<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CENTURION WIRELESS TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3679 47-0834642
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3425 NORTH 44TH STREET
LINCOLN, NEBRASKA 68504
(402) 467-4491
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY L. KUCK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CENTURION WIRELESS TECHNOLOGIES, INC.
3425 NORTH 44TH STREET
LINCOLN, NEBRASKA 68504
(402) 467-4491
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JOSHUA N. KORFF, ESQ. NORA L. GIBSON, ESQ.
KIRKLAND & ELLIS WILSON SONSINI GOODRICH & ROSATI,
CITIGROUP CENTER PROFESSIONAL CORPORATION
153 EAST 53RD STREET ONE MARKET
NEW YORK, NEW YORK 10022 SPEAR STREET TOWER, SUITE 3300
(212) 446-4800 SAN FRANCISCO, CALIFORNIA 94105
(415) 947-2000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE (1)
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<S> <C> <C>
Common stock, $0.01 par value............................. $80,500,000 $21,252
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as
amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED
WITHOUT NOTICE. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.
Prospectus (Subject to Completion)
Issued September 22, 2000
SHARES
[LOGO] CENTURION WIRELESS TECHNOLOGIES, INC.
COMMON STOCK
------------------------------
We are offering shares of common stock in an initial public offering. No
public market currently exists for our common stock. We anticipate that the
initial public offering price for our shares will be between $ and
$ per share.
------------------------------
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "CNTN."
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
------------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Offering Price.............................................. $ $
Underwriting Discounts and Commissions...................... $ $
Offering Proceeds to Centurion, before expenses............. $ $
</TABLE>
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.
We have granted the underwriters the right to purchase up to an
additional shares of common stock to cover any over-allotments. The
underwriters can exercise this right at any time within 30 days after the
offering. Banc of America Securities LLC expects to deliver the shares of common
stock to investors on , 2000.
BANC OF AMERICA SECURITIES LLC
CHASE H&Q
U.S. BANCORP PIPER JAFFRAY
C.E. UNTERBERG, TOWBIN
------------------------------
The date of this prospectus is , 2000
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 25
Management.................................................. 37
Related Party Transactions.................................. 43
Principal Stockholders...................................... 47
Description of Capital Stock................................ 49
Shares Eligible for Future Sale............................. 51
Underwriting................................................ 53
Legal Matters............................................... 54
Experts..................................................... 54
Where You Can Find Additional Information................... 55
Index to Consolidated Financial Statements.................. F-1
</TABLE>
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the risk
factors and consolidated financial statements and related notes appearing
elsewhere in this prospectus.
CENTURION WIRELESS TECHNOLOGIES
We are a leading global supplier of custom-designed and manufactured
antenna and power products for wireless handsets, wireless data devices and
wireless networks. We have extensive experience in the research, design and
development of products for the global wireless communications industry and have
been profitable since our inception in 1978. Our customers include leading
multinational wireless equipment manufacturers such as Cisco, Ericsson,
Kyocera/Qualcomm, Lucent, Motorola, Philips and Samsung, as well as a wide range
of providers of emerging wireless data products and applications.
We provide custom-designed antenna and power products for a broad range of
applications including:
- wireless handsets, including analog and digital cellular phones;
- wireless data devices;
- portable two-way radios;
- devices that incorporate Bluetooth, a wireless protocol that enables
short-range wireless communication among electronic devices;
- telemetry and telematics, a technology that is currently being
incorporated into automobiles and various consumer electronics and
integrates global positioning system, in-vehicle computing and wireless
technologies;
- wireless local area networks based on IEEE 802.11 and other wireless
protocols; and
- wireless local loop and in-building wireless systems.
Our core technology includes radio frequency design and proprietary
manufacturing processes related to antenna and power products. We own 30 issued
patents and have another 17 patent applications pending, which cover our antenna
and power product technology as well as our design and manufacturing processes.
Our proprietary technology enables us to provide end-users with benefits
including enhanced signal integrity and longer battery life and our wireless
equipment manufacturer customers with benefits including faster time-to-market
and lower cost.
We maintain vertically integrated global manufacturing operations that
incorporate our customer-driven design solutions and supply chain management
systems. Our global manufacturing network includes facilities in Nebraska,
China, Malaysia, Mexico and the United Kingdom. Our domestic manufacturing
operations have obtained ISO 9001 quality management registration, while our
facilities in China and the United Kingdom have received ISO 9002 design
registration. Our global manufacturing expertise allows us to work closely with
our customers to rapidly deliver custom-designed products.
The combination of our technology, global manufacturing capabilities and
close working relationships with our customers has enabled us to provide
products to many leading wireless handset and device manufacturers and wireless
networking companies. In the wireless handset market, we currently provide
products to Ericsson, Kyocera/Qualcomm, Motorola and Philips and are currently
developing products for Nokia. In the wireless device and networking markets, we
currently provide products to companies such as Cisco, Intermec Technologies,
Lucent and Proxim. In addition, we are jointly developing technology with
companies such as 3Com, Dell and Intel.
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<PAGE> 5
The markets for our products are large and growing rapidly. Gartner Group
estimates that sales of wireless handsets will grow from approximately 284
million units in 1999 to approximately 852 million units in 2003, representing a
compound annual growth rate of approximately 32%. International Data Corporation
estimates that the market for wireless data devices, which include smart phones,
handheld companions and vertical application devices such as pen tablets, pen
notepads and keypads, will increase from approximately 7.4 million units in 1999
to approximately 29.9 million units in 2003, representing a compound annual
growth rate of approximately 42%. International Data Corporation further
estimates that the market for Bluetooth-enabled devices will increase from
approximately 25 million units in 2000 to approximately 341 million units in
2003, representing a compound annual growth rate of approximately 139%. The
Yankee Group estimates that the telemetry market will grow from approximately
6.4 million units in 1999 to approximately 37.5 million units in 2003,
representing a compound annual growth rate of approximately 55%.
Our goal is to be the leading worldwide provider of antenna and power
products for a broad range of wireless devices. To meet this goal, we intend to
pursue the following strategy:
- continue to focus on leading wireless equipment manufacturers by market
segment;
- extend our technological leadership to capitalize on growth in emerging
wireless markets;
- leverage our global design and manufacturing capability;
- provide a broad array of products; and
- selectively pursue strategic acquisitions.
We were founded as a sole proprietorship in 1978. We were originally
incorporated in Nebraska in 1981 and in September 2000, we re-incorporated in
Delaware. Our principal executive offices are located at 3425 North 44th Street,
Lincoln, Nebraska 68504 and our telephone number is (402) 467-4491.
RECENT DEVELOPMENTS
In September 2000, we completed the acquisition of Xertex Technologies.
Xertex, based in Broomfield, Colorado, is primarily engaged in the design and
manufacture of internal and embedded antennas for Bluetooth, IEEE 802.11,
telemetry and telematics and in-building systems applications. The purchase
price for Xertex was $750,000 plus 216,607 shares of our common stock.
2
<PAGE> 6
THE OFFERING
Common stock offered by
Centurion................... shares
Common stock to be outstanding
after this offering......... shares
Use of proceeds............... Of the net proceeds from this offering, $8.5
million will be used to redeem all of our
outstanding shares of Series B redeemable
preferred stock, approximately $1.7 million
will be used to pay accrued dividends on the
Series B redeemable preferred stock as of June
30, 2000, and $800,000 will be used to pay
accrued dividends on our Series A convertible
preferred stock as of June 30, 2000. The
remainder will be used for general corporate
purposes, including research and product
development, expansion of our manufacturing
facilities and equipment, potential
acquisitions and strategic alliances and
working capital.
Proposed Nasdaq National
Market symbol............... CNTN
Unless otherwise indicated, all information in this prospectus assumes that
the underwriters will not exercise their over-allotment option to purchase
shares of our common stock at the price set forth on the cover page of
this prospectus.
In addition, unless otherwise indicated, all information in this
prospectus, including the outstanding share information above, is based upon
11,858,099 shares outstanding as of June 30, 2000, which gives effect to a
10-for-1 stock split of our common stock which was effected on September 6, 2000
and the following transactions which will be effected immediately prior to, or
contemporaneously with, the consummation of this offering:
- the conversion of all of our outstanding shares of Series A convertible
preferred stock into a total of 2,000,000 shares of common stock;
- the payment of accrued dividends of $800,000 on our Series A convertible
preferred stock;
- the redemption of all of our outstanding shares of Series B redeemable
preferred stock for $8.5 million plus approximately $1.7 million of
accrued dividends as of June 30, 2000;
- the issuance of 1,444,042 shares of Series C convertible preferred stock
and the conversion of all of our outstanding shares of Series C
convertible preferred stock into a total of 1,444,042 shares of common
stock; and
- the issuance of 216,607 shares of common stock in connection with the
acquisition of Xertex Technologies.
The common stock to be outstanding after this offering excludes:
- 445,000 shares of common stock issuable upon the exercise of stock
options outstanding as of June 30, 2000, under our 1997 Stock Option Plan
at a weighted average exercise price of $1.00 per share;
- 75,000 shares of common stock issuable upon the exercise of stock options
outstanding as of June 30, 2000, under our 2000 Non-Employee Director
Option Plan at a weighted average exercise price of $2.00 per share; and
- 930,000 additional shares of common stock reserved for issuance under our
1997 Stock Option Plan and 2000 Non-Employee Director Option Plan.
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<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes thereto included
elsewhere in this prospectus. Our pro forma information gives effect to:
- the issuance of 1,444,042 shares of our Series C convertible preferred stock
on September 6, 2000 for approximately $20.0 million and application of the
proceeds therefrom;
- the issuance of 216,607 shares of common stock and payment of $750,000 in cash
in connection with the acquisition of Xertex Technologies;
- the redemption of 2,500 shares of Series B redeemable preferred stock for
$250,000 plus approximately $33,000 of accrued dividends; and
- the conversion of all of our outstanding shares of Series A and Series C
convertible preferred stock into a total of 3,444,042 shares of common stock
which will be effected immediately prior to the consummation of this offering.
The pro forma as adjusted information is provided for balance sheet data as
of June 30, 2000 to further reflect the application of the net proceeds from the
sale of the shares of common stock offered by us at an assumed initial
public offering price of $ per share, and after deducting estimated offering
expenses and underwriting discounts and commissions.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $62,197 $69,246 $105,211 $112,034 $109,644 $46,399 $62,462
Cost of sales.......................... 50,619 57,795 85,310 87,142 91,965 39,369 50,578
Income from operations................. 5,119 4,468 10,331 13,058 4,280 1,244 4,913
Net income............................. 5,171 3,741 4,568 6,065 1,767 -- 2,988
Dividends on preferred stock........... -- -- 1,504 2,640 987 476 1,546
Net income (loss) available for common
stock................................ 5,171 3,741 3,064 3,425 780 (476) 1,442
Earnings per share:
Basic................................ $ 0.65 $ 0.47 $ 0.38 $ 0.43 $ 0.10 $ (0.06) $ 0.18
Diluted.............................. $ 0.65 $ 0.47 $ 0.38 $ 0.42 $ 0.07 $ (0.06) $ 0.17
Weighted average shares used in
earnings per share calculation:
Basic................................ 8,000 8,000 8,000 8,000 8,097 8,000 8,197
Diluted.............................. 8,000 8,000 8,112 8,232 10,405 8,000 8,585
Pro forma net income per share
available for common shares:(1)
Basic......................................................................... $ 0.12 $ (0.01) $ 0.24
Diluted....................................................................... $ 0.12 $ (0.01) $ 0.23
Pro forma weighted average shares used in calculation:
Basic......................................................................... 11,758 11,661 11,858
Diluted....................................................................... 12,066 11,661 12,246
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,387 $ 3,554 $
Working capital............................................. 1,892 15,892
Total assets................................................ 56,708 60,725
Long-term debt, less current maturities..................... 14,259 9,259
Total stockholders' equity (deficit)........................ (6,704) 15,529
</TABLE>
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(1) Pro forma basic and diluted net income per share have been computed to give
effect to common equivalent shares from convertible preferred stock and to
include Series C convertible preferred stock issued in September 2000, that
will convert upon the closing of this offering (using the as-if-converted
method) for the year ended December 31, 1999, and the unaudited six months
ended June 30, 1999 and 2000. The computation also includes the pro forma
effect of the redemption of the Series B redeemable preferred stock.
4
<PAGE> 8
RISK FACTORS
Before you invest in our common stock, you should carefully consider the
various risks, including those described below, together with all of the other
information included in this prospectus. If any of these risks actually occur,
our business, financial condition or operating results could be adversely
affected. In that case, the trading price of our common stock could decline and
you could lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE DEPEND ON A FEW LARGE CUSTOMERS AND THE LOSS OF ONE OR MORE OF THEM WOULD
RESULT IN A LOSS OF A SIGNIFICANT AMOUNT OF OUR NET SALES.
Historically, we have generated a substantial portion of our net sales from
a small number of customers. If we lost one or more of these major customers, or
if one or more of these customers decreased or cancelled their orders, we would
lose a significant amount of our net sales. For example, for the six months
ended June 30, 2000, our top five customers accounted for 86.4% of our net
sales, with Ericsson accounting for approximately 55% of our net sales and
Motorola accounting for approximately 28% of our net sales. In 1999, our top
five customers accounted for 85.8% of our net sales, with Ericsson accounting
for approximately 49% of our net sales and Motorola accounting for approximately
27% of our net sales. We expect to continue to rely on a few large customers for
a significant portion of our net sales.
IF OUR CUSTOMERS ARE UNABLE TO PRODUCE AND SELL WIRELESS DEVICES IN LARGE
QUANTITIES, ORDERS FOR OUR PRODUCTS WILL DECREASE.
As a designer and manufacturer of antenna and power products used in
wireless devices, we do not sell any of our products directly to consumers.
Therefore, orders for our products depend upon the ability of our customers to
produce and sell large volumes of wireless devices that incorporate our
products. Our customers may not be successful in producing and selling wireless
devices for reasons beyond their control, such as delays or other complications
in receiving critical components from other suppliers, changes in consumer
preferences and industry downturns. Any decrease in demand for our customers'
products would result in a decrease in our net sales.
OUR CUSTOMERS COULD DISCONTINUE PURCHASES OF OUR PRODUCTS AT ANY TIME RESULTING
IN OUR HOLDING EXCESS INVENTORY AND HAVING MANUFACTURING EXPENSES NOT OFFSET BY
SALES, EITHER OF WHICH WOULD HARM OUR OPERATING RESULTS.
Our customers generally do not provide us with firm, long-term volume
purchase commitments. As a result, customers can cancel purchase commitments or
reduce or delay orders at any time. In the event of a cancellation, delay or
reduction of commitments by a major customer, we may be unable to identify an
alternative purchaser for the product, which would result in our holding excess
inventory and having manufacturing expenses not offset by sales. The large
percentage of our sales to customers in the wireless communications industry,
which is subject to severe competitive pressures, rapid technological change and
product obsolescence, increases our inventory and expense risks.
WE MANUFACTURE OUR OWN PRODUCTS AND ANY DISRUPTION OF OUR MANUFACTURING
OPERATIONS COULD CAUSE US TO DELAY PRODUCT SHIPMENTS WHICH WOULD NEGATIVELY
IMPACT OUR NET SALES, COMPETITIVE POSITION AND REPUTATION.
We currently manufacture our products at our facilities in Nebraska, China,
Malaysia, Mexico and the United Kingdom. We may experience delays, disruptions,
capacity constraints or quality control problems at our manufacturing
facilities, which could result in lower yields or delays of product shipments to
our customers. Any such delays would negatively impact our net sales,
competitive position and reputation. In addition, if we do not accurately
forecast demand for our products, we will have excess or insufficient capacity,
either of which will seriously harm our profitability.
5
<PAGE> 9
IF WE ARE UNABLE TO SUCCESSFULLY INCREASE OUR PRODUCTION CAPACITY, WE WILL NOT
BE ABLE TO GROW OUR NET SALES AS PLANNED.
We have initiated a capital expenditure program to increase our
manufacturing capabilities and enable us to grow our net sales. As part of this
initiative we completed and began production in our manufacturing facility in
Malaysia in May 2000. In addition, we have added mechanical and design
engineering resources to our manufacturing facility in China. Any delay in
increasing our capacity would compromise our ability to meet the anticipated
demand for our new products and our ability to grow our net sales.
COMPETITION MAY DECREASE OUR MARKET SHARE, NET SALES AND OPERATING RESULTS,
WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE.
Competition in the markets for our products is intense. We compete with
several companies primarily engaged in the business of designing, manufacturing
and selling antennas and power products for wireless communications devices. Our
competitors could develop new process technologies or products that may be
superior to ours. In addition, many of our existing and potential customers
manufacture or assemble wireless communications devices and have substantial
in-house technological capabilities. If one of our large customers decided to
design and manufacture antenna or power products, our operating results would be
negatively affected.
Many of our existing and potential competitors have strong market
positions, considerable internal manufacturing capacity, established
intellectual property rights and substantial technological capabilities. These
competitors may have greater financial, technical, manufacturing and marketing
resources than we do. Numerous other established and start-up companies may also
be pursuing similar and related technologies that may compete with our wireless
communications components. We cannot guarantee that we will be able to compete
successfully with our competitors. In addition, consolidation in our industry
may strengthen our competitors' financial, technical and marketing resources and
may provide them greater access to customers or new technologies. Furthermore,
we expect competition to increase. This could mean lower prices or reduced
demand for our products. Any of these developments would have an adverse effect
on our operating results.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR NET SALES MAY NOT INCREASE, OUR
COSTS MAY INCREASE AND OUR RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED.
We are continuing to actively expand our operations. This growth has placed
and will continue to place a strain on our managerial, operational and financial
resources. To manage our growth effectively, we must:
- improve our operational and financial systems; and
- maintain adequate physical plant, manufacturing facilities and equipment
to meet customer demand.
We began production in our manufacturing facility in Malaysia in May 2000
and we are in the process of expanding our operations in China. We will continue
to incur expenses in connection with our growth and may have additional
unexpected costs. Our systems, procedures and controls may not be adequate to
support our operations, and we may not be able to expand quickly enough to take
advantage of potential market opportunities.
ANY ACQUISITION WE MAKE, INCLUDING OUR RECENT ACQUISITION OF XERTEX
TECHNOLOGIES, COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION.
From time to time, we explore opportunities to acquire businesses to expand
our technology base, production capacity and product offerings. Acquisitions
involve numerous risks, including:
- difficulties in integrating operations, products and corporate cultures;
- difficulties in completing the development of acquired technologies;
- the challenges of managing different geographic units;
6
<PAGE> 10
- entering markets or businesses in which we have limited experience; and
- the loss of key employees of the acquired businesses.
Furthermore, in the event of any future acquisition, we could:
- issue stock that would dilute our current stockholders' percentage
ownership;
- incur additional debt;
- assume additional liabilities; or
- incur expenses related to in-process research and development and/or
amortization of goodwill and other intangible assets.
In September 2000, we acquired Xertex Technologies, a designer of internal
and embedded antenna solutions for wireless data applications including
Bluetooth, IEEE 802.11, telemetry and telematics, and in-building antenna
systems. We face all of the above-mentioned risks related to this acquisition.
IF WE FAIL TO ENHANCE OUR EXISTING PRODUCTS OR TO DEVELOP AND INTRODUCE NEW
PRODUCTS THAT MEET CHANGING CUSTOMER REQUIREMENTS AND KEEP PACE WITH
TECHNOLOGICAL DEVELOPMENTS, WE WILL HAVE DIFFICULTY SELLING OUR PRODUCTS AND OUR
NET SALES WILL DECREASE.
Our future success will depend on our ability to enhance our existing
products and to develop new products in a timely and cost-effective manner. We
have occasionally experienced delays in completing the development and
introduction of new products. These delays are often based on factors beyond our
control, including changes in our customers' product mix and product release
dates. The successful development and introduction of new products depends on a
number of factors, including:
- our timely completion of product designs and development;
- our ability to develop manufacturing processes for new products; and
- commercial acceptance of our new products and enhancements.
In addition, the wireless communications markets are characterized by
frequent introductions of new products. As a result, we have experienced, and
will continue to experience, product design obsolescence. We may be unable to
improve our product designs and develop new products that meet our customers'
demands. If we are unable to meet our customers' demands, our results of
operations may be seriously harmed.
WE OBTAIN SOME OF THE MATERIALS AND SERVICES USED TO MANUFACTURE OUR PRODUCTS
FROM A LIMITED GROUP OF SUPPLIERS, AND THE LOSS OF ANY OF THESE SUPPLIERS COULD
CAUSE PRODUCTION DELAYS AND A SUBSTANTIAL LOSS OF NET SALES.
We currently obtain key materials and services used to manufacture our
products from a limited number of suppliers. From time to time, we obtain some
of these materials and services, such as battery cells for our power products,
from a single source supplier. We have experienced delays in delivery and
shortages of key materials and services in the past. We generally do not have
long-term supply contracts with our suppliers. These factors present us with the
following risks:
- delays in delivery or shortage in key materials or services could
interrupt and delay manufacturing and result in cancellation of orders
for our products;
- suppliers could increase materials and services prices significantly and
with immediate effect, causing a decline in our gross profits;
- we may not be able to develop alternative sources for key materials and
services used in the manufacture of our products, if or as required in
the future; and
7
<PAGE> 11
- suppliers could discontinue the manufacture of materials used in our
products. In such event, we might need to modify our products, which may
cause delays in shipments, increased manufacturing costs and increased
prices of our products.
The occurrence of any of these or similar events would harm our net sales
and gross profits and could also harm our reputation and result in the loss of
our customer base.
IF WE LOSE ANY KEY MEMBERS OF OUR MANAGEMENT OR ARE UNABLE TO ATTRACT, TRAIN AND
RETAIN QUALIFIED ENGINEERING, MARKETING, SALES AND TECHNICAL SUPPORT PERSONNEL,
WE MAY NOT BE ABLE TO DEVELOP OUR BUSINESS.
Our future success depends in part on the continued service of our key
management personnel. For instance, the loss of Gary L. Kuck, our President and
Chief Executive Officer, would materially and adversely affect our business. We
also depend on our ability to continue to identify, attract and retain qualified
engineering, marketing and sales employees and technical support personnel,
particularly highly skilled design, process and test engineers involved in the
manufacture and development of our products and processes. We must also recruit
and train employees to manufacture our products without a substantial reduction
in manufacturing efficiency. The competition for employees in the wireless
industry is intense, and the loss of any key employee could negatively affect
us.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY NOT BE ABLE
TO COMPETE.
