8 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities and Section 1.7 of the Sixth Amended and Restated Investors Rights
Agreement contained in Exhibit 4.1 hereto, indemnifying the parties thereto,
including certain controlling stockholders, against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(a) The Registrant issued and sold 6,035,902 shares of common stock to
employees and consultants for an aggregate purchase price of $1,547,398
pursuant to direct stock issuances and the exercise of options under its
1997 Stock Option/Stock Issuance Plan.
II-1
<PAGE>
(b) In May 1997, the Registrant issued and sold an aggregate of
6,000,000 shares of Series A Preferred Stock to two investors for an
aggregate of purchase price of $3,000,000.
(c) In May 1997, the Registrant issued a warrant to Imperial Bank to
purchase up to 30,460 shares of its common stock at an exercise price of
$1.22 per share.
(d) In October 1997, the Registrant issued and sold an aggregate of
750,000 shares of Series B Preferred Stock to one investor for an aggregate
of purchase price of $1,500,000.
(e) In June 1998, the Registrant entered into an agreement to acquire
Multipoint Networks, Inc., or Multipoint, whereby the purchase price was
payable in shares of the Registrant's common stock and Series C Preferred
Stock. In August 1998, the Registrant completed the acquisition and paid an
aggregate of 2,746,452 shares of its common stock to the holders of
Multipoint common stock and 2,146,868 shares of its Series C Preferred
Stock to the holders of Multipoint Series 1 Preferred Stock. In November
1999, 59,983 shares of Series C Preferred Stock were repurchased by the
Company from a single investor for an aggregate purchase price of $79,777.
(f) In October 1998, the Registrant issued a warrant to Silicon Valley
Bank to purchase up to 48,000 shares of its Series D Preferred Stock at an
exercise price of $1.25 per share.
(g) In March 1999, the Registrant issued and sold an aggregate of
6,541,013 shares of Series D Preferred Stock to several investors for an
aggregate purchase price of $8,176,266.
(h) In August 1999, the Registrant issued to an investor a
subordinated debenture in a principal amount of $1,000,000 which is
convertible into shares of its Series E Preferred Stock at an exercise
price of $3.125 per share.
(i) In September 1999, the Registrant issued a warrant to Silicon
Valley Bank to purchase up to 20,000 shares of its Series E Preferred Stock
at an exercise price of $2.50 per share. In December 1999, the Registrant's
board of directors reduced the exercise price to $2.42 per share and
adjusted the number of shares issuable upon exercise of the warrant to
20,662.
(j) In September 1999, the Registrant issued and sold an aggregate of
3,600,000 shares of Series E Preferred Stock and warrants to purchase an
aggregate of 362,000 shares of common stock at an exercise price of $0.75
per share (subject to adjustment) to several investors for an aggregate
purchase price of $9,003,600. In December 1999, the Registrant's board of
directors reduced the exercise price of the warrants to $2.42 per share and
adjusted the number of shares issuable upon exercise of the warrants to
362,000.
(k) In November 1999, the Registrant issued warrants to two
consultants to purchase up to an aggregate of 100,000 shares of its common
stock at an exercise price of $2.50 per share.
(l) In January 2000, the Registrant issued and sold an aggregate of
3,000,000 shares of Series F Preferred Stock to two investors for an
aggregate purchase price of $15,000,000.
(m) In January 2000, the Registrant issued and sold an aggregate of
3,429,352 shares of common stock to TRW in connection with a Purchase and
License Agreement for an aggregate consideration of $17,146,760.
(n) In February 2000, the Registrant issued warrants to several
investors to purchase up to an aggregate of 50,000 shares of its common
stock at an exercise price of $4.00 per share.
(o) In March 2000, the Registrant issued 12,000 shares of stock to one
investor in consideration of services previously rendered at a grant price
of $5.00 per share.
(p) In June 2000, the registrant issued a warrant to Silicon Valley
Bank to purchase up to 37,500 shares of its common stock at an exercise
price of $4.00 per share.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof or Rule 701 pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients in each transaction represented their intention 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 were affixed to the share
certificates and instruments issued in these transactions. All recipients had
adequate access, through their relationships with us, to information about us.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits listed in the exhibit Index are filed as part of this
registration statement.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
NUMBER DOCUMENT
--------- ---------------------
<S> <C>
1.1** Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization dated as of June 4, 1998 by and among Multipoint Networks,
certain shareholders of Multipoint Networks, Inc., Wireless, Inc. and certain shareholders of
Wireless, Inc.
3.1* Amended and Restated Certificate of Incorporation, to be effective upon consummation of this Offering.
3.2* Amended and Restated Bylaws, to be effective upon consummation of this offering.
4.1* Sixth Amended and Restated Investors' Rights Agreement.
4.2 Form of Registrant's Specimen Common Stock Certificate.
4.3* Reference is made to Exhibits 3.1 and 3.2.
4.4* Form of Warrant to Purchase Common Stock, dated as of October 10, 1999, by and among the Registrant
and the purchasers of Series E Preferred Stock.