Our ability to compete is affected by our ability to protect our
intellectual property. A significant aspect of our intellectual property is our
product and process technologies. In addition to patent and copyright
protection, we rely on trade secret laws, confidentiality procedures and
licensing arrangements to protect our intellectual property. Our pending or
future patent applications may not be approved and the claims covered by such
applications may be reduced. If allowed, our patents may not be of sufficient
scope or strength, and may not provide us with competitive advantages. Others
may independently develop similar technologies or products, duplicate any of our
products or design around our patents. In addition, the laws of certain foreign
countries in which our products are or may be developed, manufactured or sold
may not protect our products or intellectual property rights to the same extent
as do the laws of the United States. This may make piracy of our technologies
and products possible. The steps taken by us to protect our intellectual
property may not be adequate to prevent misappropriation of our technologies.
Litigation, which could result in substantial costs and diversion of effort by
us, may also be necessary to enforce any patents issued or licensed to us or to
determine the scope and validity of third-party proprietary rights. Any such
litigation, regardless of the outcome, could be expensive and time consuming,
and adverse determinations in any such litigation could seriously harm our
ability to compete and therefore our business.
THIRD PARTIES HAVE AND MAY CONTINUE TO BRING INFRINGEMENT CLAIMS AGAINST US
WHICH COULD HARM OUR ABILITY TO SELL OUR PRODUCTS AND RESULT IN SUBSTANTIAL
LIABILITIES.
Particular aspects of our technology could be found to infringe on the
intellectual property rights or patents of others. In this regard, in July 2000,
we received a written notice from Amphenol T&M Antennas, Inc. in which it
claimed to have patent rights relating to technology used in the antennas we
supply to Motorola for use on Motorola's V series phones. Similarly, in August
and September 2000, we received written notices from Dallas Semiconductor
Corporation in which it claimed to have patent rights in certain technology used
in our battery products. Amphenol T&M and Dallas Semiconductor have requested
that we review our products in light of certain of their issued patents. We are
currently evaluating the patents noted in these letters. Others' patents,
including Amphenol T&M's and Dallas Semiconductor's, may be determined to be
valid, and some of our products may ultimately be determined to infringe the
Amphenol T&M and Dallas Semiconductor patents, or those of other companies.
Amphenol T&M and Dallas Semiconductor or other companies may pursue litigation
with respect to these or other claims. In this regard, in September 2000, we
received a written notice from Amphenol T&M that they have filed a patent
infringement complaint against us. The result of any litigation is inherently
uncertain. In the event of an adverse result in any litigation with respect to
intellectual property rights relevant to our products that could arise in the
future, we could be
8
<PAGE> 12
required to obtain licenses to the infringing technology, to pay substantial
damages under applicable law, to cease the manufacture, use and sale of
infringing products or to expend significant resources to develop non-
infringing technology. Licenses may not be available from third parties,
including Amphenol T&M and Dallas Semiconductor, either on commercially
reasonable terms or at all. In addition, litigation frequently involves
substantial expenditures and can require significant management attention, even
if we ultimately prevail. Accordingly, any infringement claim or litigation
against us could significantly harm our business, operating results and
financial conditions.
BECAUSE OUR OPERATING RESULTS WILL FLUCTUATE FROM QUARTER TO QUARTER, THE PRICE
OF OUR STOCK MAY DECLINE.
Our quarterly and annual results of operations have varied in the past and
may vary significantly in the future due to a number of factors, many of which
are outside our control. Our results of operations may fluctuate due to:
- timing of customer orders or shipments;
- acceptance and sales of our customers' products;
- changes in product mix purchased by our customers;
- timing of new product introductions by our customers;
- variability of the life cycles of our customers' products;
- changes in our manufacturing capacity and variations in the utilization
of that capacity;
- variations in operating expenses such as the price of raw materials; and
- the timing and level of product and process development costs.
We expect that our operating results will continue to fluctuate in the
future as a result of these and other factors. Any unfavorable changes in these
or other factors could cause our results of operations to suffer as they have in
the past, based upon some of these factors. Due to potential fluctuations, we
believe that period to period comparisons of our results of operations are not
necessarily meaningful and should not be relied upon as indicators of our future
performance. If our operating results fall below the expectations of investors
in future periods, our share price will likely decline.
WE DERIVE A SUBSTANTIAL AMOUNT OF OUR NET SALES FROM INTERNATIONAL SOURCES, AND
OUR FAILURE TO ADDRESS THE DIFFICULTIES ASSOCIATED WITH SELLING OUR PRODUCTS
OUTSIDE THE UNITED STATES COULD CAUSE OUR SALES TO DECLINE.
International sales accounted for approximately 48% of our net sales for
the six months ended June 30, 2000, and approximately 42% in 1999, 37% in 1998
and 34% in 1997. Furthermore, our facilities in China, Malaysia, Mexico and the
United Kingdom manufactured approximately 49% of the products that we sold for
the six months ended June 30, 2000. The manufacture and sale of products in
foreign countries involves a number of risks that can arise from international
trade transactions, local business practices and cultural considerations,
including:
- currency exchange rate fluctuations and restrictions;
- import-export regulations;
- ability to secure credit and funding;
- longer payment cycles;
- foreign collection problems;
- transportation risks; and
- political and economic turmoil.
9
<PAGE> 13
Furthermore, some of our major customers are relying on growth in
international markets, including Asia and Latin America, for sales of their
products. The demand for our products will be reduced if the economies in these
regions do not grow.
OUR MANUFACTURING OPERATIONS IN SHANGHAI SUBJECT US TO RISKS INHERENT IN DOING
BUSINESS IN CHINA, WHICH MAY HARM OUR MANUFACTURING CAPACITY AND OUR NET SALES.
We have a manufacturing facility located in Shanghai, China. Our ability to
operate the facility may be harmed by changes in the laws and regulations of the
People's Republic of China, such as those relating to taxation, import and
export tariffs, environmental regulations, land use rights, property and other
matters. Our assets and facilities located in China are subject to the laws and
regulations of China and our results of operations in China are subject to the
economic and political situation there. In addition, China's economy differs
from the economies of many countries in many respects, including structure,
government involvement, level of development, growth rate, capital reinvestment,
allocation of resources, self-sufficiency and rate of inflation. In the past,
the Chinese economy has been primarily a planned economy subject to state plans.
Since 1978, China's government has been reforming its economic and political
systems to allow foreign investment. China's policies for economic reform may
not be consistent or effective. Our results of operations and financial position
may be harmed by changes in the political, economic or social conditions in
China.
WE COULD BE LIABLE FOR ENVIRONMENTAL DAMAGES RESULTING FROM OUR RESEARCH AND
DEVELOPMENT AND MANUFACTURING OPERATIONS.
Our operations generate small amounts of hazardous waste, including various
solvents and resins used in cleaning our manufacturing equipment. In addition,
we offer our customers the option to return their used power products to us.
Used power products that are not recycled or otherwise properly disposed of may
be classified as hazardous waste. We are subject to many federal, state and
local governmental regulations related to the use, storage, handling, discharge
and disposal of toxic, volatile or otherwise hazardous chemicals used in our
design and manufacturing processes. Any failure by us to control the use, or
adequately restrict the discharge, of hazardous substances could subject us to
future liabilities. The amount of hazardous waste produced by us may increase in
the future, depending on changes in our operations. In addition, under some
environmental regulations, we could be held financially responsible for remedial
measures if our properties are contaminated, even if we did not cause the
contamination. Our failure to comply with present or future environmental
regulations could result in the imposition of fines, suspension of production,
or a cessation of operations. Compliance with these regulations could require us
to acquire costly equipment or to incur other significant expenses.
RISKS RELATED TO OUR INDUSTRY
IF THE WIRELESS COMMUNICATIONS MARKETS DO NOT GROW AS ANTICIPATED, WE WILL NOT
BE ABLE TO SUSTAIN OR GROW OUR BUSINESS.
We depend on the development and growth of wireless communications products
and services in both the U.S. and abroad, including cellular and personal
communications services, wireless handsets, portable two-way radios and other
wireless applications, including Bluetooth, IEEE 802.11, telemetry and
telematics, and in-building antenna systems. Growth of the wireless
communications markets depends on many factors beyond our control, including the
availability of affordable wireless services plans, the continued introduction
of new and enhanced wireless devices and consumer preferences. Substantially all
of our sales are derived from sales of products used in wireless communications
systems. Any economic, technological or other developments resulting in a
reduction in demand for wireless services would harm our business.
Many of our target markets are new and unproven, including the markets for
devices enabled with Bluetooth and IEEE 802.11 technologies, which are emerging
wireless protocols that provide high-speed transmission and reception of data,
telematics devices and in-building antenna systems. Furthermore, a significant
portion of our forecasted growth involves sales of our products in developing
countries where the
10
<PAGE> 14
markets for wireless communications devices are still in their infancy. We
cannot be sure of the rate at which these markets will develop, if at all. If
these markets fail to develop or if they develop more slowly than we anticipate,
our operating results may be harmed.
A CONTINUED DECLINE IN SELLING PRICES FOR SOME OF OUR KEY PRODUCTS AND THE
PRODUCTS OF OUR CUSTOMERS COULD CAUSE OUR NET SALES AND GROSS MARGINS TO
DECLINE.
Many applications that incorporate our products face intense cost and price
competition. Pricing pressures continue to erode profit margins of wireless
handsets and other wireless devices. This in turn places pricing pressures on
our products as our customers seek low-cost suppliers of components in order to
maintain profitability. A continued decline in prices could cause our net sales
and gross margins to decline.
IF WE ARE UNABLE TO ADAPT OUR PRODUCTS TO EVOLVING INDUSTRY STANDARDS, WE WILL
NOT BE ABLE TO MEET THE REQUIREMENTS OF OUR CUSTOMERS.
The emergence of new industry standards may render our products
unmarketable or obsolete and may require us to incur substantial unanticipated
costs to develop products that comply with new standards. For example, the
computer and communications industry recently developed Bluetooth, a wireless
protocol that will enable short-range wireless communications among electronic
devices. Our financial performance will depend on our ability to introduce new
products that address the needs of new industry standards, such as Bluetooth. If
we are unable to develop new products that work with these standards, we will
not be able to sell competitive products and our financial results will be
adversely affected.
CONCERNS OVER RADIO FREQUENCY EMISSIONS OR OTHER HEALTH AND SAFETY RISKS MAY
DISCOURAGE USE OF WIRELESS HANDSETS AND SERVICES AND CAUSE OUR SALES TO DECLINE.
In the near future, many of our customers will provide consumers with
information regarding the specific absorption rates of radio frequency emissions
from the wireless handsets they produce. Media reports have suggested that radio
frequency emissions from wireless handsets and other devices sold by our
customers may raise various health concerns, including cancer, and may interfere
with various electronic medical devices, including hearing aids and pacemakers.
Concerns over radio frequency emissions may discourage the use of wireless
handsets, which would adversely affect the demand for our products. Further
research may demonstrate a link between radio frequency emissions of wireless
handsets and these health concerns. Such findings could lead to increased
governmental regulation of wireless handsets. Several states have already
proposed or enacted legislation which would limit or prohibit the use of a
mobile telephone while driving an automobile. If more states adopt and strictly
enforce this or other legislation, sales of the wireless handsets sold by our
customers may decline, which in turn could cause sales of our products to
decline.
BECAUSE OUR PRODUCTS AND THOSE OF OUR CUSTOMERS ARE SUBJECT TO GOVERNMENT
REGULATIONS, CHANGES IN LAWS OR REGULATIONS THAT NEGATIVELY IMPACT OUR OR OUR
CUSTOMERS' PRODUCTS AND TECHNOLOGIES COULD INCREASE OUR COSTS OF DOING BUSINESS,
LIMIT OUR POTENTIAL MARKETS OR REQUIRE CHANGES TO OUR BUSINESS MODEL.
The jurisdiction of the Federal Communications Commission extends to the
entire U.S. communications industry, including our customers and their products
and services that incorporate our products. Future Federal Communications
Commission regulations affecting the wireless communications industry, our
customers or our products may harm our business. For example, Federal
Communications Commission regulatory policies that affect the specifications of
wireless data devices may impede our customers' ability to manufacture their
products profitably, which could, in turn, reduce demand for our products. In
addition, regulations affecting radio frequencies or use and availability of
spectrum authorizations and licensing could impede the growth of wireless
communications markets in general. Furthermore, international regulatory bodies
are beginning to adopt standards for the communications industry. Delays caused
by our compliance with regulatory requirements may result in order cancellations
or postponements of product purchases by our customers, which would harm our
business and adversely affect our operating results and financial condition.
11
<PAGE> 15
RISKS RELATED TO THIS OFFERING
SHARES ELIGIBLE FOR SALE IN THE NEAR FUTURE MAY CAUSE THE MARKET PRICE FOR OUR
COMMON STOCK TO DECLINE.
Sales of a substantial number of shares of our common stock in the public
market following this offering, or the perception that these sales could occur,
may depress the market price for our common stock. These sales could also impair
our ability to raise additional capital through the sale of our equity
securities in the future.
The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and under
agreements that our stockholders have entered into with the underwriters. Those
agreements restrict our stockholders from selling, pledging or otherwise
disposing of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Banc of America Securities LLC.
Banc of America Securities LLC may, however, in its sole discretion, release all
or any portion of the common stock from the restrictions of the lockup
agreements. Upon completion of this offering we will have outstanding
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the shares sold in this offering are freely tradeable. The remaining 11,858,099
shares are eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
---------------- -----------------------------
<S> <C>
10,197,450..................................... 180 days from the date of this prospectus
1,660,649...................................... September 2001
</TABLE>
OUR MANAGEMENT AND CORNERSTONE EQUITY INVESTORS, LLC OWN A MAJORITY OF OUR STOCK
AND ACCORDINGLY, NO CORPORATE ACTIONS REQUIRING STOCKHOLDER APPROVAL CAN BE
CONSUMMATED WITHOUT APPROVAL OF THIS GROUP.
Upon completion of this offering, our officers, directors and their
respective affiliates, together with Cornerstone, will beneficially own
approximately % of the outstanding shares. As a result, Cornerstone and our
officers and directors, in general, will together be able to control most
matters requiring stockholder approval. These matters would include the election
of our directors and approval of significant corporate transactions, including
potential mergers, consolidations or sales of all or substantially all of our
assets. This concentration of ownership may have the effect of impeding a
merger, consolidation, takeover or other business combination involving us or
discouraging a potential acquiror from making a tender offer for our shares.
This concentration of ownership could also negatively affect our share price or
decrease any premium over market price that an acquiror might otherwise pay.
BECAUSE THE NASDAQ NATIONAL MARKET IS LIKELY TO CONTINUE TO EXPERIENCE EXTREME
PRICE AND VOLUME FLUCTUATIONS, THE PRICE OF OUR STOCK MAY DECLINE.
Stock prices and trading volumes for many technology companies fluctuate
widely for a number of reasons, including some reasons that may be unrelated to
their businesses or operating results, such as changes in analysts' estimates or
recommendations, the presence or absence of short-selling of common stock and
events affecting other companies that the market deems to be comparable. This
market volatility, as well as general domestic or international economic, market
and political conditions, could cause the market price of our common stock to
decline without regard to our operating performance. Due to these factors, the
trading price of our common stock may decline below its initial offering price
to the public.
12
<PAGE> 16
PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DELAY OR PREVENT A
CHANGE IN CONTROL OF US OR LIMIT THE PRICE THAT INVESTORS MIGHT BE WILLING TO
PAY IN THE FUTURE FOR SHARES OF OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws and Delaware law
could, together or separately:
- discourage potential acquisition proposals;
- delay or prevent a change in control; and
- discourage proxy contests and make it more difficult for you and other
stockholders to elect directors and take other corporate actions.
As a result, these provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock.
In particular, our board of directors may authorize the issuance of up to
1,000,000 shares of preferred stock with rights and privileges that might be
senior to those of our common stock without the consent of the holders of the
common stock.
13
<PAGE> 17
FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things:
- implementing our business strategy;
- attracting and retaining customers;
- obtaining and expanding market acceptance of the products and services we
offer;
- forecasts of wireless device usage and the size and growth of relevant
markets;
- rapid technological changes in our industry and relevant markets; and
- competition in our market.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "predicts," "potential," "continue,"
"expects," "anticipates," "future," "intends," "plans," "believes," "estimates"
and similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties. Actual results, levels of activity, performance, achievements and
events may vary significantly from those implied by the forward-looking
statements. A description of risks that could cause our results to vary appears
under the caption "Risk Factors" and elsewhere in this prospectus.
USE OF PROCEEDS
We will receive net proceeds of $ from the sale of shares of
common stock assuming an initial public offering price of $ per share
after deducting estimated offering expenses and underwriting discounts and
commissions. We will receive an additional $ from the sale of
shares if the underwriters' over-allotment option is exercised in full.
The principal purposes of this offering are to obtain additional capital,
create a public market for our common stock and facilitate our future access to
public securities markets.
Of the net proceeds from this offering, $8.5 million will be used to redeem
outstanding shares of our Series B redeemable preferred stock, approximately
$1.7 million will be used to pay the accrued dividends on the Series B
redeemable preferred stock as of June 30, 2000 and $800,000 will be used to pay
accrued dividends on the Series A convertible preferred stock as of June 30,
2000. We expect to use the remaining net proceeds for general corporate
purposes, including research and product development, expansion and upgrading of
our manufacturing facilities and equipment and for working capital.
We also may use a portion of the net proceeds to acquire complementary
products, technologies or businesses. However, we currently have no commitments
or agreements and are not involved in any negotiations with respect to any
transactions. Pending use of the net proceeds of this offering, we intend to
invest the net proceeds in short-term, interest-bearing securities.
DIVIDEND POLICY
We have not declared or paid any dividends on our common stock since 1997.
We currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future.
14
<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000, (i)
on an actual basis, (ii) on a pro forma basis to reflect:
- the issuance of 1,444,042 shares of our Series C convertible preferred
stock on September 6, 2000, for approximately $20.0 million and
application of the proceeds therefrom;
- the issuance of 216,607 shares of common stock and payment of $750,000 in
cash in connection with the acquisition of Xertex Technologies;
- the redemption of 2,500 shares of Series B redeemable preferred stock for
$250,000 plus approximately $33,000 of accrued dividends; and
- the conversion of all of our outstanding shares of Series A and Series C
convertible preferred stock into a total of 3,444,042 shares of common
stock which will be effected immediately prior to the consummation of
this offering.
and (iii) on the same pro forma basis as adjusted to give further effect to
the receipt by us of the estimated net proceeds from the sale of shares
of common stock in this offering at an assumed initial public offering price of
$ per share after deducting estimated offering expenses and underwriting
discounts and commissions and the application of such net proceeds.
The outstanding share information in the table excludes, as of June 30,
2000, 445,000 shares of common stock issuable upon the exercise of outstanding
stock options under our 1997 Stock Option Plan and 75,000 shares of common stock
issuable upon the exercise of outstanding stock options under our 2000 Non-
Employee Director Option Plan.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, net of current portion.................... $ 14,259 $ 9,259 $
======== ======== ========
Series B redeemable, $0.01 par value, 90,000 shares
authorized, 87,500 issued and outstanding, actual;
90,000 shares authorized, 85,000 issued and outstanding,
pro forma; no shares authorized, issued or outstanding,
pro forma as adjusted................................... 8,400 8,150
Series C convertible, $0.01 par value, no shares
authorized, issued and outstanding, actual, pro forma
and pro forma as adjusted(1)............................ -- --
Putable common stock, $0.01 par value, 197,450 shares..... 1,750 1,750
Stockholders' equity (deficit):
Preferred stock: Series A convertible, $0.01 par value,
160,000 shares authorized, 160,000 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding pro forma and pro forma as adjusted(2)... 15,340 --
Common stock: par value $0.01 per share, 10,638,300
shares authorized, 8,000,000 shares issued and
outstanding, actual; 13,500,000 shares authorized,
11,858,099(3) shares issued and outstanding pro
forma; shares issued and outstanding, pro forma
as adjusted.......................................... 80 116
Additional paid-in-capital................................ 2,182 39,869
Accumulated other comprehensive loss...................... (217) (217)
Deferred compensation..................................... (316) (316)
Accumulated retained earnings............................. (23,773) (23,923)
-------- -------- --------
Total stockholders' equity (deficit)...................... (6,704) 15,529
-------- -------- --------
Total capitalization...................................... $ 17,705 $ 34,688 $
======== ======== ========
</TABLE>
------------
(1) 1,444,042 shares of Series C preferred stock were issued on September 6,
2000 for approximately $20.0 million and then converted to common stock
immediately prior to the consummation of this offering.
(2) Following the consummation of this offering we will have authorized
1,000,000 shares of undesignated preferred stock, none of which will be
issued and outstanding.
(3) Includes 197,450 shares of putable common stock.
15
<PAGE> 19
DILUTION
Our pro forma net tangible book value as of June 30, 2000, was
approximately $18,937,000, or $1.60 per share of common stock. Pro forma net
tangible book value per share represents total tangible assets less total
liabilities, divided by the number of outstanding shares of common stock after
giving effect to:
- the issuance of 1,444,042 shares of our Series C convertible preferred
stock on September 6, 2000, for approximately $20.0 million and
application of the proceeds therefrom;
- the issuance of 216,607 shares of common stock and payment of $750,000 in
cash in connection with the acquisition of Xertex Technologies; and
- the conversion of all of our outstanding shares of Series A and Series C
convertible preferred stock into a total of 3,444,042 shares of common
stock which will be effected immediately prior to the consummation of
this offering.
After giving effect to the sale of the shares of common stock
offered by us at an assumed initial public offering price of $ per share and
after deducting underwriting discounts and estimated offering expenses, the pro
forma as adjusted net tangible book value at June 30, 2000 would have been
$ , or approximately $ per share of common stock. This represents
an immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors of common stock in this offering. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at June 30,
2000................................................... $1.60
Increase per share attributable to this offering..........
-----
Pro forma as adjusted net tangible book value per share
after this offering.......................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The table above excludes, as of June 30, 2000, 445,000 shares of common
stock subject to outstanding options under our 1997 Stock Option Plan and 75,000
shares of common stock subject to outstanding options under our 2000
Non-Employee Director Option Plan. To the extent options are exercised, there
will be further dilution to new investors.
The following table sets forth, on a pro forma as adjusted basis as of June
30, 2000, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by new investors, before deducting underwriting
discounts and commissions and estimated offering expenses, at an assumed initial
public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -------------------- AVERAGE
(IN THOUSANDS) PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 11,858,099 % $41,499 % $3.50
New investors............................
---------- ----- ------- ------
Total.......................... 100.0% $ 100.0%
========== ===== ======= ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the
percentage of shares of common stock held by existing stockholders after this
offering would be reduced to approximately % and the number of shares of
common stock held by new investors would increase to or
approximately % of the total number of shares of common stock outstanding
after this offering.
16
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our consolidated financial statements and related
notes and other financial information appearing elsewhere in this prospectus.
The statement of operations data for the years ended December 31, 1997, 1998 and
1999 and the balance sheet data as of December 31, 1998 and 1999 are derived
from audited consolidated financial statements included elsewhere in this
prospectus. The statement of operations data for the periods ended December 31,
1995 and December 31, 1996, and the balance sheet data as of December 31, 1995,
1996 and 1997 are derived from audited financial statements not included in this
prospectus. The balance sheet data as of June 30, 2000 and the statement of
operations data for the six months ended June 30, 1999 and 2000 are unaudited,
have been prepared on the same basis as the audited statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair representation of our operating
results for such periods and financial condition at such date. The operating
results for the six-month period ended June 30, 2000 are not necessarily
indicative of the results to be expected for any other interim period or any
future fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $62,197 $69,246 $105,211 $112,034 $109,644 $46,399 $62,462
Costs and expenses:
Cost of sales............................ 50,619 57,795 85,310 87,142 91,965 39,369 50,578
Research and development................. 1,553 1,317 2,151 2,634 2,645 1,244 1,394
Selling, general and administrative...... 4,906 5,666 7,419 9,200 10,485 4,542 5,308
Amortization of intangibles.............. -- -- -- -- 269 -- 269
------- ------- -------- -------- -------- ------- -------
57,078 64,778 94,880 98,976 105,364 45,155 57,549
------- ------- -------- -------- -------- ------- -------
Income from operations..................... 5,119 4,468 10,331 13,058 4,280 1,244 4,913
Other income (expense):
Interest and amortization expense........ (203) (376) (2,776) (3,711) (2,610) (1,218) (1,413)
Other, net............................... 255 44 (11) 71 (92) (25) 56
------- ------- -------- -------- -------- ------- -------
52 (332) (2,787) (3,640) (2,702) (1,243) (1,357)
------- ------- -------- -------- -------- ------- -------
Income before income taxes and
extraordinary
item..................................... 5,171 4,136 7,544 9,418 1,578 1 3,556
Provision for (benefit from) income
taxes(1)................................. -- 395 2,976 2,436 (189) 1 568
------- ------- -------- -------- -------- ------- -------
Income before extraordinary item........... 4,568 6,982 1,767 -- 2,988
Extraordinary item, net of income tax
benefit of
$473..................................... -- -- -- 917 -- -- --
------- ------- -------- -------- -------- ------- -------
Net income................................. 5,171 3,741 4,568 6,065 1,767 -- 2,988
Dividends on preferred stock............... -- -- 1,504 2,640 987 476 1,546
------- ------- -------- -------- -------- ------- -------
Net income (loss) available for common
shares................................... $ 5,171 $ 3,741 $ 3,064 $ 3,425 $ 780 $ (476) $ 1,442
======= ======= ======== ======== ======== ======= =======
Earnings per share:
Basic.................................... $ 0.65 $ 0.47 $ 0.38 $ 0.43 $ 0.10 $ (0.06) $ 0.18
======= ======= ======== ======== ======== ======= =======
Diluted.................................. $ 0.65 $ 0.47 $ 0.38 $ 0.42 $ 0.07 $ (0.06) $ 0.17
======= ======= ======== ======== ======== ======= =======
Weighted average shares used in earnings
per share calculation:
Basic.................................... 8,000 8,000 8,000 8,000 8,097 8,000 8,197
Diluted.................................. 8,000 8,000 8,112 8,232 10,405 8,000 8,585
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------- --------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ -- $ 68 $ 450 $ 3,386 $ 3,906 $ 2,387
Working capital..................................... 8,451 7,528 7,734 3,748 1,704 1,892
Total assets........................................ 20,692 30,155 42,035 44,372 49,336 56,708
Long-term debt, less current maturities............. 96 -- 26,489 17,381 15,735 14,259
Total stockholders' equity (deficit)................ 14,807 14,557 (3,044) (8,709) (7,800) (6,704)
</TABLE>
---------------
(1) For the year ended December 31, 1995, and for the period from January 1,
1996, through September 30, 1996, we were taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under the provisions of
Subchapter S, our income, expenses and tax credits were allocated directly
to our stockholders rather than to us. Effective October 1, 1996, our
stockholders revoked the election to be taxed under the provisions of
Subchapter S.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
consolidated financial statements and related notes that appear elsewhere in
this prospectus. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results may differ
materially from those discussed in the forward-looking statements. Factors that
might cause future results to differ materially from those discussed in the
forward-looking statements include, but are not limited to, those discussed in
"Risk Factors."
OVERVIEW
We manufacture and market custom-designed antenna and power products for
use in wireless handsets, wireless data devices and wireless networks. Our
customers include wireless handset and device manufacturers and wireless
networking companies, located in North America, Latin America, Europe and the
Asia Pacific region.
Net Sales. We sell our products predominantly to original equipment
manufacturers of wireless handsets, data devices and portable two-way radios.
These prospective customers generally commit resources to an evaluation of our
and our competitors' products and require each vendor to expend substantial
time, effort and money educating the prospective customer about the value of the
proposed solutions. Delays associated with potential customers' internal
approval and contracting procedures, procurement practices, testing and
acceptance processes are common and may cause potential sales to be delayed or
foregone. Substantially all of our sales are made on the basis of purchase
orders rather than long-term agreements or requirements contracts. As a result,
we commit resources to the development and production of products without having
received advance or long-term purchase commitments from customers.
To date, a significant portion of our net sales has come from a limited
number of customers. In 1999, Ericsson accounted for approximately 49%, and
Motorola accounted for approximately 27%, of our net sales.
During the last two years, a substantial portion of our net sales were
derived from customers located outside of the United States, and we believe that
continued growth will require expansion of our sales in international markets.
Outside of the United States, we maintain sales, product development and
manufacturing facilities in the United Kingdom and China. We also have
manufacturing facilities in Penang, Malaysia and Tijuana, Mexico and expect to
establish additional international sales and other offices in the future.
International sales have been denominated in both local currencies and in U.S.
dollars and, accordingly, we have been exposed to fluctuations in non-U.S.
currency exchange rates related to these sales activities. We may choose to
limit such exposure by entering into various hedging strategies.
We recognize product sales upon shipment to customers.
Costs and Expenses. Our cost of sales consists primarily of direct
material costs of product components, production wages, taxes and benefits,
indirect manufacturing wages, taxes and benefits, production allocated occupancy
costs, warranty costs, the costs of production equipment, and scrapped material
used in the production process. Selling, general and administrative expenses
generally include salaries, amortization of stock-based compensation, employee
benefits, travel and entertainment costs, allocated communication, rent and
facilities costs and third party professional service fees.
RECENT ACQUISITIONS
In July 1999, we completed the acquisition of Sigma Wireless (UK) Limited,
a designer and manufacturer of molded portable antenna products, for a total
purchase price of $5.2 million, consisting of approximately $3.2 million in
cash, 197,450 shares of our common stock and 2,500 shares of our Series B
redeemable preferred stock.
In September 2000, we completed the acquisition of Xertex Technologies, a
designer and manufacturer of internal and embedded antennas for Bluetooth, IEEE
802.11, telemetry and telematics and in-building
18
<PAGE> 22
system applications, for approximately $750,000 in cash and 216,607 shares of
our common stock. We believe that acquisitions and joint ventures are an
important part of our growth and competitive strategy.
RESULTS OF OPERATIONS
The following table sets forth the results of our operations expressed as a
percentage of net sales.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses.................................
Cost of sales.................................... 81.1 77.8 83.9 84.8 81.0
Research and development......................... 2.0 2.4 2.4 2.7 2.2
Selling, general and administrative.............. 7.1 8.2 9.6 9.8 8.5
Amortization of intangibles...................... -- -- 0.2 -- 0.4
----- ----- ----- ----- -----
Total operating costs and expenses................. 90.2 88.4 96.1 97.3 92.1
----- ----- ----- ----- -----
Income from operations............................. 9.8 11.6 3.9 2.7 7.9
Other income (expense):
Interest and amortization expense................ (2.6) (3.3) (2.4) (2.6) (2.3)
Other, net....................................... -- 0.1 (0.1) (0.1) 0.1
----- ----- ----- ----- -----
(2.6) (3.2) (2.5) (2.7) (2.2)
----- ----- ----- ----- -----
Income before income taxes and extraordinary
item............................................. 7.2 8.4 1.4 -- 5.7
Provision for (benefit from) income taxes.......... 2.8 2.2 (0.2) -- 0.9
----- ----- ----- ----- -----
Income before extraordinary item................... 4.4 6.2 1.6 -- 4.8
Extraordinary item................................. -- (0.8) -- -- --
----- ----- ----- ----- -----
Net income......................................... 4.4% 5.4% 1.6% --% 4.8%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Net sales. Net sales for the six months ended June 30, 2000 increased
approximately $16.1 million, or 34.6%, to approximately $62.5 million from
approximately $46.4 million for the six months ended June 30, 1999. This
increase was primarily due to an increase in unit sales across all market
segments for both antenna and power products. The increase in unit sales was
facilitated by the expansion of our China facility and the ramp-up of our Mexico
facility. This increase in volume was partially offset by a shift in product mix
from higher priced retractable style antennas to lower priced fixed or stubby
antennas.
Cost of sales. Cost of sales for the six months ended June 30, 2000
increased $11.2 million, or 28.5%, to approximately $50.6 million from
approximately $39.4 million for the six months ended June 30, 1999. Cost of
sales as a percentage of net sales decreased to 81.0% for the six months ended
June 30, 2000 from 84.8% for the same period in 1999. The decrease in cost of
sales as a percentage of net sales was primarily attributable to an increase in
manufacturing efficiencies and an increase in production from our lower cost
Asia facility.
Research and development. Research and development expenses increased
approximately $0.2 million for the six months ended June 30, 2000, or 12.1%, to
approximately $1.4 million from approximately $1.2 million for the six months
ended June 30, 1999. This increase is attributable to our ongoing commitment to
the development of new technologies for our antenna and power products.
Selling, general and administrative. Selling, general and administrative
expenses increased approximately $0.8 million for the six months ended June 30,
2000, or 16.9%, to approximately $5.3 million from approximately $4.5 million
for the six months ended June 30, 1999. This increase was primarily a result of
19
<PAGE> 23
an increase in salaries and costs related to expansion activities of our
facilities in China and Malaysia and to the integration of our operations in the
United Kingdom. In addition, travel and entertainment costs were higher as a
result of the expansion of our international facilities and global sales
efforts. These increases were partially offset by lower advertising costs and a
reduction in sales commissions due to the discontinued use of outside
representatives.
Income from operations. Income from operations for the six months ended
June 30, 2000 increased approximately $3.7 million, or 294.9%, to approximately
$4.9 million from approximately $1.2 million for the six months ended June 30,
1999. Income from operations as a percentage of net sales increased to 7.9% for
the six months ended June 30, 2000, from 2.7% for the six months ended June 30,
1999. This increase was primarily a result of increased unit sales across all
market segments for both antenna and power products and an increase in
manufacturing efficiencies and economies of scale achieved by the growth in net
sales.
Other income (expense). Other expense, net of other income, for the six
months ended June 30, 2000 increased approximately $0.2 million, or 9.2%, to
approximately $1.4 million from approximately $1.2 million for the six months
ended June 30, 1999. This increase was primarily attributable to increased
interest expense.
Income tax expense (benefit). Income tax expense for the six months ended
June 30, 2000 increased approximately $0.6 million to approximately $0.6 million
from a tax expense of approximately $0 for the six months ended June 30, 1999,
reflecting our higher pre-tax income in the 2000 period.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net sales. Net sales for 1999 decreased approximately $2.4 million, or
2.1%, to approximately $109.6 million from approximately $112.0 million in 1998.
This decrease was primarily related to pricing pressures from customers for
antenna and power products. We also experienced a product mix shift in our
cellular handset antennas from higher priced retractable to lower priced fixed
antennas. In addition, industry-wide component shortages that affected handset
production for our customers, start-up problems related to our Mexico facility
and a delay in product introduction from one of our major customers also
contributed to this decrease.
Cost of sales. Cost of sales for 1999 increased approximately $4.9
million, or 5.5%, to approximately $92.0 million from approximately $87.1
million in 1998. Cost of sales as a percentage of net sales increased to 83.9%
for 1999 from 77.8% in 1998. The increase in cost of sales as a percentage of
net sales was attributable, in part, to lower average selling prices related to
the product mix shift from higher priced retractable to lower priced fixed
antennas. In addition, our cost of sales as a percentage of net sales increased
as a result of manufacturing inefficiencies, including those related to start-up
problems associated with our Mexico facility and integration issues associated
with our Sigma Wireless acquisition.
Research and development. Research and development expenses remained
relatively flat at approximately $2.6 million in both 1998 and 1999.
Selling, general and administrative. Selling, general and administrative
expenses increased approximately $1.3 million in 1999, or 14.0%, to
approximately $10.5 million from approximately $9.2 million in 1998. This
increase was primarily associated with an increase in headcount and the
corresponding increase in salaries and costs related to our new facilities in
the United Kingdom and Mexico and the expansion of our existing facilities in
China.
Income from operations. Income from operations for 1999 decreased
approximately $8.8 million, or 67.2%, to approximately $4.3 million from
approximately $13.1 million in 1998. Income from operations as a percentage of
net sales decreased to 3.9% for 1999 from 11.6% in 1998. The decrease in income
from operations was primarily due to the factors discussed above.
Other income (expense). Other expense, net of other income, for 1999
decreased approximately $0.9 million, or 25.8%, to approximately $2.7 million
from approximately $3.6 million in 1998. This increase was primarily
attributable to decreased interest expense.
20
<PAGE> 24
Income tax expense (benefit). Income tax expense for 1999 decreased
approximately $2.6 million, to a benefit of approximately $0.2 million compared
to a tax expense of approximately $2.4 million in 1998. The effective rate for
1999 was a benefit of 12.0% compared to an expense of 20.8% in 1998. This was
primarily a result of reduced earnings at our North American facilities.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales. Net sales for 1998 increased approximately $6.8 million, or
6.5%, to approximately $112.0 million from approximately $105.2 million in 1997.
This increase was due to an increase in unit sales across all market segments,
partially offset by a decline in average selling prices. In addition, our net
sales increased as a result of the start-up of our China facility and sales to
Asian markets.
Cost of sales. Cost of sales for 1998 increased approximately $1.8
million, or 2.1%, to approximately $87.1 million from approximately $85.3
million in 1997. Cost of sales as a percentage of net sales decreased to 77.8%
for 1998 from 81.1% for 1997. The decrease in cost of sales as a percentage of
net sales was primarily attributable to an increase in antenna sales, which have
a higher gross margin than power products, and an improvement in antenna margins
due to increased manufacturing efficiencies.
Research and development. Research and development expenses increased
approximately $0.4 million in 1998, or 22.5%, to approximately $2.6 million from
approximately $2.2 million in 1997. This increase was attributable to our
ongoing commitment to develop new technologies for our antenna and power
products.
Selling, general and administrative. Selling, general and administrative
expenses increased approximately $1.8 million for 1998, or 24.0%, to
approximately $9.2 million from approximately $7.4 million in 1997. This
increase was primarily due to the expansion of our China operations, an increase
in headcount and higher travel and entertainment costs related to the expansion
of our international operations.
Income from operations. Income from operations for 1998 increased
approximately $2.8 million, or 26.4%, to approximately $13.1 million from
approximately $10.3 million in 1997. Income from operations as a percentage of
net sales increased to 11.6% for 1998 from 9.8% in 1997. The increase in income
from operations was primarily due to the factors discussed above.
Other income (expense). Other expense, net of other income, for 1998
increased approximately $0.8 million, or 30.6%, to approximately $3.6 million
from approximately $2.8 million for 1997. This increase was primarily
attributable to increased interest expense.
Income tax expense (benefit). Income tax expense for 1998 decreased
approximately $0.6 million, to approximately $2.4 million from approximately
$3.0 million in 1997. The effective rate for 1998 decreased to 20.8% compared to
39.4% in 1997. This was primarily the result of increased earnings at our China
subsidiary which was exempted from taxes in 1998.
21
<PAGE> 25
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our historic unaudited quarterly
consolidated statements of operations data for each of the ten fiscal quarters
ended June 30, 2000, and such information expressed as a percentage of our net
sales. This unaudited quarterly information has been prepared on the same basis
as the annual audited financial statements appearing elsewhere in this
prospectus, and includes all necessary adjustments, consisting only of normal
recurring adjustments, that we consider necessary to present fairly the
financial information for the quarters presented. The quarterly data should be
read in conjunction with the audited consolidated financial statements and the
notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------
MAR 31, JUN 30, SEPT 30, DEC 31, MAR 31, JUN 30, SEPT 30, DEC 31, MAR 31, JUN 30,
1998 1998 1998 1998 1999 1999 1999 1999 2000 2000
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales................... $28,129 $28,139 $23,438 $32,328 $20,553 $25,846 $29,925 $33,320 $29,262 $33,200
Costs and expenses:
Cost of sales............. 22,036 21,645 18,597 24,864 16,773 22,596 24,311 28,285 23,782 26,796
Research and
development............. 661 537 612 824 559 685 670 731 743 651
Selling, general and
administrative.......... 2,300 2,667 2,158 2,075 2,223 2,319 2,829 3,114 2,547 2,761
Amortization of
intangibles............. -- -- -- -- -- -- 132 137 138 131
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
24,997 24,849 21,367 27,763 19,555 25,600 27,942 32,267 27,210 30,339
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations...... 3,132 3,290 2,071 4,565 998 246 1,983 1,053 2,052 2,861
Interest and amortization
expense................... (968) (942) (875) (927) (658) (560) (648) (744) (664) (749)
Other, net.................. 15 6 22 28 (25) -- (1) (66) 39 17
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes and extraordinary
item...................... 2,179 2,354 1,218 3,666 315 (314) 1,334 243 1,427 2,129
Provision for (benefit from)
income taxes.............. 564 609 315 948 (38) 39 (160) (30) 265 303
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item........ 1,615 1,745 903 2,718 353 (353) 1,494 273 1,162 1,826
Extraordinary item, net of
income tax benefit........ -- -- -- (917) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $ 1,615 $ 1,745 $ 903 $ 1,801 $ 353 $ (353) $ 1,494 $ 273 $ 1,162 $ 1,826
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF NET
SALES:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales............. 78.3 76.9 79.3 76.9 81.6 87.4 81.2 84.9 81.3 80.7
Research and
development............. 2.4 1.9 2.6 2.5 2.7 2.7 2.2 2.2 2.5 2.0
Selling, general and
administrative.......... 8.1 9.5 9.2 6.5 10.8 8.9 9.5 9.4 8.7 8.3
Amortization of
intangibles............. -- -- -- -- -- -- 0.4 0.4 0.5 0.4
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
88.8 88.3 91.1 85.9 95.1 99.0 93.3 96.9 93.0 91.4
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations...... 11.2 11.7 8.9 14.1 4.9 1.0 6.7 3.1 7.0 8.6
Interest and amortization
expense................... (3.4) (3.3) (3.7) (2.9) (3.2) (2.2) (2.2) (2.2) (2.3) (2.3)
Other, net.................. 0.1 -- 0.1 0.1 (0.1) -- -- (0.2) 0.1 0.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes and extraordinary
item...................... 7.9 8.4 5.3 11.3 1.6 (1.2) 4.5 0.7 4.8 6.4
Provision for (benefit from)
income taxes.............. 2.0 2.2 1.3 2.9 (0.2) 0.2 (0.5) (0.1) 0.9 0.9
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item........ 5.9 6.2 4.0 8.4 1.8 (1.4) 5.0 0.8 3.9 5.5
Extraordinary item, net of
income tax benefit........ -- -- -- (2.8) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........... 5.9% 6.2% 4.0% 5.6% 1.8% (1.4)% 5.0% 0.8% 3.9% 5.5%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE> 26
We have experienced and expect to continue to experience significant
fluctuations in quarterly operating results. In particular, our first-quarter
sales are typically lower than our fourth-quarter sales because our
fourth-quarter sales reflect increased purchases by our customers in preparation
for the holiday season. We believe that quarter-to-quarter comparisons of our
operating results should not be relied upon as an indication of our future
performance.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date through sales of equity and debt
securities, bank borrowings, and cash provided by operations. As of June 30,
2000, we had working capital of $1.9 million, including $2.4 million of cash and
cash equivalents.
Net cash used by operating activities for the six months ended June 30,
2000 was $2.4 million. This was attributable primarily to an increase in
inventory. Net cash provided by operating activities was $12.5 million in 1999,
$10.3 million in 1998 and $4.3 million in 1997. Net cash provided by operating
activities was primarily the result of operating income and changes in working
capital.
Net cash used in investing activities of $1.6 million for the six months
ended June 30, 2000 was related to the expansion of our facilities in China and
Malaysia. Net cash used in investing activities in 1999 was $6.5 million, and
was primarily attributable to the acquisition of Sigma Wireless (UK) Limited.
Net cash used in our investing activities in 1998 was $1.8 million, and was
primarily attributable to capital expenditures. Net cash used in investing
activities in 1997 was $7.6 million, and was primarily attributable to capital
expenditures and the funding of a restricted cash requirement associated with
our 1997 recapitalization.
Net cash provided by financing activities was $2.5 million for the six
months ended June 30, 2000. This was primarily attributable to increases in
borrowings under our revolving credit facility, partially offset by reductions
in our term loans. Net cash used in financing activities was $5.5 million in
1999, primarily related to reduction of debt, payment of dividends and the
issuance of stock in connection with our acquisition of Sigma Wireless. Net cash
used in financing activities was $5.6 million in 1998, primarily related to debt
reduction and payment of dividends. Net cash provided by financing activities
was $3.7 million in 1997 primarily related to our recapitalization.
In December 1998, we renegotiated a senior credit facility in an initial
aggregate principal amount of $42.0 million, consisting of a $20.0 million
initial aggregate principal amount revolving credit facility, a $20.0 million
aggregate principal amount term facility and a $2.0 million initial aggregate
equipment line of credit. The aggregate principal amount increased to $45.0
million during 1999 as a result of additional commitments received on the
revolving credit facility increasing the maximum revolving credit facility to
$23.0 million. As of June 30, 2000, we had outstanding principal balances of
approximately $10.1 million on our revolving credit facility, approximately
$16.0 million on our term facility and approximately $1.3 million on our
equipment line of credit. Our senior credit facility matures December 2003 and
is subject to varying early termination fees ranging from $235,000 to $470,000
if termination occurs prior to January 2001.
The maximum amount available under our senior credit facility is subject to
available collateral as defined in the new credit facility agreement.