4.5* Warrant to Purchase Common Stock, dated as of May 5, 1997, by and between the Registrant and
Imperial Bank.
4.6* Convertible Promissory Note, dated as of August 17, 1999, by and between the Registrant and AMT
Capital, Ltd., as amended.
4.7* Warrant to Purchase Series D Preferred Stock, dated as of October 16, 1998, by and between
the Registrant and Silicon Valley Bank.
4.8* Warrant to Purchase Series E Preferred Stock, dated as of September 13, 1999, by and between the
Registrant and Silicon Valley Bank.
4.9 Form of Warrant to Purchase Common Stock, dated as of November 18, 1999, by and between the
Registrant and each of Peter Sutherland and Jed Davis.
4.10 Form of Warrant to Purchase Common Stock, dated as of February 14, 2000, by and between the
Registrant and each of Dynamics Technology, Inc., Gemini Investors LLC, Stratford Equity Partners,
L.P., Crossroads Venture Capital, LLC and TRW.
4.11** Warrant to Purchase Common Stock, dated as of June 1, 2000, by and between the Registrant and Silicon
Valley Bank.
4.12 Convertible Promissary Note dated as of August 17,1999, by and between the Registrant and AMT
Capital, Ltd.
5.1 Opinion of Brobeck, Phleger & Harrison LLP, counsel for the Registrant, with respect to the common
stock being registered.
10.1* Registrant's 2000 Stock Incentive Plan.
10.2* Registrant's 2000 Employee Stock Purchase Plan.
10.3* Form of Registrant's Directors' and Officers' Indemnification Agreement.
10.4* Lease Agreement, dated June 4, 1999, between the Registrant and W.F. Batton & Co.
10.5* Loan and Security Agreement, dated as of February 27, 1999, between the Registrant and Silicon Valley
Bank.
10.6* Amendment to Loan Documents dated as of September 13, 1999, to the Loan and Security Agreement,
dated as of February 27, 1999, between the Registrant and Silicon Valley Bank.
10.7* Amendment to Loan Documents dated as of February 23, 2000, to the Loan and Security Agreement
dated as of February 27, 1999, between the Registrant and Silicon Valley Bank.
10.8+* Purchase and License Agreement, dated as of January 14, 2000, between the Registrant and TRW.
10.9+* Master Distributor Agreement, dated April 1, 1999, as amended, between the Registrant and Digital
Microwave Corporation.
10.10* Promissory Note, dated as of December 10, 1999, executed by William J. Palumbo in favor of the
Registrant.
10.11* Lease Agreement dated as of May 12, 1997, by and between the Registrant and Spieker Properties, L.P.
23.1 Consent of KPMG LLP, Independent Auditors relative to Wireless, Inc.
23.2 Consent of KPMG LLP, Independent Auditors relative to Multipoint Networks, Inc.
23.3 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
24.1* Power of Attorney. Reference is made to Page II-5.
</TABLE>
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
27.1* Financial Data Schedule.
-------------------
* Previously filed.
** To be filed by subsequent amendment.
+ Confidential treatment has been requested for certain portions thereof.
(b) Financial Statement Schedule
ITEM 17. UNDERTAKINGS
We hereby undertake 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
may be permitted to our directors, officers and controlling persons pursuant to
the Delaware General Corporation Law, our certificate of incorporation or our
bylaws, indemnification agreements entered into between the company and our
officers and directors, the underwriting agreement, or otherwise, we have been
advised that in the opinion of the commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons 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, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of Prospectus filed by us pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-1 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Clara, State of California, on this 19th
day of June, 2000.
By: /s/ WILLIAM J. PALUMBO
---------------------------------------
William J. Palumbo
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to registration statement has been signed by the persons whose
signatures appear below, which persons have signed such registration statement
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ WILLIAM J. PALUMBO Chief Executive Officer and June 19, 2000
-------------------------------------- President (Principal Executive
William J. Palumbo Officer)
/s/ ANTONIO CANOVA Chief Financial Officer, Executive June 19, 2000
-------------------------------------- Vice President and Secretary
Antonio Canova (Principal Accounting Officer)
* Chairman of the Board of Directors June 19, 2000
--------------------------------------
William E. Gibson
* Director June 19, 2000
--------------------------------------
Andrew I. Fillat
* Director June 19, 2000
--------------------------------------
Denny R.S. Ko
* Director June 19, 2000
--------------------------------------
David F. Millet
* Director June 19, 2000
--------------------------------------
Patrick A. Rivelli
* Director June 19, 2000
--------------------------------------
Mark S. Silverman
*By /s/ ANTONIO CANOVA
Antonio Canova
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
FORM OF INDEPENDENT AUDITORS' REPORT
When the event referred to in Note 11(e) of the Wireless, Inc. financial
statements has been consummated, we will be in a position to render the
following report.