Substantially all of our assets collateralize the amounts due under our senior
credit facility. Proceeds from the new facility were used to retire outstanding
borrowings from our existing senior credit facility and subordinated notes.
The terms of our financing arrangements contain, among other provisions,
requirements for maintaining defined levels of capital expenditures and various
financial ratios, including debt to equity. Additionally, we are restricted from
paying dividends to our common stockholders. At June 30, 2000, we were in
compliance with all loan covenants.
On September 6, 2000, we issued 1,444,042 shares of our Series C
convertible preferred stock to various investors, for approximately $20.0
million. All outstanding shares of Series C convertible preferred stock will
automatically convert to 1,444,042 shares of common stock immediately prior to
the closing of this offering.
23
<PAGE> 27
We believe that the net proceeds from this offering will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least 12 months following the offering. Thereafter, if cash generated from
operations is insufficient to satisfy our liquidity requirements, we might need
to raise additional funds through public or private financing, strategic
relationships or other arrangements. If we raise additional funds through the
issuance of equity securities, the percentage ownership of our stockholders
would be reduced.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK AND INTEREST RATE
RISK
We are exposed to minimal market risk. We manage the sensitivity of our
results of operations to these risks by maintaining a conservative investment
portfolio which is comprised solely of highly-rated, short-term investments. We
do not hold or issue derivative or derivative commodity instruments or other
financial instruments for trading purposes. We are exposed to currency
fluctuations as we sell our products internationally. We manage the sensitivity
of our international sales by denominating our transactions in U.S. dollars.
We may be exposed to interest rate risks, as we may use additional
financing to fund additional acquisitions and fund other capital expenditures.
The interest rate that we may be able to obtain on financings will depend on
market conditions at that time and may differ from the rates we have secured in
the past.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board, or FASB, issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FSAB Statement No. 133." Under SFAS No. 133,
derivatives not meeting hedge criteria are recorded in the balance sheet as
either an asset or liability measured at fair value and changes in fair value
are recognized currently in earnings. We will be required to implement SFAS No.
133, as amended by SFAS No. 137, in fiscal 2001. We do not anticipate that the
adoption of SFAS No. 133, as amended by SFAS No. 137, will have a material
impact on our financial position or results of operations.
24
<PAGE> 28
BUSINESS
OVERVIEW
We are a leading global supplier of custom-designed and manufactured
antenna and power products for wireless handsets, wireless data devices and
wireless networks. We have over 22 years of experience in providing research,
design and development solutions and manufacturing products for the global
wireless communications industry and have generated a profit in each year since
our inception. Our customers include Cisco, Ericsson, Kyocera/Qualcomm, Lucent,
Motorola, Nortel and Philips, as well as a wide range of providers of emerging
wireless data products and applications.
We provide custom-designed antenna and power products for a wide range of
applications including:
- wireless handsets, including analog and digital cellular phones;
- wireless data devices;
- portable two-way radios;
- devices that incorporate Bluetooth, a wireless protocol that enables
short-range wireless communication among electronic devices;
- telemetry and telematics, a technology that is currently being
incorporated into automobiles and various consumer electronics and
integrates global positioning system, in-vehicle computing and wireless
technologies;
- wireless local area networks based on IEEE 802.11 and other wireless
protocols; and
- wireless local loop and in-building wireless systems.
Our antenna and power product solutions incorporate our leading radio
frequency technology and proprietary manufacturing processes related to antenna
and power product applications. This technology, combined with our global
manufacturing capability, enables us to rapidly deliver custom-designed
solutions to our customers. By maintaining integrated research, design, tooling,
molding, assembly and complete accelerated life testing capabilities around the
world, we are able to respond rapidly to our customers' needs.
INDUSTRY BACKGROUND
The wireless communications industry has grown rapidly as new technologies,
additional radio frequency spectrum and competition have made wireless
communications more accessible and affordable. The markets for established
wireless voice based applications, including wireless handsets, such as cellular
phones, continues to grow strongly. Gartner Group estimates that sales of
wireless handsets will grow from approximately 284 million units in 1999 to
approximately 852 million units in 2003, representing a compound annual growth
rate of approximately 32%. In addition, a new class of wireless data devices is
emerging, which represents a convergence of voice and data technologies. Recent
developments in wireless data technology, increased network coverage and the
deployment of digital data networks, combined with price reductions for data
communications, have enabled the adoption of wireless data applications such as
e-mail and Internet access.
Wireless voice and data technologies and standards. Wireless
communications technologies and standards have evolved rapidly in recent years
from basic analog voice communications to new digital voice and data
technologies. This evolution is projected to continue and will further enable
wireless connectivity and broaden services such as wireless data access.
- Current standards-based wireless technologies. There are currently
several standards-based technologies for the transmission and reception
of wireless voice and data. Existing digital wireless communications
technologies such as Time Division Multiple Access, or TDMA, Code
Division
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Multiple Access, or CDMA, and Global System for Mobile Communications, or GSM,
are collectively known as second generation, or 2G, wireless technologies.
Different 2G technologies are prevalent in different parts of the world. The
existence of these multiple technologies requires that digital handsets
offer multi-banding, or the accommodation of multiple technologies, in
order to offer seamless service across different geographic regions. The
low-speed transmission rates afforded by these circuit-switched 2G
technologies are adequate for limited content applications such as short
messaging, financial services, news and other text-based applications, but
are inadequate for data applications such as streaming media and web
browsing. Current packet-switched standards such as Cellular Digital
Packet Data, or CDPD, technology provide a continuous network connection
over existing analog networks at slightly higher transmission speeds.
- Next generation wireless technologies. A new set of technologies, often
referred to as 2.5G, is under development to provide high-speed
packet-based voice and data services over GSM, CDMA and TDMA networks.
Packet-based technology affords users several advantages over
circuit-switched systems, including continuous connectivity and higher
bandwidth performance, leading to significant cost savings for data
transmission. As a result, packet-based 2.5G technologies are expected to
support a broader set of data applications, such as streaming media and
web browsing. Third generation, or 3G, systems are being developed for
longer-term deployment to eventually replace 2G and 2.5G digital wireless
systems. Proposed 3G networks will provide for broadband transmission
rates enabling enhanced multimedia applications.
- Bluetooth and IEEE 802.11 wireless networking standards. Bluetooth is a
wireless protocol that uses the unlicensed 2.4 GHz frequency band to
enable short-range wireless communication among different appliances,
such as personal digital assistants, notebook computers, cell phones and
printers. In response to consumer demand to create wireless home networks
and wireless connectivity among devices, manufacturers of mobile
computers, printers and other consumer electronics are beginning to embed
antenna technology and associated software into their products to make
these offerings compatible with the Bluetooth standard. International
Data Corporation estimates that the market for Bluetooth-enabled devices
will increase from approximately 25 million units in 2000 to
approximately 341 million units in 2003, representing a compound annual
growth rate of approximately 139%.
The IEEE 802.11 standard is another wireless protocol that enables
wireless communications at higher data rates. The higher data rate
enables wireless local area networks for business applications.
International Data Corporation estimates that the market for wireless
local area networks will increase from approximately 1.2 million units in
1999 to approximately 6.2 million units in 2003, representing a compound
annual growth rate of approximately 51%.
- Telemetry and telematics. Telemetry is a technology by which information
is exchanged among remote and separated locations for the purpose of
monitoring and/or control. Telemetry enables wireless operation of
numerous devices such as alarm and security systems, air quality systems,
health status monitoring devices and heating, ventilation and air
conditioning controls. One such telemetry application, telematics,
integrates global positioning system, in-vehicle computing and wireless
technologies to deliver a new class of wireless services. Telematics
incorporates the user's location to provide drivers and passengers with
timely, location specific safety and travel services as well as consumer
and entertainment information. Telematics is currently being incorporated
into automobiles and various consumer electronics products. According to
a study by the Yankee Group, the telemetry market is estimated to grow
from approximately 6.4 million units in 1999 to approximately 37.5
million units in 2003, representing a compound annual growth rate of
approximately 55%.
- In-building antenna systems. In response to the rapid growth in wireless
communications, many businesses and other enterprises, such as airports
and retail stores, are beginning to provide wireless communications
infrastructure by installing in-building antenna systems. These systems
consist of a series of small antennas that are networked to provide
wireless coverage over the desired area. Antenna technology used in
wireless devices can be applied to provide these in-building solutions.
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Growth in market for wireless voice and data devices. The convergence of
wireless communications, mobile computing and the Internet is driving the
rapidly expanding demand for wireless data devices as professionals and
consumers increasingly depend on the growing functionality, productivity and
convenience that these devices afford. We believe that growth in wireless voice
and data devices will also be driven by the following factors:
- introduction of new handsets with enhanced features and/or lower cost;
- new and less expensive service plans;
- expansion of wireless service in developing countries; and
- emergence of advanced wireless data services, such as streaming media and
web browsing.
Gartner Group estimates that sales of wireless handsets will grow from 284
million units in 1999 to approximately 852 million units in 2003, representing a
compound annual growth rate of 32%. International Data Corporation estimates
that the combined market for wireless data devices, which include smart phones,
handheld companions and vertical application devices such as pen tablets, pen
notepads and keypads will increase from approximately 7.4 million units in 1999
to approximately 29.9 million units in 2003, representing a compound annual
growth rate of approximately 42%.
Complexities involved in the design and manufacture of antenna and power
products. Antenna and power products are critical enablers of each of the
wireless technologies described above. As an increasing number of consumer
devices become wirelessly enabled, antenna and power product providers face
numerous challenges. Antenna providers must deliver high levels of signal
integrity in order to enable greater range and increased battery life. As the
wireless industry migrates from analog and digital cellular technologies to data
technologies such as 3G, Bluetooth, wireless local area networks and telematics,
signal integrity will be imperative to the performance of wireless devices.
Data-based applications require high-quality antennas because they have a much
lower tolerance for lost bits of information. Antenna design is complicated not
only by the existence of multiple wireless standards, but also because each
different wireless device, including different models of the same device type,
requires a different antenna design to maximize signal integrity. Therefore,
antenna suppliers must have the design and manufacturing capability to produce
quantities of antennas for each of the wireless standards and wireless device
models.
Power products must deliver long battery life while remaining lightweight.
Power product design is complicated by challenges associated with the selection
of cell chemistries, safety circuitry and industrial design. Like antennas,
power products must be provided in a range of physical designs to support
different wireless devices and applications.
Wireless equipment manufacturers' reliance on third party antenna and power
product suppliers. Historically, wireless equipment manufacturers have relied on
third parties to supply their antenna and power product needs. We believe that a
number of factors, including rapidly changing technology and consumer
preferences, technical challenges associated with maintaining solutions for
multiple device types and wireless standards and a shortage of radio frequency
engineers, would make it difficult for wireless equipment manufacturers to
develop and supply their own antenna and power supply components in a timely and
cost-effective manner. We also believe that many new entrants to the wireless
equipment market, such as large consumer electronics companies, are less
vertically integrated than established wireless equipment manufacturers, and are
therefore less likely to manufacture their own antenna and/or power solutions.
As a result, these companies are likely to rely even more heavily on third party
suppliers.
Wireless equipment manufacturers seek suppliers for their antenna and power
product requirements that can provide advanced technology, a broad product line,
manufacturing capacity, product design capability, an international presence,
and the ability to respond quickly to orders. Wireless equipment manufacturers
generally build relationships with only a limited number of suppliers that will
work closely with them to rapidly and cost effectively develop custom solutions
for their antenna and power product requirements. In selecting who to work with,
it is a challenge for the wireless equipment manufacturers to find antenna and
power product suppliers that meet all of the above requirements.
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<PAGE> 31
THE CENTURION SOLUTION
We design and manufacture a broad range of high-performance and
cost-effective antenna and power product solutions for leading wireless
equipment manufacturers. We believe we are able to reduce our customers'
time-to-market by employing a two-pronged approach to establish effective supply
chain management. First, our engineers and manufacturing personnel work closely
with our customers to custom design components for current and emerging wireless
products and applications. Second, we maintain global manufacturing capabilities
that allow us to shift capacity to service each location of our customers'
production facilities in order to most rapidly respond to customer needs. In
addition, we employ a large staff of radio frequency engineers focusing on
wireless antenna technology that enables us to provide innovative radio
frequency technology. We have also invested significant resources in process
technologies that enable us to efficiently deliver custom-designed power
solutions. This vertical integration enables us to cost-effectively design and
develop new products that meet the technical challenges presented by our
customers.
Our value-added engineering solutions provide customers with the following
benefits:
- innovative design;
- enabling technologies;
- rapid time to market;
- reduced design and manufacturing cost;
- reduced reliance on multiple component suppliers; and
- regional design support in each of their locations.
CENTURION STRATEGY
Our goal is to be the leading worldwide provider of antenna and power
products for a broad range of wireless communications devices. To meet this
goal, we intend to pursue the following strategy:
Continue to focus on leading wireless equipment manufacturers by market
segment. We focus our sales and marketing efforts on the leading companies in
each of our target market segments. For example, our wireless handset customers
include Ericsson and Motorola and we are currently developing products for
Nokia. In the wireless data device and networking markets, our customers include
Cisco, Dell, Novatel Wireless and Proxim. By utilizing our relationships with
our customers' design, engineering, manufacturing and program management
personnel, we can better anticipate our customers' needs, rapidly develop
customer-specific solutions and successfully design our solutions into our
customers' new products. We intend to continue to focus on new product
development in order to expand our customer base to include market leaders in
new and emerging markets, such as the markets for Bluetooth-enabled devices.
Extend our technological leadership to capitalize on growth in emerging
wireless markets. We provide industry-leading antenna and power product
technology for wireless applications. We currently own 30 patents and have 17
patent applications pending. We believe our technology provides our customers
with benefits including faster time-to-market and lower costs, and provides
end-users with benefits including enhanced signal integrity and increased
battery life. Our current products are targeted at the high-growth markets for
digital cellular handsets, wireless Internet access devices, Bluetooth-enabled
mobile computers and other consumer electronics. In addition, we continue to
work with companies such as 3Com and Intel to develop the next generation of
wireless products. We intend to continue to extend our technological leadership
to develop new products to capitalize on high-growth wireless markets.
Leverage our global design and manufacturing capability. We maintain
manufacturing facilities in the United States, Mexico, Europe and Asia. By
employing global facilities, vertical manufacturing integration and
comprehensive engineering support, we are able to offer quick design turnaround,
rapid ramp-up, additional burst-capacity and shorter cycle times in response to
our customers' needs. We intend to continue to invest in innovative design and
manufacturing operations in order to improve the speed, efficiency and
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performance of our design and manufacturing services. We will also continue to
leverage our supply chain management expertise to maximize our global
manufacturing capabilities.
Provide a broad array of products. We offer a wide range of antenna and
power product solutions that are custom-designed for particular applications of
end-user products such as cellular handsets, wireless Internet access devices,
portable computers and consumer electronics. The radio frequency and process
technology underlying our product portfolio allow us to address new wireless
data communications products. For example, we have been working to develop
embedded antennas to support in-building wireless infrastructure. We expect to
continue to leverage our technological and manufacturing capability in order to
broaden our product portfolio to address additional end-user markets.
Selectively pursue strategic acquisitions. We intend to expand our
production capacity, product-line, technology and customer base both through
internal development and by selectively pursuing acquisitions and alliances that
are complementary to our current business. In September 2000, we completed the
acquisition of Xertex Technologies, a designer of antenna solutions for wireless
data applications such as Bluetooth, IEEE 802.11, telemetry and telematics, and
in-building antenna systems. In June 1999, we acquired the molded antenna
business of Sigma Wireless Technologies and commenced manufacturing operations
at our facility in Aylesbury, United Kingdom. We believe that these acquisitions
enhanced our technology and manufacturing capabilities in the U.S. and abroad.
We intend to continue to selectively pursue strategic acquisitions.
PRODUCTS AND APPLICATIONS
Antenna products. We provide a broad range of antenna products, including
fixed antennas, top-load retractable antennas, bottom-load retractable antennas,
collapsible/retractable antennas, internal antennas, embedded antennas, combined
external/internal antennas, chip antennas and microstrip antennas. Our antennas
cover applications ranging in frequency from 27 MHz to 6 GHz. These antennas are
used in portable applications for wireless handsets, wireless data devices and
portable radios as well as for in-building wireless and telemetry and telematics
applications. We custom design the size and electrical characteristics of these
antennas to meet the specific requirements of our customers. Our antennas offer
high levels of signal integrity and multi-band technology that allows for the
combination of up to four different frequencies in the same antenna. A
description of our antenna offerings is provided below.
- Fixed antennas. Fixed-length antennas are generally mounted externally
on handsets or other wireless devices. Our fixed antennas provide our
customers with a high-performance, low-cost, durable antenna solution.
- Retractable antennas. Our retractable antennas allow for maximum
performance when extended and convenient size and styling when retracted.
Retractable antennas offer the highest signal integrity of any antenna
type with a reduced specific absorption rate.
- Collapsible/retractable antennas. Collapsible/retractable antenna
solutions enable our customers to design products where the antenna is
longer than the physical dimensions of the handset or other wireless
device. This enables creative device design while delivering the
heightened levels of signal integrity associated with longer antennas.
- Internal antennas. Internal antennas are encased within the housing of
the wireless device and offer several advantages including increased
durability and reduced size of the wireless device. Internal antennas
generally have lower signal integrity than retractable antennas, but have
wide applicability for voice and low-bandwidth data products such as
cellular handsets and Bluetooth devices.
- Combined internal/external antennas. We offer a combination
internal/external antenna where the internal antenna acts as the primary
antenna and a retractable external antenna is used when higher
performance is required.
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- Chip antennas. We provide internal chip antennas that customers can
integrate onto the printed circuit board of wireless devices for
applications such as Bluetooth. Chip antennas provide advantages
including small size and low cost.
- Embedded antennas. We provide low-profile embedded microstrip antennas
for in-building wireless systems such as wireless local areas networks
and digital enhanced cordless telecommunications applications as well as
telemetry and telematics solutions. Microstrip antennas have a simple
planar structure, are low weight and are well-suited for low profile
applications. These antennas can also be used to support in-building
cellular infrastructure build out and wireless Internet access.
Applications for our antenna solutions include those listed below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
WIRELESS APPLICATION CENTURION ANTENNA PRODUCT
---------------------------------------------------------------------------------------
<S> <C> <C>
Wireless Handsets - Fixed, retractable,
collapsible/retractable, internal and
combined internal/external antennas for
cellular communication
- Internal and chip antennas for
applications such as Bluetooth
---------------------------------------------------------------------------------------
Wireless Data Devices - Fixed, retractable, internal and
combined internal/external antennas for
portable communications
- Internal and chip antennas for
applications such as Bluetooth
---------------------------------------------------------------------------------------
Wireless Local Area Network, Wireless - Omni-directional embedded antenna,
Local Loop and In-Building Antenna microstrip patch and fixed antennas
Applications
Telemetry and Telematics Applications - Fixed and embedded antennas
Portable Two-Way Radios - Fixed antennas, including ruggedized
antenna solutions
---------------------------------------------------------------------------------------
</TABLE>
Power products. We offer a wide range of power solutions for wireless
applications. Our strong relationships with industry-leading battery cell
manufacturers and ability to custom design power products allow us to provide
our customers a total solution. Many of our power product housings are molded
in-house. We provide custom battery pack assemblies for lithium polymer, lithium
ion, nickel metal hydride and nickel-cadmium cells. Our power solutions provide
advantages to our customers including state-of-the-art cell technology,
manufacturing processes and flexibility. A description of our different power
solutions is provided below.
- Lithium polymer. Designed for medium-current drain, lightweight
applications that require an ultra-thin size. Our lithium polymer power
products are used in wireless handsets and wireless data devices.
- Lithium ion. Designed for medium-current drain, lightweight
applications. These power products can be used in wireless handsets and
wireless data devices.
- Nickel metal hydride. Designed for high-current drain general usage
applications. Our nickel metal hydride power products are used in
portable two-way radios, wireless handsets and wireless data devices.
- Nickel cadmium. Designed for high-current drain applications. These
power products are used in portable two-way radios and wireless data
devices.
In addition to the power products described above, we have recently
introduced a Smart Power System, inductive charging products and our combination
antenna/power, or OneSource, product.
- Smart Power System. Our Smart Power System is a comprehensive power
solution that enables wireless communications devices. This technology
decreases the detrimental effects of improper care and usage of the
battery by the consumer. The system also provides near real-time field
data on usage patterns and demographics to wireless device manufacturers
by communicating with the wireless
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device manufacturer's analysis system via a wireless communications module in
the charger. The Smart Power System dynamically alters and optimizes the charge
and discharge characteristics of the system utilizing real-time adaptable
algorithms to maximize the life of the product. The wireless
communications module in the charger unit allows seamless, transparent
upgrades to the system software to accommodate future advanced cell
chemistries. Applications for the Smart Power System include private
portable radio dispatch systems, laptop computers and transportation
products.
- Inductive charging. Inductive charging is used in many applications
where direct contact between the battery pack and charger is not
feasible, practical or safe such as in electric vehicles, electric
toothbrushes, and medical applications. Our intellectual property in this
area centers around inductive charging in the portable communications
environment. The inductive charger coil causes charging currents to be
passed through the air, or induced, into a magnetic pickup coil inside
the battery pack, charging the battery without making direct contact. The
primary advantage to this approach is the concept of one charger for all
portable communication system batteries, including batteries for laptops,
cellular handsets, personal digital assistants, pagers and other wireless
devices. Our inductive charging solution eliminates the need to carry
product-specific chargers when traveling.
- OneSource. Our OneSource product is a combination antenna/power product
that will allow wireless equipment manufacturers to purchase antenna and
power products as one complete assembly.
TECHNOLOGY
Antenna technology. Our antenna products are used to receive and transmit
signals in wireless communications equipment. Antennas consist of the following
three primary components:
- radiating elements consisting of metallic coils, wires or traces etched
on a printed circuit board;
- plastic material to encapsulate the radiating elements and enhance their
electrical attributes; and
- an electrical connection with the wireless device.
Radiating elements consist of various base metals and configurations and
are used to receive and transmit information. The size and shape of the elements
affect how radio frequency energy is propagated, and have a strong influence on
the performance of the antenna. For example, longer antennas deliver greater
signal integrity, while different elements and/or configurations can also
improve performance. Material selection for the encapsulation of the radiating
elements is another critical factor affecting antenna performance. Different
materials affect both radio frequency propagation and durability of the antenna.
The interface connection between the antenna and the handset is also essential
to high-quality antenna design. The design of the elements within the antenna
must be adjusted to compensate for the different electrical characteristics of
different handsets.
Our core antenna technology lies in our radio frequency design expertise.
We have a strong understanding of how our antennas interact with our customers'
devices, which allows us to custom-design high-performance antenna solutions. We
also have core competency in the design of radiating elements to precisely
transmit and receive radio frequency signals. For example, we believe that we
are able to build multi-band antennas that use fewer elements, or coils, than
our competitors use. This enables us to deliver a lower-cost solution, and to
design antennas with higher levels of multi-banding. We currently offer
quad-band antennas and are designing antennas that will deliver five and six
different bands. Our design capabilities are complemented by our deep
understanding of encapsulating materials and how they affect radio frequency
propagation. We are currently developing new encapsulation materials to further
enhance the performance of our antennas.
Another example of our core technology is the development of internal
microstrip, or patch, antennas for next generation wireless applications. A
microstrip antenna in its simplest form consists of two parallel conducting
layers separated by a single thin dielectric substrate. The lower conductor
functions as a ground plane, and the upper conductor forms a radiating element
of various geometries. The shape of the microstrip patch is chosen so that well
defined radiation patterns result.
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The advantages of microstrip antennas are their low profile, simple planar
structure and lower weight. Microstrip antennas are well suited for large-scale
manufacturing because etching is done with standard photolithographic processes.
The accuracy of the etching processes ensures uniformity over a production run.
Our proprietary technology overcomes the limitations on frequency bandwidth
typically associated with microstrip or patch antennas.
In addition to our radio frequency capabilities, we have a core strength in
the mechanical design, tooling design and molding of antennas. This enables us
to deliver custom-designed antenna products that employ the latest antenna
technology, such as internal antennas and chip antennas for devices enabled by
emerging wireless applications such as Bluetooth. As an example of our
mechanical engineering capability, we have developed patented technology
relating to the operation of our collapsible and retractable antennas.
Power product technology. Power products are used to deliver rechargeable
power to wireless devices. Our power product technology focuses on the selection
of rechargeable chemistries and on assembly for high-volume manufacturing. We
conduct significant research and testing of various battery chemistries in order
to validate new technologies and qualify only the highest quality cells for our
power solutions. We then custom-build power product assemblies using proprietary
processes which we co-develop with our customers in order to deliver what we
believe are industry-leading response times. As an example of our power product
design and manufacturing capabilities, we were the first manufacturer in the
Asia Pacific region to manufacture high-volume lithium polymer power products.
This product required new manufacturing and testing processes that we jointly
developed with one of our customers.
In addition to our process technologies, we have developed proprietary
technology relating to smart power systems, inductive chargers and our OneSource
product, which is a combination battery/antenna component that will allow
wireless equipment manufacturers to purchase antenna and power products as one
complete assembly. Smart power systems include memory capability on the battery
pack or charger, to enable applications such as demographic usage monitoring and
user profiling. Inductive chargers allow charging of wireless devices without
physical contact, offering the opportunity to develop one charger for multiple
battery types.
CUSTOMERS
Our customers include leading multinational wireless equipment
manufacturers, as well as a wide range of providers of emerging wireless data
products and applications. The following is a list of our top eight customers in
each product area:
<TABLE>
<CAPTION>
Wireless Data Devices
Wireless Handsets and Networking Products Portable Two-Way Radios
----------------- ----------------------- -----------------------
<S> <C> <C>
Ericsson Cisco ACT Manufacturing
LG Information & Comm. Cushcraft Corp. Ericsson
Motorola Intermec Technologies Kenwood USA
Philips Lucent Maxon Group
Qualcomm/Kyocera Maxrad Motorola
Samsung USA Proxim Relm Communications
SK Teletech Shure Brothers Tessco
Telson Teklogix Yaesu USA
</TABLE>
Each of the customers listed in the table above has accounted for at least
$50,000 in net sales since January 1, 2000. In addition, we are currently
developing products for Nokia and are jointly developing technology with
companies such as 3Com, Dell and Intel for next generation wireless devices.
Our largest customers are Ericsson and Motorola. Sales to Ericsson
accounted for approximately 55% of our net sales for the six months ended June
30, 2000, 49% of our net sales in 1999, and 51% of our net sales in 1998. Sales
to Motorola accounted for approximately 28% of our net sales for the six months
ended June 30, 2000, 27% of our net sales in 1999, and 29% of our net sales in
1998. Sales to Ericsson and
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Motorola currently are made to multiple divisions and products are delivered to
diverse geographical regions throughout the world, including Asia, North America
and Europe.
SALES AND MARKETING
We sell our products primarily to wireless equipment manufacturers through
our direct sales force in concert with market specific independent sales
contractors. In addition, we sell some products through a two-step distribution
process utilizing domestic and international distributors. Our direct sales
staff manages key customer accounts and worldwide customer support and
identifies opportunities in emerging wireless markets.
We maintain an internal marketing organization that is responsible for
developing sales and advertising literature, such as product announcements,
catalogs, brochures and magazine articles in trade and other publications. Our
internal marketing organization also prepares technical presentations for
industry conferences.
We employ a team approach in our sales efforts by combining the support of
design and applications engineers, manufacturing personnel, sales and marketing
staff and senior management. Due to the technical nature of both our products
and the markets we serve, we maintain close contact with our customers' design,
engineering, manufacturing, purchasing and project management personnel. For
example, we have an on-site Centurion employee at Ericsson's U.S. factory, and
have an agreement with Motorola regarding the joint development of a new antenna
system. We believe that maintaining close contact with our customers improves
their level of satisfaction, assists us in anticipating their future product
needs and enhances our opportunities for design wins.
MANUFACTURING
Our manufacturing operations position us as a global provider of wireless
communications components. Our facilities in Lincoln, Nebraska, Aylesbury,
United Kingdom and Shanghai, China, handle all aspects of product development
and production. Our facility in Tijuana, Mexico is a fully-staffed manufacturing
site for both antennas and power products. In May 2000, we completed our newest
manufacturing facility in Penang, Malaysia. This 46,000 square foot facility
provides us with additional power product manufacturing capacity in the Asia
Pacific region and delivers design support to our customer base in Southeast
Asia.
Our global facilities offer a complete solution, including:
- radio frequency and mechanical design, including prototyping for
antennas;
- custom tooling;
- approximately 45 injection molding machines globally, which allow us to
mold antennas, make components for antennas and power products, mold
battery housings, and mold internal antennas;
- full antenna and power product testing capabilities, including
accelerated life testing, which enables us to test antennas and battery
packs throughout the research development and manufacturing processes;
and
- an automation group that allows us to customize automation projects in
real-time without the delays typically associated with this process.
We believe that we have established a reputation for quality over the past
22 years. Our Lincoln facilities achieved ISO 9001 registration of our quality
system in December 1996. Our facilities in China and the United Kingdom are ISO
9002 registered. Each of our other facilities employs our quality control system
and is moving towards ISO registration. All registered facilities undergo
follow-up audits twice per year to ensure on-going compliance. A bi-annual
management review of our global quality system keeps our processes current and
consistent.
Our supply chain management capabilities provide significant benefits to
our customers. We utilize a global sales and operational planning process that
incorporates our customers' rolling forecasts, purchase orders, and a schedule
sharing arrangement of our customers' actual production plans, combined with our
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internal forecasts, to manage both our inventory and manufacturing schedules.
Sales and operational planning is broken into two phases, production execution
and operational planning. Production execution is a rolling 12 week program and
is focused at the factory level. Operational planning is focused on longer term
planning on a global level. The combination of these processes allows us to
balance short-term customer needs with our long-term strategies and operational
objectives.
We currently use multiple sources globally for plating and tooling
requirements. Historically, we have outsourced processes to gain capacity,
prevent significant capital investment outside our scope of manufacturing
capabilities or avoid potential environmental issues, such as those involved
with plating.
RESEARCH AND DEVELOPMENT AND ENGINEERING
We conduct an active and ongoing research, development, and engineering
program that focuses on advancing technology, developing improved design and
manufacturing processes, and improving the overall quality of our products and
services. Our research and development personnel concentrate on antenna and
power product technology, with a specific focus on improving the performance of
current products and expanding our technology to serve new markets. For example,
we worked with Intel to develop an antenna standard for their Bluetooth
technology. We also conduct research and development related to manufacturing
processes, including those associated with efficient, high-volume production and
electronic packaging.
As part of our research and development efforts, we use an anechoic chamber
to characterize the radiation patterns from our antenna designs. An anechoic
chamber is a large metal enclosure lined with special radio frequency absorbing
material. This chamber allows us to test antennas in a quiet environment with no
outside interference from other radio frequency signals. This chamber has
recently been upgraded to perform three-dimensional characterizations of radio
frequency signals.
Our current research and development activities include:
- expanding our Bluetooth antenna programs;
- developing telematics antenna products for the automotive industry;
- developing embedded antenna technology for in-building network access;
- continuing our OneSource program for delivering an integrated antenna and
power solution;
- enhancing our multi-banding capabilities;
- enhancing our collapsible/retractable design capabilities for new antenna
designs;
- enhancing our internal antenna solutions and continuing development of
our chip antennas;
- developing innovative plastic materials for encapsulating antennas to
improve signal integrity;
- developing process improvements for delivering custom-built battery
packs;
- developing smart power systems that include memory on the battery pack
and/or charger; and
- developing inductive chargers that enable contact-less recharging of our
power products.
We also fund advanced research programs at the University of Nebraska's
College of Engineering. We currently sponsor two graduate students in radio
frequency engineering to perform research that includes advanced antenna
measurement techniques and antenna diversity systems.
COMPETITION
We believe our primary competitors in the antenna market include Allgon,
Amphenol/T&M, Ace Electronics, Galtronics, Filtronic/LK Products, Moteco,
Radiall/Larsen, Rangestar and Yokowo. We believe our primary competitors in the
power product market include Moltech/Energizer, Motorola Energy Systems Group,
Panasonic and Sanyo. We also compete in the power product aftermarket with
Alexander Manufacturing, Jbro Incorporated, Multiplier Industries and W&W
Associates. Many of these competitors are
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large companies that have greater financial, technical, marketing,
manufacturing, vertical integration and personnel resources than we do. Our
sales, profitability and success depend substantially upon our ability to
compete with other providers of wireless communications components. We cannot
assure you that we will be able to compete successfully with these
organizations.
We currently compete principally on the basis of the technical innovation,
breadth of product line and performance of our products, including their ease of
use, reliability, cost, timely design and production, and delivery schedules.
Our competitive position could be adversely affected if one or more of our
customers, particularly Ericsson and/or Motorola, determines to internally
design and manufacture antennas and power products for their own use or to
secure them from other parties.
INTELLECTUAL PROPERTY
It is our practice to seek U.S. patent and copyright protection for our
products and developments, where appropriate, and to protect our proprietary
technology under U.S. and foreign laws affording protection for trade secrets
and for antenna and power product designs. We own 30 issued patents which expire
between 2009 and 2018, and have an additional 17 patent applications pending.
Our intellectual property covers the following general areas of antenna and
power product development:
- techniques for developing switched retractable antennas, which completely
remove contact between the handset and antenna when the antenna is in the
hidden position to eliminate unwanted radiation;
- techniques for developing collapsible/retractable antennas where the
antenna can be longer than the length of the wireless device;
- techniques for developing multi-band antennas;
- antenna-molding processes;
- microstrip antennas for embedded applications;
- smart power systems, where memory is included on the battery pack and/or
charger; and
- inductive chargers, which enable charging of wireless devices without
physical contact.
We rely heavily upon trade secrets, technical know-how and other unpatented
proprietary information relating to our product development and manufacturing
activities. To protect our trade secrets, technical know-how and other
proprietary information, our employees are required to enter into agreements
providing for maintenance of confidentiality and the assignment of rights to
inventions made by them while in our employ. We also enter into non-disclosure
agreements to protect our confidential information delivered to third parties in
conjunction with possible corporate collaborations and for other purposes.
Particular aspects of our technology could be found to infringe on the
intellectual property rights or patents of others. In this regard, in July 2000,
we received a written notice from Amphenol T&M in which it claimed to have
patent rights to certain technology used in the antenna we supply to Motorola
for use on Motorola's V series phones. Similarly, in August and September 2000,
we received written notices from Dallas Semiconductor Corporation in which it
claimed to have patent rights in certain technology used in our battery
products. Amphenol T&M and Dallas Semiconductor requested that we review our
products in light of certain of their issued patents. We are currently
evaluating the patents noted in these letters. See "-- Legal Proceedings" for a
description of a complaint that has been filed in connection with the Amphenol
T&M claim.
EMPLOYEES
As of August 31, 2000, we employed 1,365 people full-time, including 1,151
in manufacturing, 116 in general and administrative functions, 80 in engineering
and 18 in sales and marketing. None of our employees are represented by a labor
union, and we consider our employee relations to be good.
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<PAGE> 39
FACILITIES
We own our corporate headquarters and lease a second facility in Lincoln,
Nebraska. The headquarters occupy 54,000 square feet and the second facility
occupies 65,000 square feet. These two facilities house manufacturing,
engineering and administrative functions. In addition, we lease facilities in
the following locations:
<TABLE>
<CAPTION>
LOCATION SIZE PRINCIPAL USE
------------------------- --------------- ----------------------------
<S> <C> <C>
Aylesbury, United Kingdom 15,000 sq. feet Manufacturing, Design, Sales
Tijuana, Mexico 16,000 sq. feet Manufacturing
Shanghai, P.R. China 40,000 sq. feet Manufacturing, Design, Sales
Penang, Malaysia 46,000 sq. feet Manufacturing, Sales
</TABLE>
LEGAL PROCEEDINGS
In September 2000, we received a written notice from Amphenol T&M that they
have filed a patent infringement complaint against us in the Federal District
Court in the Northern District of Illinois. No monetary damages are specified.
Due to the nature of litigation generally and because the lawsuit brought by
Amphenol T&M is at an early stage, we cannot ascertain the outcome of the final
resolution of the lawsuit, estimate the total expenses, possible damages or
settlement value, if any, that we may ultimately incur in connection with
Amphenol T&M's suit. This litigation could be time consuming and costly, and we
will not necessarily prevail given the inherent uncertainties of litigation. We
intend to vigorously contest this litigation.
From time to time, in the ordinary course of business, we may become
involved in legal proceedings. We are not currently a party to any other
material pending legal proceedings, nor is any of our property, including
intellectual property, the subject of any other material pending legal
proceedings.
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<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to the executive
officers and directors of Centurion as of September 22, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gary L. Kuck(2)...................... 52 Chairman and Director, President and Chief Executive
Officer
William E. Campbell.................. 47 Chief Financial Officer
Donald C. Naab....................... 47 Chief Operating Officer
Thomas M. Cochran.................... 37 Vice President, Operations
Steven C. Bowles..................... 47 Vice President, Sales and Marketing
Craig A. Jessen...................... 33 Corporate Controller
Susan J. Kuck........................ 50 Executive Vice President, Director
Monty D. Rohde....................... 38 Vice President, Engineering
Yenho K. Tree........................ 41 Managing Director - Asia Pacific
Robert G. Behlman(1)................. 57 Director
P. Jackson Bell(1)................... 58 Director
John A. Downer(1).................... 42 Director
Robert H. Getz(2).................... 38 Director
Mark Rossi(2)........................ 44 Director
</TABLE>
------------
(1) Member of audit committee
(2) Member of compensation committee
GARY L. KUCK co-founded Centurion in 1978. Mr. Kuck has served for 22 years
as our President and Chief Executive Officer and as a director. Mr. Kuck has
more than 30 years of experience in research, design, and development of
antennas and wireless communications solutions. Mr. Kuck was on the Advisory
Board of the Industrial and Management System Engineering College from 1995 to
1999, and currently serves on the Nebraska Information and Technology
Commission. Mr. Kuck is the husband of Susan J. Kuck, our Executive Vice
President and a director.
WILLIAM E. CAMPBELL has served as our Chief Financial Officer since January
1999. Prior to his employment at Centurion, from 1982 to 1998, Mr. Campbell held
several positions for Keystone Steel & Wire Company, a manufacturer of carbon
steel rod, wire and wire products, most recently as Vice President and Chief
Financial Officer. From 1978 to 1982, Mr. Campbell held several positions for
Bucyrus Erie, a manufacturer of mining and construction machinery.
DONALD C. NAAB has served as our Chief Operating Officer since August 2000.
Prior to his employment at Centurion, Mr. Naab served as President and Chief
Operating Officer of Pacific Research & Engineering Corp., a division of Harris
Corporation, from 1998 to July 2000. From 1995 to 1997, Mr. Naab served as
President, Hazard Sensing Group for Kidde International, a division of Williams
Holding Corporation. From 1980 to 1995, he held several positions within the
Simicon Division of Robert Shaw Controls Company, a manufacturer of electronic
control products, most recently as Vice President and General Manager.
THOMAS M. COCHRAN has been employed by Centurion since 1986 and has served
as our Vice President of Operations since January 1995, primarily overseeing our
international operations. From 1986 to 1994, Mr. Cochran held various positions
at Centurion in accounting, purchasing, materials management and information
systems. Mr. Cochran currently oversees our subsidiaries in China, Malaysia and
the United Kingdom.
STEVEN C. BOWLES has been employed by Centurion since 1988 and has served
as our Vice President of Sales and Marketing since October 1993. From 1988 to
1992, Mr. Bowles served as our Sales and Marketing
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<PAGE> 41
Manager. From 1980 to 1988, Mr. Bowles held various positions for Regency
Electronics. Mr. Bowles is currently a member of the Advisory Board for the
International Wireless Communication Expo.
CRAIG A. JESSEN has served as our Corporate Controller since November 1999.
From April 1995 to November 1999, Mr. Jessen served as Assistant Controller and
most recently as Corporate Controller of Layne Christensen Company, a waterwell
drilling and mineral exploration company. Prior to that time, Mr. Jessen was
employed for over five years at Deloitte & Touche LLP, most recently as
Manager - Accounting and Auditing Services.
SUSAN J. KUCK is a co-founder of Centurion and has served as Executive Vice
President and as a director since our formation. Ms. Kuck has more than 22 years
of experience in the manufacturing and development of antennas and wireless
communications solutions. Ms. Kuck presently oversees manufacturing at the
Lincoln South manufacturing facility. Ms. Kuck is the wife of Gary L. Kuck, our
President and Chief Executive Officer, and a director.
MONTY D. ROHDE has been employed by Centurion since 1992 and has served as
Vice President of Engineering since 1998. From 1992 to 1994, Mr. Rohde held the
position of staff electrical engineer. From 1994 to 1996 he was Engineering
Manager for our battery division, and from 1996 to 1997 he was the division's
Plant Manager. In 1997, he was promoted to Corporate Director of Research and
Development. Prior to joining Centurion, from 1989 to 1992, Mr. Rohde was a
program manager for Cetac Technologies, a designer and manufacturer of
analytical chemistry instrumentation.
YENHO K. TREE has served as our Managing Director - Asia Pacific since
August 1999. Mr. Tree was employed previously as a Managing Director for
Teleflex Lionel-Dupont (TLD) - Devtec Company Ltd. from September 1998 to April
1999. From May 1991 to September 1998, Mr. Tree served as Regional Manager -
Asia Pacific and then as Managing Director of Aviall, Inc.
ROBERT G. BEHLMAN has served as Executive Vice President of Celestica Inc.
since 1998 and as a director since February 2000. He previously served as
President, Chief Executive Officer and Chairman of the Board of Directors of IMS
from its formation in 1994 until its merger with Celestica in 1998. In 1994, Mr.
Behlman was a consultant to Maxtor, a manufacturer of hard disk drives. From
1992 to 1994, he served as Vice President and Chief Operating Officer of Sanmina
Corporation, an integrated electronics manufacturer. From 1988 until 1992, Mr.
Behlman held senior management positions at SCI Systems, Inc., a contract
manufacturer of electronic components, including Vice President of Business
Development, Western Region, from 1991 to 1992 and Vice President and General
Manager - San Jose, California Plant, from 1988 to 1991.
P. JACKSON BELL has served as a director since 1996. Mr. Bell currently
serves as a director of Asyst Technologies, Inc., Spinway, Inc., and the U.S.
Chamber of Commerce's Institute for Legal Reform. He is also an advisor to high
tech start-up companies. From 1996 to 1998, Mr. Bell served as the Executive
Vice President, Chief Financial Officer and Chief Administrative Officer of
Adobe Systems, Inc. From 1993 to 1996, Mr. Bell was Executive Vice President and
Chief Financial Officer of Conner Peripherals, Inc. From 1989 to 1991, he was
Executive Vice President - Finance and Chief Financial Officer of Burlington
Northern, Inc. From 1983 to 1989, he served as Executive Vice President-Finance
and Chief Financial Officer of U.S. Airways. Mr. Bell has also held senior
management positions at American Airlines and the Washington Post Company.
JOHN A. DOWNER has served as a director since April 1997. Since December
1996, Mr. Downer has served as a Managing Director of Cornerstone Equity
Investors, LLC. Prior to joining Cornerstone, from 1994 until 1996, Mr. Downer
served as a Managing Director of Prudential Equity Investors, Inc. Mr. Downer
currently serves as a director of several private companies, including
Evolutionary Technologies, Inc., MCMS, Inc., Optum, Inc. and PlanSoft, Inc.
ROBERT H. GETZ has served as a director since April 1997. Since December
1996, Mr. Getz has served as a Managing Director of Cornerstone Equity
Investors, LLC. Prior to joining Cornerstone, from 1994 until 1996, Mr. Getz
served as a Managing Director of Prudential Equity Investors, Inc. Mr. Getz
currently serves as a director of Novatel Wireless, Inc. and several other
private companies, including Artel Video Systems, Inc.
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<PAGE> 42
MARK ROSSI has served as a director since April 1997. Since December 1996,
Mr. Rossi has served as a Managing Director of Cornerstone Equity Investors,
LLC. Prior to joining Cornerstone, from 1994 to 1996, Mr. Rossi served as
President of Prudential Equity Investors, Inc. Mr. Rossi currently serves as a
Director of Maxwell Technologies, Inc., MCMS, Inc., Novatel Wireless, Inc., True
Temper Sports, Inc. and several other private companies.
BOARD COMMITTEES
We established our audit committee and our compensation committee in June
1997. The audit committee consists of P. Jackson Bell, Robert G. Behlman and
John A. Downer. The audit committee reviews our internal accounting procedures
and consults with and reviews the services provided by our independent
accountants. The compensation committee consists of Robert H. Getz, Gary L. Kuck
and Mark Rossi. The compensation committee reviews and recommends to the board
of directors the compensation and benefits of all our officers and directors,
including stock compensation and loans and establishes and reviews general
policies relating to the compensation and benefits of our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
We currently reimburse members of the board of directors for any reasonable
out-of-pocket expenses incurred by them in connection with attendance at board
and committee meetings.