/s/ KPMG LLP
The Board of Directors
Wireless, Inc.:
Under date of February 23, 2000, except for Note 11 which is as of June __,
2000, we reported on the balance sheets of Wireless, Inc. as of December 31,
1998 and 1999, and the related statements of operations, stockhholders' equity,
and cash flows for the period from May 7, 1997 (inception) to December 31, 1997
and the years ended December 31, 1998 and 1999, included in the prospectus. In
connection with our audits of the aforementioned financial statements, we also
audited the accompanying financial statement schedule. The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
Mountain View, California
February 23, 2000
S-1
<PAGE>
SCHEDULE II
WIRELESS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD MAY 7, 1997 (INCEPTION)
TO DECEMBER 31, 1997 AND YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND END OF
PERIOD EXPENSES OTHER ADDITIONS DEDUCTIONS PERIOD
--------------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
------------------------------------------
<S> <C> <C> <C> <C> <C>
1997............................ $ -- $ -- $ -- $ -- $ --
1998............................ -- 200,136 145,351 (46,254) 299,233
1999............................ $ 299,233 $ 1,044,365 $ -- $ (149,963) $ 1,193,635
</TABLE>
----------------------
S-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
1.1** Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization dated as of June 4, 1998 by and among Multipoint Networks,
certain shareholders of Multipoint Networks, Inc., Wireless, Inc. and certain shareholders of
Wireless, Inc.
3.1* Amended and Restated Certificate of Incorporation, to be effective upon consummation of this Offering.
3.2* Amended and Restated Bylaws, to be effective upon consummation of this offering.
4.1* Sixth Amended and Restated Investors' Rights Agreement.
4.2 Form of Registrant's Specimen Common Stock Certificate.
4.3* Reference is made to Exhibits 3.1 and 3.2.
4.4* Form of Warrant to Purchase Common Stock, dated as of
October 10, 1999, by and among the Registrant and the purchasers
of Series E Preferred Stock.
4.5* Warrant to Purchase Common Stock, dated as of May 5, 1997, by and between the Registrant and Imperial
Bank.
4.6* Convertible Promissory Note, dated as of August 17, 1999, by and between the Registrant and AMT
Capital, Ltd., as amended.
4.7* Warrant to Purchase Series D Preferred Stock, dated as
of October 16, 1998, by and between the Registrant and Silicon
Valley Bank.
4.8* Warrant to Purchase Series E Preferred Stock, dated as
of September 13, 1999, by and between the Registrant and Silicon
Valley Bank.
4.9 Form of Warrant to Purchase Common Stock, dated as of
November 18, 1999, by and between the Registrant and each of
Peter Sutherland and Jed Davis.
4.10 Form of Warrant to Purchase Common Stock, dated as of
February 14, 2000, by and between the Registrant and each of
Dynamics Technology, Inc., Gemini Investors LLC, Stratford
Equity Partners, L.P., Crossroads Venture Capital, LLC and TRW.
4.11** Warrant to Purchase Common Stock, dated as of June 1, 2000, by and between the Registrant and Silicon
Valley Bank.
4.12 Convertible Promissory Note dated as of August 17, 1999, by and between the Registrant and AMT
Capital, Ltd.
5.1 Opinion of Brobeck, Phleger & Harrison LLP, counsel for
the Registrant, with respect to the common stock being
registered.
10.1* Registrant's 2000 Stock Incentive Plan.
10.2* Registrant's 2000 Employee Stock Purchase Plan.
10.3* Form of Registrant's Directors' and Officers' Indemnification Agreement.
10.4* Lease Agreement, dated June 4, 1999, between the Registrant and W.F. Batton & Co.
10.5* Loan and Security Agreement, dated as of February 27, 1999, between the Registrant and Silicon Valley
Bank.
10.6* Amendment to Loan Documents dated as of September 13,
1999, to the Loan and Security Agreement, dated as of February
27, 1999, between the Registrant and Silicon Valley Bank.
10.7* Amendment to Loan Documents dated as of February 23,
2000, to the Loan and Security Agreement dated as of February
27, 1999, between the Registrant and Silicon Valley Bank.
10.8+* Purchase and License Agreement, dated as of January 14, 2000, between the Registrant and TRW.
10.9+* Master Distributor Agreement, dated April 1, 1999, as amended, between the Registrant and Digital
Microwave Corporation.
10.10* Promissory Note, dated as of December 10, 1999, executed by William J. Palumbo in favor of the
Registrant.
10.11* Lease Agreement dated as of May 12, 1997, by and between the Registrant and Spieker Properties, L.P.
23.1 Consent of KPMG LLP, Independent Auditors relative to Wireless, Inc.
23.2 Consent of KPMG LLP, Independent Auditors relative to Multipoint Networks, Inc.
23.3 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
24.1* Power of Attorney. Reference is made to Page II-5.
27.1* Financial Data Schedule.
</TABLE>
--------------
* Previously filed.
** To be filed by subsequent amendent.
+ Confidential treatment has been requested for certain portions thereof.