LIMITATIONS ON DIRECTORS' 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:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts of omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
The 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 provide that we will indemnify our
directors and officers and may indemnify our employees and other agents to the
fullest extent permitted by law. We believe that indemnification under our
articles of incorporation covers at least negligence and gross negligence on the
part of indemnified parties. Our certificate of incorporation 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 their capacity as an officer,
director, employee or other agent, regardless of whether the bylaws would permit
indemnification.
The limited liability and indemnification provisions in our certificate of
incorporation may discourage stockholders from bringing a lawsuit against our
directors for breach of their fiduciary duty and may reduce the likelihood of
derivative litigation against our directors and officers, even though a
derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be
39
<PAGE> 43
adversely affected to the extent we pay the costs of settlement or damage awards
against our directors and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of us pursuant
to the foregoing provisions or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the
compensation earned, awarded or paid for services rendered to us in all
capacities for the year ended December 31, 1999 by our chief executive officer
and our executive officers who earned more than $100,000 in total compensation
during the year ended December 31, 1999, to whom we refer to in this prospectus
collectively as the named executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ----------------
----------------------- ALL OTHER
SALARY ($) BONUS ($) COMPENSATION ($)
---------- --------- ----------------
<S> <C> <C> <C>
Gary L. Kuck........................................... $213,150 $ -- $ 226(1)
President and Chief Executive Officer
William E. Campbell.................................... 106,562 -- 19,240(2)
Chief Financial Officer
Thomas M. Cochran...................................... 115,554 -- 226(1)
Vice President, Operations
Yenho K. Tree(3)....................................... 33,000 14,667 68,439(4)
Managing Director, Asia Pacific
</TABLE>
------------
(1) Represents life insurance premiums paid by Centurion.
(2) Represents $131 of life insurance premiums and $19,109 of relocation
expenses paid by Centurion.
(3) Joined Centurion on September 1, 1999.
(4) Represents a $5,000 sign-on bonus, $40,000 of relocation expenses and
$23,439 of overseas compensation paid by Centurion.
STOCK OPTIONS
We made no individual grants of stock options during the year ended
December 31, 1999 to any of our named executive officers.
AGGREGATE OPTION EXERCISES DURING LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the named
executive officers concerning option exercises for the year ended December 31,
1999 and exercisable and unexercisable options held as of December 31, 1999. The
value of unexercised in-the-money options is based on price of $4.00 per share,
the
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<PAGE> 44
fair market value of our stock on December 31, 1999, minus the per share
exercise price, multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gary L. Kuck............................... -- -- $ -- $ --
William E. Campbell........................ 9,375 28,125 20,625 61,875
Thomas M. Cochran.......................... 56,250 68,750 203,000 238,000
Yenho K. Tree.............................. -- -- -- --
</TABLE>
1997 STOCK OPTION PLAN
In April 1997, our board of directors and stockholders adopted our 1997
Stock Option Plan. The plan is intended to motivate and reward executives and
other key employees and to encourage ownership by employees of our common stock.
The plan provides for benefits to be awarded in the form of incentive stock
options or non-qualified stock options. Benefits under the plan may be granted
only to persons who are our or our subsidiaries' executives and other key
employees. As of June 30, 2000, we have granted options to purchase 445,000
shares of our common stock under the 1997 Plan.
The plan is administered by our compensation committee, which consists of
Robert Getz, Gary Kuck and Mark Rossi. The compensation committee has complete
authority to grant options and to determine the terms, conditions and provisions
of, and restrictions relating to the benefits under the plan.
The number of shares of our common stock with respect to which benefits may
be granted under the plan will not exceed, in the aggregate, 1,250,000 shares.
If there is any change in our common stock, the number and type of shares
available under the plan and/or the price thereof will be appropriately
adjusted. As of June 30, 2000, there were 805,000 shares available for grant
under the plan.
Options granted under the plan which are intended to qualify as incentive
stock options must be exercised within ten years of the date of grant of the
option or the expiration date set forth in the option grant, if earlier, subject
to earlier expiration upon termination of the holder's employment. The exercise
price of all options intended to qualify as incentive stock options must be at
least equal to the fair market value of the underlying shares of common stock on
the date of the grant. Incentive stock options granted to any participant who
owns 10% or more of our outstanding common stock must have an exercise price
equal to or exceeding 110% of the fair market value of a share of common stock
on the date of the grant and must not be exercisable for longer than five years.
Our board of directors or the committee may amend or terminate the plan,
but the board or committee may not amend the plan without the approval of our
stockholders or if such amendment would violate any law or agreement or the
rules of any exchange upon which the common stock is listed.
In the event of a change of control, the committee may provide that the
options shall become immediately vested and that such options shall terminate if
not exercised on the date of the change in control, or that such options shall
represent the right to receive the excess of consideration per share of common
stock offered in such change of control over the exercise price of such options.
2000 NON-EMPLOYEE DIRECTOR OPTION PLAN
Our board of directors recently adopted our 2000 Non-Employee Director
Option Plan, effective as of February 25, 2000. The plan is intended to provide
incentives to, and encourage ownership by, our directors who are not also our
employees. The plan provides for benefits to be awarded in the form of
non-qualified stock options. The plan is administered by our compensation
committee, which has complete authority to grant options and to determine the
terms, conditions and provisions of, and restrictions relating to the benefits
under the plan.
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<PAGE> 45
The number of shares of our common stock with respect to which benefits may
be granted under the plan shall not exceed, in the aggregate, 200,000 shares. If
there is any change in our common stock, the number and type of shares available
under the plan and/or the price thereof, will be appropriately adjusted. We have
granted 37,500 non-qualified options to purchase 37,500 shares of our common
stock to each of Mr. P. Jackson Bell and Mr. Robert G. Behlman. There are
currently 125,000 shares available for grant under the plan.
Options granted under the plan must be exercised within ten years of the
grant of the option or the expiration date set forth in the option grant, if
earlier, upon resignation, subject to the earlier expiration upon removal or
termination of the holder's position as a director. The exercise price per share
of common stock under each non-qualified stock option shall be at least equal to
100% of the fair market value of the underlying shares of common stock on the
date of the grant.
Our board of directors or the committee may amend or terminate the plan,
but the board or committee may not amend the plan without the approval of our
stockholders, or if such amendment would violate the law, agreement or the rules
of any exchange upon which the common stock is listed.
In the event of a proposed change of control, the board of directors may
provide that any or all of the options shall become immediately vested and that
such options shall terminate if not exercised on the date of the change of
control, or that such options shall represent the right to receive such
consideration as the board of directors shall deem equitable in the
circumstances based on the difference between the consideration to be received
in such change of control and the exercise price of any such options.
QUALIFIED 401(K) PLAN
We maintain a qualified 401(k) plan. Employees are permitted to contribute
up to 15.0% of their annual compensation to our 401(k) plan, not to exceed
$10,500 per year. Under the plan, we make matching contributions of up to 50.0%
of the first 3.0% of annual deferral per participant, limited by IRS rules. We
contributed and expensed $161,000 in 1999, $139,000 in 1998 and $105,000 in 1997
related to our 401(k) Plan.
EMPLOYMENT AGREEMENTS
DONALD C. NAAB. Mr. Naab is employed under a letter agreement with us. Mr.
Naab's letter agreement provides that he serves as Chief Operating Officer.
There is no employment term stated in the agreement. Mr. Naab's current base
salary is $200,000. In addition to his base salary, Mr. Naab is eligible to earn
an annual bonus targeted at 50% of his base salary upon attainment by us of
financial performance targets described in the agreement. In the event of
termination by us for reasons other than cause within the first 12 months of his
employment, Mr. Naab is eligible to receive six months of severance. The
agreement also provides for customary fringe benefits.
YENHO K. TREE. Mr. Tree is employed under a letter agreement with us. Mr.
Tree's letter agreement provides that he serves as Managing Director of Asia
Pacific. There is no employment term stated in the agreement. Mr. Tree's current
base salary is $110,000. In addition to his base salary, Mr. Tree is eligible to
earn an annual bonus of up to 50% of his base salary upon attainment by us of
financial performance targets described in the agreement. In the event of
termination by us for reasons other than cause within the first 24 months of his
employment, Mr. Tree is eligible to receive a six month severance package,
including monthly salary, housing and health care benefits. After 24 months of
employment, his severance package is reduced to three months.
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<PAGE> 46
RELATED PARTY TRANSACTIONS
Since April 18, 1997, we have not been a party to, nor have we currently
proposed, any transaction or series of similar transactions in which the amount
exceeds $60,000, and in which any director, executive officer, holder of more
than 5% of our common stock or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interests,
other than compensation agreements and other agreements, which are described in
"Management" and the transactions described below.
1997 RECAPITALIZATION
On April 18, 1997, we entered into a recapitalization agreement with Kuck
Investment Partners, L.P., Lance J. Kuck, Scott M. Kuck, Cornerstone Equity
Investors IV, L.P., Prudential Private Equity Investors III, L.P., and P.
Jackson Bell, pursuant to which we:
- in exchange for $28.5 million in cash, issued to P. Jackson Bell 100,000
shares of our common stock and issued to Cornerstone Equity Investors IV,
L.P. and Prudential Private Equity Investors III, L.P., an aggregate of
6,900,000 shares of our common stock, 85,000 shares of our Series B
redeemable preferred stock and $18.0 million in principal amount of 12%
subordinated notes due April 18, 2004, which has since been repaid; and
- redeemed 90 shares of common stock from Kuck Investment Partners, L.P.,
Lance L. Kuck and Scott M. Kuck in exchange for an aggregate of $27.0
million cash, $3.0 million principal amount of our holdback notes, which
have since been repaid, and 160,000 shares of our Series A convertible
preferred stock, which will automatically convert into 2,000,000 shares
of our common stock immediately prior to the consummation of this
offering.
In connection with the recapitalization, we also:
- cancelled the 10 shares of common stock held by Kuck Investment Partners,
L.P. and issued Kuck Investment Partners, L.P. a certificate for
1,000,000 shares of common stock;
- arranged a senior credit facility with IBJ Schroder Bank & Trust Company,
as lender and agent, in an aggregate principal amount of $30.0 million,
including a $10.0 million term loan; and
- paid in full the amount of $6,390,317 owing on a revolving loan agreement
with Norwest Bank Nebraska, N.A., dated as of August 28, 1992.
COMMON STOCK
Pursuant to the recapitalization agreement, we issued and sold a total of
7,000,000 shares of our common stock at a purchase price of $0.29 per share. All
7,000,000 shares of common stock were issued and sold to the following executive
officers, directors and greater than 5% shareholders of Centurion and persons
affiliated with them, for a total purchase price of approximately $2,030,000
million:
<TABLE>
<CAPTION>
NUMBER OF
PURCHASER SHARES
--------- ---------
<S> <C>
Cornerstone Equity Investors IV, L.P........................ 4,916,250
Prudential Private Equity Investors III, L.P................ 1,983,750
P. Jackson Bell............................................. 100,000
</TABLE>
In connection with the recapitalization, we also issued 1,000,000 shares of
our common stock to Kuck Investment Partners, L.P. in exchange for the
cancellation of 10 shares of common stock.
SERIES A PREFERRED
Pursuant to the recapitalization agreement, we issued a total of 160,000
shares of Series A convertible preferred stock, as well as cash and holdback
notes, in exchange for 90 shares of redeemed common stock.
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<PAGE> 47
Of the 160,000 shares of Series A convertible preferred stock that we issued,
all were issued to the following executive officers, directors and greater than
5% shareholders of Centurion and persons affiliated with them:
<TABLE>
<CAPTION>
NUMBER
STOCKHOLDER OF SHARES
----------- ---------
<S> <C>
Kuck Investment Partners, L.P............................... 142,208
Lance J. Kuck............................................... 8,896
Scott M. Kuck............................................... 8,896
</TABLE>
Lance J. Kuck and Scott M. Kuck are the sons of Gary and Susan Kuck.
Each share of Series A preferred stock outstanding will automatically
convert into 12.5 shares of our common stock, for an aggregate of 2,000,000
shares, immediately prior to the consummation of this offering.
SERIES B PREFERRED
Pursuant to the recapitalization agreement, we issued and sold a total of
85,000 shares of Series B redeemable preferred stock at a purchase price of
$100.00 per share. All 85,000 shares of Series B redeemable preferred stock were
issued and sold to the following executive officers, directors and greater than
5% shareholders of Centurion and persons affiliated with them, for a total
purchase price of $8,500,000:
<TABLE>
<CAPTION>
NUMBER
PURCHASER OF SHARES
--------- ---------
<S> <C>
Cornerstone Equity Investors IV, L.P........................ 60,562.5
Prudential Private Equity Investors III, L.P................ 24,437.5
</TABLE>
1998 REFINANCING
On December 30, 1998, in order to refinance our senior and subordinated
debt, we entered into a $42.0 million Revolving Credit, Term Loan and Security
Agreement with PNC Bank, National Association, as lender and agent and various
other financial institutions, as lenders, pursuant to which we:
- received a $12,857,140 term facility, a $12,857,140 revolving credit
facility, and a $1,285,714 equipment line of credit from PNC Bank,
National Association to be paid over five years;
- received a $7,142,860 term facility, a $7,142,860 revolving credit
facility, and a $714,286 equipment line of credit from IBJ Schroder
Business Credit Corporation to be paid over five years;
- paid in full to Cornerstone Equity Investors IV, L.P. and Prudential
Equity Investors III, L.P. the aggregate amount of $18.0 million, plus
accrued interest, of the $18.0 million in principal amount of 12%
subordinated notes due April 18, 2004;
- prepaid to Kuck Investment Partners, L.P., Lance J. Kuck, and Scott M.
Kuck the aggregate amount of $750,000, plus accrued interest, owing on
the $3.0 million in principal amount of the promissory notes, issued on
April 18, 1997;
- declared and paid a dividend on our Series B redeemable preferred stock
in the aggregate amount of $1,726,456 to Cornerstone Equity Investors IV,
L.P. and Prudential Equity Investors III, L.P.; and
- paid a $240,000 transaction fee to Cornerstone Equity Investors L.L.C.
SERIES C FINANCING
On September 6, 2000, we issued and sold a total of 1,444,042 shares of
Series C convertible preferred stock at a purchase price of $13.85 per share.
Each share of Series C preferred stock outstanding will automatically convert
into one share of our common stock immediately prior to the consummation of this
offering. Of the 1,444,042 shares of Series C convertible preferred stock that
we issued and sold, a total of 1,422,382 shares were issued and sold to the
following executive officers, directors and greater than 5%
44
<PAGE> 48
shareholders of Centurion and persons affiliated with them, for a total purchase
price of approximately $20.0 million:
<TABLE>
<CAPTION>
NUMBER
PURCHASER OF SHARES
--------- ---------
<S> <C>
Cornerstone Equity Investors IV, L.P........................ 475,857
Prudential Private Equity Investors III, L.P................ 192,013
Kuck Investment Partners, L.P............................... 72,202
State of Wisconsin Investment Board......................... 667,870
P. Jackson Bell............................................. 7,220
Behlman Family Revocable Trust.............................. 7,220
</TABLE>
John Downer, Robert Getz and Mark Rossi, who each serve on our board of
directors, are each managing directors of Cornerstone Equity Investors, LLC,
which is the managing general partner of Cornerstone Equity Investors IV, L.P.
and the investment advisor of Prudential Private Equity Investors III, L.P. Gary
and Susan Kuck, who each serve as a director and executive officer of Centurion,
are the general partners of Kuck Investment Partners, L.P. Robert Behlman, who
serves on our board of directors, is the trustee of the Behlman Family Revocable
Trust.
Pursuant to our Amended and Restated Stockholders Agreement, which will
terminate upon the consummation of this offering, Cornerstone Equity Investors
IV, L.P. had the right to elect three directors on our board of directors and
Kuck Investment Partners, L.P. had the right to elect two directors on our board
of directors.
REGISTRATION RIGHTS AGREEMENT
In connection with the Series C financing, we entered into an amended and
restated registration rights agreement with Cornerstone Equity Investors IV,
L.P., Prudential Private Equity Investors III, L.P., Kuck Investment Partners,
L.P., Randolph Street Partners III, K&E Investment Partners, LLC-2000DIF, P.
Jackson Bell, Behlman Family Revocable Trust and the State of Wisconsin
Investment Board, which amended and restated the registration rights agreement
entered into in connection with the 1997 Recapitalization. The amended and
restated registration rights agreement, provides for demand registration rights
to cause us to register under the Securities Act of 1933 all or part of the
shares of our stock held by them, as well as piggyback registration rights.
Specifically, the registration rights agreement provides that:
- Cornerstone Equity Investors IV, L.P. and Prudential Private Equity
Investors III, L.P. may cause us to effect, at our expense, up to five
long-form demand registrations, Kuck Investment Partners, L.P. may cause
us to effect, at our expense, three long-form demand registrations, the
State of Wisconsin Investment Board may cause us to effect, at our
expense, one long-form demand registration and a majority of the holders
of Series C shares may cause us to effect, at our expense, one long-form
demand registration;
- each party to the registration rights agreement may cause us to effect,
at our expense, unlimited short-form registrations; and
- each party to the registration rights agreement may request that their
eligible stock be included whenever we register any of our securities
under the Securities Act of 1933, with specified exceptions.
We have agreed to indemnify these stockholders in connection with these
registrations.
Each person or entity that is a party to the registration rights agreement
has agreed not to exercise their demand registration rights until at least 180
days after this offering and have waived their piggyback registration rights in
connection with this offering.
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<PAGE> 49
OPTION ISSUANCES
We have granted options to our executive officers and directors. See
"Management -- Executive Compensation," "-- 1997 Stock Option Plan" and
"-- Principal Stockholders" for more information regarding issued options.
EMPLOYMENT AGREEMENTS
We have entered into letter agreements with Donald C. Naab, our Chief
Operating Officer, and Yenho K. Tree, our Managing Director - Asia Pacific,
regarding the terms of their employment. See "Management -- Employment
Agreements" for more information on the terms of these agreements.
INTEREST OF EXPERTS
Randolph Street Partners III and K&E Investment Partners, LLC-2000DIF,
entities controlled by partners at Kirkland & Ellis, collectively own 21,660
shares of Series C convertible preferred stock acquired in our Series C
Financing. Kirkland & Ellis has provided legal services to us, including
services in connection with this offering, and to Cornerstone Equity Investors
from time to time and may continue to do so in the future.
MISCELLANEOUS
In 1997, we purchased approximately $842,000 of materials and tooling from
Furnel, Inc., a molding company owned by Gary L. Kuck, our President and Chief
Executive Officer. In 1998, our purchases from Furnel decreased to approximately
$101,000. We have not made any material purchases from Furnel since that time.
FUTURE AGREEMENTS
We intend that all future transactions, including loans between us and our
officers, directors, principal stockholders and their affiliates, will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested directors on 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> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of September 22, 2000, and as
adjusted to reflect the sale of common stock in this offering, by (i) each
stockholder known by us to own beneficially more than 5% of the common stock,
(ii) each of the named executive officers, (iii) each of our directors, and (iv)
all of our directors and executive officers as a group. The table below assumes
no exercise of Underwriters' over-allotment option. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or will
become exercisable within 60 days after September 22, 2000 are deemed
outstanding, while such shares are not deemed outstanding for purposes of
computing percentage ownership of any other person. Unless otherwise indicated
in the footnotes below (i) the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned,
subject to community property laws where applicable and (ii) the address of each
of the individuals listed in the table is Centurion Wireless Technologies, Inc.,
3425 North 44th Street, Lincoln, Nebraska 68504. As of September 22, 2000, there
were 11,858,099 shares of common stock outstanding, as adjusted to reflect the
conversion of all outstanding shares of preferred stock upon closing of this
offering.
<TABLE>
<CAPTION>
SHARES PERCENT OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING --------------------
------------------ PRIOR TO AFTER
NUMBER OFFERING OFFERING
------------------ -------- --------
<S> <C> <C> <C>
Cornerstone Equity Investors, LLC(1)..................... 7,644,793 64.5 % %
717 Fifth Avenue, Suite 1100
New York, New York 10022
John A. Downer(2)........................................ 7,644,793 64.5
Robert H. Getz(2)........................................ 7,644,793 64.5
Mark Rossi(2)............................................ 7,644,793 64.5
Cornerstone Equity Investors IV, L.P..................... 5,446,900 46.0
717 Fifth Avenue, Suite 1100
New York, New York 10022
Kuck Investment Partners, L.P............................ 2,878,019 24.3
Gary L. Kuck(3).......................................... 2,878,019 24.3
Susan J. Kuck(3)......................................... 2,878,019 24.3
Prudential Private Equity Investors III, L.P. ........... 2,197,893 18.5
c/o Cornerstone Equity Investors, LLC
717 Fifth Avenue, Suite 1100
New York, New York 10022
State of Wisconsin Investment Board...................... 744,793 6.3
121 East Wilson Street
Madison, Wisconsin 53702
William E. Campbell(4)................................... 9,375 *
Thomas C. Cochran(5)..................................... 87,500 *
Yenho K. Tree............................................ 0 *
Robert G. Behlman(6)..................................... 22,605 *
P. Jackson Bell.......................................... 107,220 *
All directors and executive officers as a group (13
persons) (7)........................................... 10,728,822 89.1
</TABLE>
------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 5,446,900 shares of common stock held by Cornerstone Equity
Investors IV, L.P. and 2,197,893 shares of common stock held by Prudential
Private Equity Investors III, L.P. over which Cornerstone Equity, LLC has
voting and investment discretion as general manager of Cornerstone Equity
Investors IV, L.P. and as investment manager of Prudential Private Equity
Investors III, L.P.
(2) Includes 5,446,900 shares of common stock held by Cornerstone Equity
Investors IV, L.P. and 2,197,893 shares of common stock held by Prudential
Private Equity Investors III, L.P. over which Cornerstone Equity, LLC has
voting and investment discretion as
47
<PAGE> 51
general manager of Cornerstone Equity Investors IV, L.P. and as investment
manager of Prudential Private Equity Investors III, L.P. Messrs. Downer,
Getz and Rossi are each Managing Directors of Cornerstone Equity Investors,
LLC.
(3) Includes 2,878,019 shares of common stock held by Kuck Investment Partners,
L.P., over which Mr. Kuck and Mrs. Kuck each have voting and investment
discretion as general partners of the limited partnership.
(4) Includes options to purchase 9,375 shares of common stock.
(5) Includes options to purchase 87,500 shares of common stock.
(6) Includes 22,605 shares of common stock held by the Behlman Family Revocable
Trust over which Mr. Behlman has investment and voting discretion as
trustee.
(7) Includes options to purchase 190,625 shares of common stock.
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<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of the offering we are authorized to issue shares
of common stock, $0.01 par value, and 1,000,000 shares of undesignated preferred
stock, $0.01 par value. The following description of our capital stock does not
purport to be complete and is subject to and qualified in its entirety by our
certificate of incorporation and bylaws, which are included as exhibits to the
Registration Statement of which this prospectus forms a part, and by the
provisions of applicable Delaware law.
COMMON STOCK
As of September 22, 2000, there were 11,858,099 shares of common stock
outstanding which were held of record by 10 stockholders, as adjusted to reflect
the conversion of all outstanding shares of preferred stock upon closing of this
offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. In the event of a liquidation, dissolution or winding up of Centurion,
the holders of 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. The 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. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock
to be issued upon the closing of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, our board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 1,000,000 shares of
preferred stock, $0.01 par value per share, in one or more series, each of the
series to have such rights and preferences, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be determined by our board of directors. The rights of the holders of
common stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for others to acquire, or discourage others from
attempting to acquire, a majority of our outstanding voting stock. We have no
present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Subject to limitations contained in the Amended and Restated Registration
Rights Agreement, dated September 6, 2000, between us and the holders of
11,858,099 shares of common stock, at any time beginning 180 days after the date
of this Prospectus, these holders may require that we use our best efforts to
register up to 11,526,107 of their shares of common stock for public resale. In
addition, if we register any of our securities either for our own account or for
the account of other security holders, the holders of 11,858,099 shares of
common stock are entitled to include their shares of common stock in the
registration, subject to the ability of the underwriters to limit the number of
shares included in the offering. Furthermore, the holders of 11,858,099 shares
of common stock may also require us to register all or a portion of their
registrable securities on Form S-3 when use of such form becomes available to
us. All registration expenses must be borne by us and all selling expenses
relating to registrable securities must be borne by the holders of the
securities being registered.
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<PAGE> 53
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make it more difficult to acquire us by means of a tender offer, a proxy
contest or the removal of incumbent officers and directors. These provisions,
summarized below, are expected to discourage types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us to first negotiate with us. We believe that the benefits
of increased protection from our potential ability to negotiate with the
proponent of an unfriendly or unsolicited offer to acquire or restructure us
outweigh the disadvantages of discouraging takeover or acquisition proposals
because, among other things, negotiation of these proposals could result in an
improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of interested
stockholder status, did own) 15% or more of a corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is
.
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<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of our
common stock outstanding. If the underwriters exercise their over-allotment
option, we will have a total of shares of our common stock outstanding.
Of these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by affiliates as that term is defined in Rule 144
under the Securities Act. The remaining 11,858,099 shares of common stock held
by existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act, described below. Subject to such restrictions
and applicable law, the holders of 10,197,450 shares of common stock will be
free to sell any and all shares of common stock that they beneficially own at
various times commencing 180 days after the date of this prospectus. The holders
of 1,660,649 shares of common stock will be free to sell any shares of common
stock they beneficially own in September 2001.
We cannot make any predictions as to the number of shares that may be sold
in the future or the effect, if any, that sales of these shares, or the
availability of these shares for future sale, will have on the prevailing market
prices of our common stock. Sales of a significant number of shares of our
common stock in the public market, or the perception that these sales could
occur, could adversely affect prevailing market prices of our common stock and
could impair our ability to raise equity capital in the future.
LOCK-UP AGREEMENTS
We, our officers and directors and holders of 5% or more of our common
stock have agreed that, subject to limited exceptions, we will not, for a period
of 180 days after the date of this prospectus, offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of common
stock or securities convertible into or exchangeable or exercisable for any
shares of common stock, or publicly disclose the intention to make any such
offer, sale, pledge or disposal, without the prior written consent of Banc of
America Securities LLC. Banc of America Securities LLC may release all or a
portion of the shares subject to this lockup agreement at any time without prior
notice.
RULE 144
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this
offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates 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 other than an affiliate, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
RULE 701
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or
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<PAGE> 55
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell their shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
their shares. However, substantially all Rule 701 shares are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after the
offering upon obtaining the prior written consent of Banc of America Securities
LLC.
We intend to file a Registration Statement on Form S-8 registering shares
of common stock subject to outstanding options or reserved for future issuance
under our stock plans. As of June 30, 2000, options to purchase a total 520,000
shares were outstanding and 930,000 shares were reserved for future issuance
under our stock plans. Common stock issued upon exercise of outstanding vested
options, other than common stock issued to our affiliates is available for
immediate resale in the open market.
REGISTRATION RIGHTS
Beginning six months after the date of this offering, holders of 11,526,107
shares of common stock will be able to require us to conduct a registered public
offering of their shares. In addition, holders of 11,858,099 shares of common
stock will be entitled to have their shares included for sale in subsequent
registered offerings of our common stock. See "Description of Capital
Stock -- Registration Rights." Registration of such shares under the Securities
Act would result in such shares becoming freely tradable without restriction
under the Securities Act (except for shares purchased by affiliates) immediately
upon the effectiveness of such registration.
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<PAGE> 56
UNDERWRITING
We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC, Chase
Securities Inc., U.S. Bancorp Piper Jaffray Inc. and C.E. Unterberg, Towbin are
the representatives of the underwriters. We have entered into an underwriting
agreement with the representatives. Subject to the terms and conditions of the
underwriting agreement, we have agreed to sell to the underwriters, and each of
the underwriters has agreed to purchase, the number of shares of common stock
listed next to its name in the following table:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Banc of America Securities LLC..............................
Chase Securities Inc. ......................................
U.S. Bancorp Piper Jaffray Inc. ............................
C.E. Unterberg, Towbin......................................
--------
Total.............................................
========
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
also may allow, and any other dealers may reallow, a concession of not more than
$ per share to some other dealers. If all the shares are not sold at the
initial public offering price, the underwriters may change the offering price
and the other selling terms. The common stock is offered subject to a number of
conditions, including:
- receipt and acceptance of our common stock by the underwriters; and
- the right to reject orders in whole or in part.
We have granted an option to the underwriters to buy up to
additional shares of common stock. These additional shares would cover sales of
shares by the underwriters which exceed the number of shares specified in the
table above. The underwriters have 30 days to exercise this option. If the
underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.
We, the holders of our common stock, and our officers and directors have
entered into lock-up agreements with the underwriters. Under those agreements,
we and those holders of stock and options may not dispose of or hedge any common
stock or securities convertible into or exchangeable for shares of common stock.
These restrictions will be in effect for a period of 180 days after the date of
this prospectus. At any time and without notice, Banc of America Securities LLC
may, in its sole discretion, release all or some of the securities from these
lock-up agreements.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be required
to make in respect of those liabilities.
We have applied to have our shares of common stock approved for listing on
the Nasdaq National Market under the symbol "CNTN."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
- short sales;
- stabilizing transactions; and
- purchases to cover positions created by short sales.
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<PAGE> 57
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
- over-allotment;
- stabilization;
- syndicate covering transactions; and
- imposition of penalty bids.
As a result of these activities, the price of the common stock may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise. Prior to this offering, there has
been no public market for our common stock. The initial public offering price
will be negotiated between us and the underwriters. Among the factors to be
considered in such negotiations are:
- our history and prospects, and the history and prospectus of the industry
in which we compete;
- our past and present financial performance;
- an assessment of our management;
- the present state of our development;
- our prospects for future earnings;
- the prevailing market conditions of the applicable U.S. securities market
at the time of this offer;
- market valuations of publicly traded companies that we and the
representatives believe to be comparable to us; and
- other factors deemed relevant.
The underwriters have reserved up to shares of the common stock
sold in this offering for sale to certain of our employees, directors, and
friends at the initial public offering price set forth on the cover page of this
prospectus. Such persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase these reserved shares.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Kirkland & Ellis, New York, New York. Certain legal matters will be passed
upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, San Francisco, California.
EXPERTS
The consolidated financial statements and schedule of Centurion Wireless
Technologies, Inc. included in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP,
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<PAGE> 58
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission, Washington, D.C., a
registration statement on Form S-1 under the Securities Act with respect to the
shares of common stock sold in this offering. This prospectus does not contain
all the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to Centurion and our
common stock, we refer you to the registration statement and to the exhibits and
schedules that were filed with the registration statement. Statements contained
in this prospectus as to the contents of any contract or other document that is
filed as an exhibit to the registration statement are not necessarily complete,
and we refer you to the full text of the contract or other document filed as an
exhibit to the registration statement. A copy of the registration statement may
be inspected by anyone without charge at the Public Reference Section of the
Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of all or any portion of the
registration statement may be obtained from the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed fees. The Securities and Exchange Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
Upon completion of this offering, Centurion will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and, in accordance with the requirements of the Securities Exchange Act
of 1934, will file periodic reports, proxy statements and other information with
the Securities and Exchange Commission. These periodic reports, proxy statements
and other information will be available for inspection and copying at the
regional offices, public reference facilities and web site of the Securities and
Exchange Commission referred to above.
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<PAGE> 59
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and June 30, 2000 (unaudited)............................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999, and the six months ended
June 30, 1999 (unaudited) and 2000 (unaudited)............ F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1998 and 1999, and
the six months ended June 30, 2000 (unaudited)............ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999, and the six months ended
June 30, 1999 (unaudited) and 2000 (unaudited)............ F-6
Notes to Consolidated Financial Statements.................. F-7 - F-22
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Centurion Wireless Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Centurion
Wireless Technologies, Inc. (a Delaware corporation) (formerly Centurion
International, Inc. - a Nebraska corporation) and subsidiaries as of December
31, 1998 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material 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 Centurion Wireless
Technologies, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
September 18, 2000
F-2
<PAGE> 61
CENTURION WIRELESS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,386 $ 3,906 $ 2,387
Trade accounts receivable, net of allowances of $184 at
December 31, 1998 and 1999 and $259 at June 30, 2000.... 14,227 16,009 18,469
Inventories, net.......................................... 10,324 9,598 15,883
Deferred tax assets....................................... 618 412 678
Prepaid expenses and other................................ 2,041 2,160 2,600
------- -------- --------
Total current assets................................ 30,596 32,085 40,017
Property, plant and equipment, net:
Land...................................................... 113 113 113
Buildings and improvements................................ 1,088 1,175 1,324
Machinery and equipment................................... 17,395 20,661 22,124
Office furniture and equipment............................ 1,468 1,689 1,724
------- -------- --------
20,064 23,638 25,285
Less accumulated depreciation and amortization............ 8,546 11,278 12,773
------- -------- --------
Property, plant and equipment, net.................. 11,518 12,360 12,512
Restricted cash............................................. 1,523 -- --
Deferred financing costs, net of accumulated amortization of
$182 and $273 at December 31, 1999, and June 30, 2000,
respectively.............................................. 713 728 637
Intangible assets, net...................................... -- 4,120 3,509
Other assets................................................ 22 43 33
------- -------- --------
$44,372 $ 49,336 $ 56,708
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt...................... $13,555 $ 9,050 $ 13,027
Outstanding checks in excess of bank balances............. 2,278 3,158 3,514
Accounts payable.......................................... 6,647 13,316 12,725
Accrued liabilities....................................... 2,768 3,870 6,326
Preferred stock dividends payable......................... 1,600 987 2,533
------- -------- --------
Total current liabilities........................... 26,848 30,381 38,125
Long-term debt, less current maturities..................... 17,381 15,735 14,259
Deferred income taxes....................................... 702 870 878
------- -------- --------
18,083 16,605 15,137
Series B redeemable preferred stock, $0.01 par value, net of
offering costs of $350, 85,000, 90,000 and 90,000 shares
authorized, and 85,000, 87,500 and 87,500 shares issued
and outstanding at December 31, 1998, 1999, and June 30,
2000, respectively........................................ 8,150 8,400 8,400
Putable common stock, $0.01 par value, 197,450 shares issued
and outstanding at December 31, 1999, and June 30, 2000,
respectively.............................................. -- 1,750 1,750
------- -------- --------
8,150 10,150 10,150
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, 1,000,000 shares undesignated, no shares
issued or outstanding................................... -- -- --
Series A convertible preferred stock, $0.01 par value,
160,000 shares authorized, issued and outstanding; net
of offering costs of $660, at December 31, 1998, and
1999, and June 30, 2000, respectively................... 15,340 15,340 15,340
Common stock, $0.01 par value, 10,638,300 authorized;
8,000,000 shares issued and outstanding at December 31,
1998, and 1999, and June 30, 2000, respectively, and pro
forma authorized and 10,000,000 issued and
outstanding............................................. 80 80 80
Additional paid-in capital.................................. 1,866 1,866 2,182
Accumulated other comprehensive income (loss)............... -- 129 (217)
Deferred compensation....................................... -- -- (316)
Retained deficit............................................ (25,995) (25,215) (23,773)
------- -------- --------
Total stockholders' equity (deficit)................ (8,709) (7,800) (6,704)
------- -------- --------
$44,372 $ 49,336 $ 56,708
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 62
CENTURION WIRELESS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- --------------------------
1997 1998 1999 1999 2000
-------- -------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $105,211 $112,034 $ 109,644 $ 46,399 $ 62,462
Costs and expenses
Cost of sales.............. 85,310 87,142 91,965 39,369 50,578
Research and development... 2,151 2,634 2,645 1,244 1,394
Selling, general and
administrative.......... 7,419 9,200 10,485 4,542 5,308
Amortization of
intangibles............. -- -- 269 -- 269
-------- -------- ----------- ----------- -----------
94,880 98,976 105,364 45,155 57,549
-------- -------- ----------- ----------- -----------
Income from operations....... 10,331 13,058 4,280 1,244 4,913
Other income (expense):
Interest and amortization
expense................. (2,776) (3,711) (2,610) (1,218) (1,413)
Other, net................. (11) 71 (92) (25) 56
-------- -------- ----------- ----------- -----------
(2,787) (3,640) (2,702) (1,243) (1,357)
-------- -------- ----------- ----------- -----------
Income before income taxes
and extraordinary item..... 7,544 9,418 1,578 1 3,556
Provision for (benefit from)
income taxes............... 2,976 2,436 (189) 1 568
-------- -------- ----------- ----------- -----------
Income before extraordinary
item....................... 4,568 6,982 1,767 -- 2,988
Extraordinary item, net of
income tax benefit of
$473....................... -- 917 -- -- --
-------- -------- ----------- ----------- -----------
Net income................... 4,568 6,065 1,767 -- 2,988
Dividends on preferred
stock...................... 1,504 2,640 987 476 1,546
-------- -------- ----------- ----------- -----------
Net income (loss) available
for common shares:......... $ 3,064 $ 3,425 $ 780 $ (476) $ 1,442
======== ======== =========== =========== ===========
Net income (loss) per share
available for common
shares:
Basic...................... $ 0.38 $ 0.43 $ 0.10 $ (0.06) $ 0.18
Diluted.................... $ 0.38 $ 0.42 $ 0.07 $ (0.06) $ 0.17
Weighted average shares used
in computation:
Basic...................... 8,000,000 8,000,000 8,097,000 8,000,000 8,197,000
Diluted.................... 8,112,000 8,232,000 10,405,000 8,000,000 8,585,000
Pro forma net income (loss)
per share available for
common shares:
Basic............................................ $ 0.12 $ (0.01) $ 0.24
Diluted.......................................... $ 0.12 $ (0.01) $ 0.23
Pro forma weighted average
shares used in computation:
Basic............................................ 11,758,000 11,661,000 11,858,000
Diluted.......................................... 12,066,000 11,661,000 12,246,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 63
CENTURION WIRELESS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SERIES A ACCUMULATED
CONVERTIBLE COMMON ADDITIONAL OTHER RETAINED
PREFERRED STOCK COMMON PAID-IN COMPREHENSIVE DEFERRED EARNINGS
STOCK SHARES STOCK CAPITAL INCOME (LOSS) COMPENSATION (DEFICIT) TOTAL
----------- ---------- ------ ---------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997... $ -- 100 $ 10 $ 5 $ -- $ -- $ 14,542 $ 14,557
Distribution to common
stockholders........... -- -- -- -- -- -- (1,041) (1,041)
Repurchase and retirement
of common stock........ -- (100) (10) (5) -- -- (45,985) (46,000)
Issuance of common
stock.................. -- 8,000,000 80 1,866 -- -- -- 1,946
Issuance of Series A
convertible preferred
stock.................. 15,340 -- -- -- -- -- -- 15,340
Net income............... -- -- -- -- -- -- 4,568 4,568
Dividends declared on
preferred stock........ -- -- -- -- -- -- (1,504) (1,504)
------- ---------- ---- ------ ----- ----- -------- --------
BALANCE, DECEMBER 31,
1997..................... 15,340 8,000,000 80 1,866 -- -- (29,420) (12,134)
Net income............... -- -- -- -- -- -- 6,065 6,065
Dividends declared on
preferred stock........ -- -- -- -- -- -- (2,640) (2,640)
------- ---------- ---- ------ ----- ----- -------- --------
BALANCE, DECEMBER 31,
1998..................... 15,340 8,000,000 80 1,866 -- -- (25,995) (8,709)
Comprehensive income:
Net income............. -- -- -- -- -- -- 1,767 1,767
Foreign currency
translation
adjustment........... -- -- -- -- 129 -- -- 129
------- ---------- ---- ------ ----- ----- -------- --------
Total
comprehensive
income.......... 1,896
Dividends declared on
preferred stock........ -- -- -- -- -- -- (987) (987)
------- ---------- ---- ------ ----- ----- -------- --------
BALANCE, DECEMBER 31,
1999..................... 15,340 8,000,000 80 1,866 129 -- (25,215) (7,800)
Deferred compensation
(unaudited)............ -- -- -- 316 -- (316) -- --
Comprehensive income:
Net income
(unaudited).......... -- -- -- -- -- -- 2,988 2,988
Foreign currency
translation
adjustment
(unaudited).......... -- -- -- -- (346) -- -- (346)
------- ---------- ---- ------ ----- ----- -------- --------
Total
comprehensive
income.......... 2,642
Dividends declared on
preferred stock
(unaudited)............ -- -- -- -- -- -- (1,546) (1,546)
------- ---------- ---- ------ ----- ----- -------- --------
BALANCE, JUNE 30, 2000
(UNAUDITED).............. $15,340 8,000,000 $ 80 $2,182 $(217) $(316) $(23,773) $ (6,704)
======= ========== ==== ====== ===== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 64
CENTURION WIRELESS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 4,568 $ 6,065 $ 1,767 $ -- $ 2,988
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 1,765 2,648 3,184 1,388 1,840
Reserve for inventory obsolescence...................... 510 (916) (444) 210 572
Deferred income taxes................................... (10) 415 374 -- (258)
Loss on disposal of property and equipment.............. 3 17 -- -- --
Extraordinary item...................................... -- 1,390 -- -- --
Change in operating assets and liabilities:
Receivables........................................... 288 (4,313) (1,782) (780) (2,460)
Inventories........................................... (3,809) 4,523 1,354 (2,232) (6,857)
Prepaid expenses and other............................ (361) (1,491) 255 627 (440)
Federal tax deposit................................... 1,042 -- -- -- --
Outstanding checks in excess of bank balances......... 1,802 (3) 880 (152) 356
Accounts payable...................................... (1,431) 1,249 6,669 10,726 (591)
Accrued liabilities................................... 4 754 292 2,060 2,456
Other, net............................................ (85) 2 (1) (190) 21
-------- -------- ------- ------- -------
Net cash provided by (used in) operating
activities....................................... 4,286 10,340 12,548 11,657 (2,373)
-------- -------- ------- ------- -------
Cash Flows From Investing Activities:
Purchases of property and equipment....................... (4,570) (3,336) (2,879) (1,116) (1,647)
Change in restricted cash................................. (3,000) 1,562 1,523 1,523 --
Acquisition of business, net of cash acquired............. -- -- (5,157) -- --
Proceeds from disposal of property and equipment.......... 8 -- -- -- --
-------- -------- ------- ------- -------
Net cash provided by (used in) investing
activities....................................... (7,562) (1,774) (6,513) 407 (1,647)
-------- -------- ------- ------- -------
Cash Flows From Financing Activities:
Net change in revolving note.............................. (1,407) 6,294 (1,599) (4,329) 3,977
Proceeds from term loan................................... 10,000 20,000 -- -- --
Principal payment on term loan............................ (1,527) (9,167) (2,619) (1,191) (1,476)
Proceeds from (repayments on) subordinated notes.......... 18,000 (18,000) -- -- --
Issuance of common stock.................................. 1,946 -- 1,750 -- --
Issuance of Series B redeemable preferred stock........... 8,150 -- 250 -- --
Repurchase and retirement of common stock................. (27,000) -- -- -- --
Distribution to common stockholders....................... (1,041) -- -- -- --
Distributions to preferred stockholders................... (701) (2,544) (1,600) (1,600) --
Deferred financing costs incurred......................... (2,102) (713) (197) -- --
Issuance costs of Series A convertible preferred stock.... (660) -- -- -- --
Principal payment on promissory notes..................... -- (1,500) (1,500) (1,500) --
-------- -------- ------- ------- -------
Net cash provided by (used in) financing
activities....................................... 3,658 (5,630) (5,515) (8,620) 2,501
-------- -------- ------- ------- -------
Net change in cash and cash equivalents..................... 382 2,936 520 3,444 (1,519)
Cash and cash equivalents, beginning of period.............. 68 450 3,386 3,386 3,906
-------- -------- ------- ------- -------
Cash and cash equivalents, end of period.................... $ 450 $ 3,386 $ 3,906 $ 6,830 $ 2,387
======== ======== ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ 2,272 $ 3,289 $ 2,236 $ 915 $ 1,288
Cash paid (received) for taxes............................ 3,850 2,730 (1,428) (1,478) 681
Supplemental disclosures of noncash financing activities:
Issuance of Series A convertible preferred stock for
common stock............................................ 15,340 -- -- -- --
Issuance of promissory notes for common stock............. 3,000 -- -- -- --
Debt conversion from credit facility to equipment line of
credit.................................................. -- -- 1,306 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 65
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CENTURION WIRELESS TECHNOLOGIES
BUSINESS ACTIVITY. We manufacture and market custom-designed antenna and
power products for use in wireless handsets, wireless data devices and wireless
networks. Our customers include wireless handset and device manufacturers and
wireless networking companies, located in North America, Latin America, Europe
and the Asia Pacific region. We grant credit to customers throughout the world.
We maintain manufacturing facilities in the United States, China, Malaysia,
Mexico and the United Kingdom. In March 1999, we incorporated a maquiladora in
Tijuana, Baja California (B.C.) Mexico under the name Centurion International
Mexico, S.A. de C.V. (CiMex) which allows CiMex to import into Mexico on a duty
free basis, machinery, equipment, replacement parts, raw materials and other
items needed for the assembly or manufacture of finished goods for subsequent
export. CiMex assembles power products and antenna subassemblies for us. In
February 2000, we incorporated a subsidiary under the name Centurion Wireless
Components (M) Sdn. Bhd. in Penang, Malaysia. Centurion Wireless Components
operates a facility that manufactures antennas and batteries. We also have
subsidiaries in China and the United Kingdom and maintain sales offices in the
United States, China, the United Kingdom and Korea.
RECAPITALIZATION. On April 18, 1997, we executed a Recapitalization
Agreement (the Agreement). Under the Agreement, we agreed to redeem all of the
$100 par value common stock outstanding at the time in return for $27.0 million
in cash, 1,000,000 shares of newly issued $0.01 par value common stock, 160,000
shares of newly issued Series A convertible preferred stock with a stated value
of $16.0 million, and a $3.0 million promissory note.
In addition, we issued 7,000,000 shares of the $0.01 par value common
stock, 85,000 shares of newly issued Series B preferred stock with a stated
value of $8.5 million and $18.0 million of subordinated notes. We also
negotiated a senior credit facility in an aggregate principal amount of $30.0
million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
our accounts and the accounts of our wholly owned subsidiaries (Centurion
Electronics (Shanghai), Ltd., Centurion Wireless Components (M) Sdn. Bhd.,
Centurion International Mexico, S.A. de C.V. and Centurion International Ltd.).
All material intercompany accounts and balances have been eliminated.
UNAUDITED INTERIM RESULTS. The accompanying consolidated balance sheet as
of June 30, 2000, the consolidated statements of operations and cash flows for
the six months ended June 30, 1999 and June 30, 2000 and the consolidated
statement of stockholders' equity (deficit) for the six months ended June 30,
2000 are unaudited. The unaudited interim consolidated financial statements have
been prepared on the same basis as the annual consolidated financial statements
and, in the opinion of management, reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly our financial position
as of June 30, 2000, and our results of operations and cash flows for the six
months ended June 30, 1999 and 2000. The financial data and information
disclosed in the notes to the consolidated financial statements related to these
periods are also unaudited. The results for the six months ended June 30, 2000
are not necessarily indicative of the results to be expected for the year ended
December 31, 2000.
USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions. These estimates and assumptions
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 revenue and expenses during the reported period. Actual
results may, in some instances, differ from previously estimated amounts.
REVENUE RECOGNITION. Revenues from product sales are recognized upon the
later of transfer of title or upon shipment of the product to the customer. Our
customers include manufacturers of wireless handsets, wireless data devices,
Bluetooth devices, Telemetry and Telematics applications, and in-building
antenna
F-7
<PAGE> 66
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
systems. In conjunction with an agreement with a significant customer, we
maintain some finished goods inventory at the customer's facility. Under this
agreement, we recognize revenue at the date the title of the product transfers,
which according to the agreement is the earlier of the date the product is
pulled by the customer or thirty days after the product arrives at the
customer's facility.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
No. 101 summarizes the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. We believe that our
revenue recognition policies are in accordance with the provisions of SAB No.
101.
CASH AND CASH EQUIVALENTS. We consider highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents. We
also maintain working capital in foreign locations that may be subject to
exchange control regulations. Such funds are used for general business purposes
in the countries in which they are located.
INVENTORIES. We value inventories at the lower of cost (first-in,
first-out (FIFO)) or market. We provide reserves against inventories which we
believe to be excessive, slow moving or obsolete to state such inventories at
the estimated net realizable value. Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1998 1999 2000
------- ------ ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Raw materials........................................ $ 7,289 $6,533 $10,661
Work in process...................................... 522 705 933
Finished goods....................................... 3,457 2,860 5,361
Less: Reserve for obsolescence....................... (944) (500) (1,072)
------- ------ -------
$10,324 $9,598 $15,883
======= ====== =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION. Property, plant
and equipment is recorded at cost. Improvements that substantially increase an
asset's capacity or alter its capabilities are capitalized. Depreciation and
amortization on property, plant and equipment is provided for in amounts
sufficient to relate the cost of depreciable assets to their intended operations
over their estimated service lives. Estimated lives are 15 to 40 years for
buildings and improvements and two to 10 years for machinery and equipment and
office furniture and equipment. Assets acquired prior to January 1, 1995 are
depreciated using straight-line and accelerated methods. Effective January 1,
1995, we changed to the straight-line method for newly acquired assets.
Depreciation expense was $1,467,000, $2,226,000 and $2,732,000 during the years
ended December 31, 1997, 1998 and 1999, respectively and $1,307,000 (unaudited)
and $1,495,000 (unaudited) for the six months ended June 30, 1999 and 2000,
respectively.
We capitalize tooling and mold costs that have useful lives greater than
one year and depreciate such assets over three years. Tooling and mold costs
capitalized during the years ended December 31, 1997, 1998 and 1999, and the six
months ended June 30, 2000 were $392,000, $219,000, $646,000, and $106,000
(unaudited), respectively. Our expenses included all replacement mold cavities
and inserts and tooling refurbishment expenditures.
INTANGIBLE ASSETS. Intangible assets consist primarily of goodwill related
to the acquisition of the portable antenna division of Sigma Wireless
Technologies during 1999 (see Note 3). Goodwill, representing the excess of cost
over the fair value of individual net assets acquired in the acquisition, is
being amortized using the straight-line method over 10 years. Amortization
expense for intangible assets was $269,000 for the year ended December 31, 1999
and $269,000 (unaudited) for the six months ended June 30, 2000.
F-8
<PAGE> 67
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-LIVED ASSETS. At each balance sheet date, we evaluate whether events
or changes in circumstance have occurred that indicate the carrying value of our
long-lived assets, goodwill, and identifiable intangibles may not be
recoverable. If such events or changes in circumstances are deemed to have
occurred, we estimate the future cash flows related to the assets and compare
the sum of the expected future cash flows (undiscounted and without interest
charges) to the carrying amount of the assets to determine if there has been an
impairment. If an impairment has occurred, we will write the assets down to
their estimated fair value. The estimated fair value of the assets is typically
calculated using the present value of estimated expected future cash flow using
a discount rate commensurate with the risks involved.
RESEARCH AND DEVELOPMENT COSTS. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 2, "Accounting for Research and Development
Costs," research and development costs are expensed as incurred.
INCOME TAXES. We use the asset and liability approach for financial
accounting and reporting for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." Under this approach, deferred income tax assets and
liabilities are recognized for the expected future tax effects of temporary
differences between the income tax and financial reporting carrying amounts of
assets and liabilities (see Note 6).
STOCK-BASED COMPENSATION. As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation," we account for the cost of stock-based employee
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, we disclose the pro
forma effect on net income and related per share amounts as if the fair-value
method prescribed by SFAS No. 123 had been used to account for our stock-based
employee compensation (see Note 13).
EARNINGS PER SHARE AVAILABLE FOR COMMON SHARES. SFAS No. 128, "Earnings
Per Share," requires companies to compute basic and diluted per share data for
all periods for which a statement of operations is presented. Basic net income
(loss) per share is computed by dividing the net income available for common
shares by the weighted average number of common shares that were outstanding
during the period. Diluted earnings per share is computed by giving effect to
all potentially dilutive securities that were outstanding for the periods
presented. Potentially dilutive securities consist of options and convertible
preferred stock. See Notes 14 and 15 for the reconciliation of the numerator and
denominator used in the calculation of our historical and pro forma basic and
diluted net income (loss) per share available for common shares.
DEFERRED FINANCING COSTS. Deferred financing costs were incurred in 1998
and 1999 related to the December 31, 1998 refinancing. These costs were
capitalized and are being amortized over the term of the new facility using the
effective interest method. As a result of the facility refinancing, the
unamortized deferred financing costs of $1,390,000 incurred on the April 1997
senior credit facility were charged to expense during 1998. The resulting charge
was reported, net of the tax benefit of $473,000, as an extraordinary item of
$917,000. Amortization of deferred financing costs for the periods presented in
the accompanying consolidated statement of operations is included in interest
expense.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION. The cash flows and
financing activities of our Mexican subsidiary are primarily denominated in U.S.
dollars. Accordingly, this subsidiary uses the U.S. dollar as its functional
currency and transaction gains or losses from changes in exchange rates are
recognized in consolidated income in the year of occurrence.
Our foreign subsidiaries (Centurion Electronics (Shanghai), Ltd., Centurion
Wireless Components and Centurion International, Ltd. use local currencies as
their functional currency. Assets and liabilities have been translated to U.S.
dollars at the exchange rates in effect at the balance sheet date. Revenue and
expense items have been translated at exchange rates that approximate the
average of the rates prevailing during each year.
F-9
<PAGE> 68
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Translation adjustments are reported as a separate component of comprehensive
income (loss) in our consolidated statements of stockholders' equity (deficit).
Net foreign currency transaction gains and losses during 1997, 1998 and 1999 and
the six months ended June 30, 1999 (unaudited) and June 30, 2000 (unaudited)
were not material.
FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF CREDIT
RISK. Financial instruments which potentially subject us to concentrations of
credit risk consist principally of trade receivables. We perform ongoing credit
evaluations of our customers and maintain allowances for potential credit losses
which, when incurred, have been within the range of management's expectations.
We also maintain working capital in foreign locations that may be subject to
exchange control regulations. Such funds are used for general business purposes
in the countries in which they are located.
FINANCIAL INSTRUMENTS. Our balance sheet financial instruments as of
December 31, 1998 and 1999 and June 30, 2000 (unaudited) include cash and cash
equivalents, accounts receivable, accounts payable, and borrowings under our
debt agreements. Because of their short maturities, the carrying amounts of cash
equivalents, accounts receivable, and accounts payable approximate their fair
value. The carrying amounts of our long-term debt (including current maturities)
approximate fair value due to their variable interest rates.
COMPREHENSIVE INCOME. SFAS No. 130, "Comprehensive Income," requires that
all items recognized under accounting standards as components of comprehensive
income be reported with the same prominence as other financial statements.
Accumulated balances of other comprehensive income (loss) consist solely of the
balance in cumulative foreign currency translation adjustments as of December
31, 1999 and June 30, 2000 (unaudited). There was no cumulative foreign currency
translation adjustment as of December 31, 1998.
RECENT ACCOUNTING PRONOUCEMENTS. In 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in June 1999 issued SFAS No. 137, "Accounting for
Derivatives and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133" and in June 2000 issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -- An Amendment of FASB
Statement No. 133." SFAS No. 133 establishes accounting and reporting standards
requiring all derivative instruments to be recorded in the balance sheet at
their fair values. The statement requires changes in a derivative's fair value
to be recognized currently in earnings, except for special qualifying hedges for
which gains and losses may offset the hedged item in the statement of
operations. We will be required to implement SFAS No. 133, as amended by SFAS
No. 137, in fiscal 2001. We do not anticipate that the adoption of SFAS No. 133,
as amended by SFAS No. 137, will have a material impact on our financial
position or results of operations.
3. ACQUISITION
On July 5, 1999, we acquired the assets of Sigma's portable antenna
division in Dublin, Ireland and the outstanding stock of Sigma Wireless (UK)
Limited for a total purchase price of approximately $5.2 million, consisting of
approximately $3.2 million in cash, 197,450 shares of our common stock with a
stated value of $1,750,000 and 2,500 shares of our Series B redeemable preferred
stock with a stated value of $250,000. The common stock was putable by the
former owners of Sigma to us at the same price at which the shares were
F-10
<PAGE> 69
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issued. We relocated the operations to Aylesbury Buckinghamshire, United
Kingdom. The purchase price was allocated based on the fair values of assets and
liabilities as of the date of acquisition as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Property and equipment...................................... $ 695
Working capital............................................. 309
Intangible and other assets................................. 4,278
Non-current and deferred liabilities........................ (125)
------
Total purchase price, net of cash acquired........ $5,157
======
</TABLE>
The acquisition was accounted for using the purchase method of accounting,
and accordingly, the operations of Sigma have been included in the Company's
consolidated results from the date of acquisition. Sigma's results of operations
prior to the acquisition were not material.
4. RELATED-PARTY TRANSACTIONS
Included in the financial statements are the following transactions with
companies owned or controlled by our stockholders:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Charges for allocated payroll, rent and miscellaneous
overhead costs............................................ $ 20 $ -- $--
Purchases of materials and tooling.......................... 842 101 19
</TABLE>
In April 1997, we issued $3,000,000 in promissory notes to our former
majority stockholders (and current executive management) in conjunction with our
recapitalization. The notes were collateralized by $3,000,000 in restricted
cash. The notes included interest expense equal to the interest we earned on the
cash held as security. We paid $1,500,000 of principal on the notes in 1998 and
the remaining principal balance in 1999.
In connection with our 1998 refinancing, we paid $240,000 to Cornerstone
Equity Investors, L.L.C., the general partner of our majority stockholder,
Cornerstone Equity Investors IV, L.P. The fee was capitalized as deferred
financing costs.
5. INDEBTEDNESS
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1998 1999 2000
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit facility............................ $ 9,436 $ 6,098 $ 10,075
Term facility........................................ 20,000 17,381 15,952
Equipment line of credit............................. -- 1,306 1,259
Promissory notes..................................... 1,500 -- --
------- ------- --------
Total long-term debt....................... 30,936 24,785 27,286
Less current maturities.............................. (13,555) (9,050) (13,027)
------- ------- --------
Long-term debt, net of current maturities..... $17,381 $15,735 $ 14,259
======= ======= ========
</TABLE>
F-11
<PAGE> 70
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, long-term debt will mature as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- --------------
(IN THOUSANDS)
<S> <C>
2001........................................................ $ 3,044
2002........................................................ 3,044
2003........................................................ 9,647
-------
$15,735
=======
</TABLE>
On December 31, 1998, we negotiated a new debt facility in an initial
aggregate principal amount of $42,000,000, consisting of a $20,000,000 initial
aggregate principal amount revolving credit facility, a $20,000,000 aggregate
principal amount term facility and a $2,000,000 initial aggregate equipment line
of credit. The aggregate principal amount increased to $45,000,000 during 1999
as a result of additional commitments received on the revolving credit facility
increasing the maximum amount to $23,000,000.
The maximum amount available under the new debt facility is subject to
available collateral as defined in the new credit facility agreement.
Substantially all of our assets collateralize the amounts due under the senior
credit facility. Proceeds from the new debt facility were used to retire
outstanding borrowings from the old senior credit facility and subordinated
notes.
The debt facility matures December 2003 and is subject to varying early
termination fees ranging from $235,000 to $470,000 if termination occurs prior
to January 2001. The revolving credit facility, term facility and equipment line
of credit accrue interest either at 2.5 percent above the Eurodollar rate or 0.5
percent above the Alternative Base rate at our option, as defined in the credit
facility agreement. The interest rate on the revolving credit facility at
December 31, 1999 was 9.0 percent and at June 30, 2000 was 10.0 percent
(unaudited). The interest rate on the term facility at December 31, 1999 was
9.25 percent and at June 30, 2000 was 10.25 percent (unaudited). The term
facility requires monthly principal payments of $238,000. The equipment line of
credit had an interest rate of 9.0 percent at December 31, 1999, and 10.0
percent at June 30, 2000 (unaudited), and requires monthly principal payments of
$8,000 through its maturity in December 2003. Availability on the revolving
credit facility was approximately $2.6 million and $4.3 million (unaudited) at
December 31, 1999 and June 30, 2000, respectively.
The terms of our financing arrangements contain, among other provisions,
limits on capital expenditures and various financial ratios, including debt to
equity. Additionally, we are restricted from paying dividends to our common
stockholders. At December 31, 1999 and at June 30, 2000 (unaudited), we were in
compliance with all loan covenants.
Promissory notes represent amounts payable to our former majority
stockholders. See Note 4 for additional discussion of these notes.
6. INCOME TAXES
The provisions for income taxes are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- ----------------
1997 1998 1999 1999 2000
------ ------ ----- ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal................................ $2,984 $2,021 $(624) $(152) $ 415
Foreign................................ -- -- 61 -- 370
------ ------ ----- ----- -----
Total current.................. 2,984 2,021 (563) (152) 785
</TABLE>
F-12
<PAGE> 71
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- ----------------
1997 1998 1999 1999 2000
------ ------ ----- ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deferred:
Federal................................ (8) 415 374 153 (217)
Foreign................................ -- -- -- -- --
------ ------ ----- ----- -----
Total deferred................. (8) 415 374 153 (217)
Tax benefit of extraordinary item........ -- (473) -- -- --
------ ------ ----- ----- -----
Total provision (benefit)................ $2,976 $1,963 $(189) $ 1 $ 568
====== ====== ===== ===== =====
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
to the consolidated effective tax rate:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
--------------------- JUNE 30,
1997 1998 1999 2000
---- ---- ----- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statutory federal income tax rate.................. 34.0% 34.0% 34.0% 34.0%
International tax rate differences................. 2.8 (7.7) (52.7) (20.8)
Nondeductible items................................ 1.0 1.0 6.8 2.2
Other, net......................................... 1.6 (1.4) (0.1) 0.6
---- ---- ----- -----
39.4 25.9 (12.0) 16.0
Extraordinary item................................. -- (5.1) -- --
---- ---- ----- -----
39.4% 20.8% (12.0)% 16.0%
==== ==== ===== =====
</TABLE>
The components of our deferred tax assets and liabilities, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1998 1999 2000
---- ----- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable reserves........................... $ 64 $ 63 $ 91
Inventory obsolescence reserve......................... 375 170 375
Accrued liabilities.................................... 179 179 171
Cumulative translation adjustment...................... -- -- 41
---- ----- -----
Total deferred tax assets........................... 618 412 678
---- ----- -----
Deferred tax liabilities
Depreciation........................................... 702 870 878
---- ----- -----
Net deferred tax liabilities........................ $(84) $(458) $(200)
==== ===== =====
</TABLE>
F-13
<PAGE> 72
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income (loss) before income taxes and extraordinary item consisted of the
following:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- -----------------
1997 1998 1999 1999 2000
------ ------ ------ ------ -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Domestic operations.................... $8,098 $7,390 $ (770) $(658) $ 197
Foreign operations..................... (554) 2,028 2,348 659 3,359
------ ------ ------ ----- ------
$7,544 $9,418 $1,578 $ 1 $3,556
====== ====== ====== ===== ======
</TABLE>
Taxable income of our Chinese subsidiary is exempt from Chinese income tax
in the first two profit-making years and is allowed a 50 percent tax reduction
to the statutory rate during the subsequent three years. Beginning in fiscal
2000, it is expected this subsidiary will pay taxes at the reduced statutory tax
rate.
7. RETIREMENT PLAN
We have a defined-contribution/401(k) plan covering substantially all
employees. Employees are eligible to participate when they are age 18 or older
and have completed at least six months of service, as defined in the plan.
Profit-sharing contributions to the plan are determined by our Board of
Directors, with certain limitations. No discretionary contributions to the
profit-sharing plan were made during the years ended December 31, 1997, 1998 and
1999 or the six months ended June 30, 1999 (unaudited) and June 30, 2000
(unaudited). In addition, we contribute an amount equal to 50 percent of the
employees 401(k) salary deferral up to a maximum of 3 percent of the employees'
annual compensation. Employer matching contributions to the 401(k) plan during
the years ended December 31, 1997, 1998 and 1999 totaled $105,000, $139,000 and
$161,000, respectively, and for the six months ended June 30, 1999 and 2000,
totaled $81,000 (unaudited), and $84,000 (unaudited), respectively.
8. SUPPLIERS AND OTHER RISK FACTORS
We purchase substantially all of our battery cells, an important component
of our battery products, from two suppliers. Although there are a limited number
of manufacturers of these battery cells, management believes that other
suppliers could provide similar battery cells on comparable terms. A disruption
or termination in the relationship with either of these suppliers, however,
could cause a delay in manufacturing and a possible loss of battery sales that
could materially and adversely affect our financial position and results of
operations.
Certain additional risk factors can materially impact our business,
financial condition and results of operations. These risks include disruption of
our manufacturing process, inability to increase production capacity,
competition, inability to manage our growth, impact of acquisitions,
technological developments, loss of key members of management, loss of major
customers, inability to protect our intellectual property, third party
infringement claims against us, international markets, environmental, and
certain industry risks, such as wireless product market deadlines, governmental
regulation, or health and safety concerns related to wireless handsets.
9. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS. We lease various plant facilities and equipment under
non-cancelable operating leases expiring through the year 2003 with certain
renewal provisions. Rent expense for these leases during the years ended
December 31, 1997, 1998 and 1999 was approximately $317,000, $503,000 and
$667,000, respectively, and $310,000 (unaudited) and $361,000 (unaudited), for
the six months ended June 30, 1999 and
F-14
<PAGE> 73
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000, respectively. The following represents future minimum rental commitments
under non-cancelable operating leases at June 30, 2000 (unaudited):
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
2000 (remaining six months)................................. $349
2001........................................................ 360
2002........................................................ 106
2003........................................................ 44
----
$859
====
</TABLE>
LEGAL PROCEEDINGS. From time to time, we are subject to lawsuits and
claims for various amounts that arise out of the normal course of our business.
In the opinion of management, the disposition of claims currently pending will
not have a material adverse effect on our financial position or results of
operations.
10. STOCKHOLDERS' EQUITY (DEFICIT)
In conjunction with the purchase of Sigma (see Note 3), we issued 197,450
shares of common stock at $8.86 per share and 2,500 shares of Series B preferred
stock at $100 per share to the former owners of Sigma in exchange for $2,000,000
in cash. The newly issued common stock is attached to a put arrangement which
provides that the former owners of Sigma, at their option, could require us to
repurchase all or any portion of the common stock held by them for the same
price at which the shares were issued.
11. PREFERRED STOCK
SERIES A. The Series A preferred stock is convertible at the holders'
option into 2,000,000 shares of our common stock. The Series A preferred stock
accrues dividends based on a prescribed formula which considers, among other
things, our earnings before interest, taxes and amortization. In the event
certain earnings targets are not achieved, no Series A dividend is payable. If
earnings targets are met, the dividend rate will range from a minimum of 7
percent to a maximum of 10 percent. Dividends accrued at December 31, 1998 for
the Series A preferred stock (at a rate of 10 percent), totaled $1,600,000. No
dividends were accrued for 1999. Dividends accrued at June 30, 2000 for the
Series A preferred stock (at a rate of 10 percent), totaled $800,000. During
1998 and 1999, we paid $818,000 and $1,600,000 in dividends, respectively.
SERIES B. The Series B preferred stock is mandatorily redeemable at the
holders' option for the shares' stated value of $100 per share and the amount of
any accrued but unpaid dividends in the event of either a fundamental change in
ownership or a public offering of our common stock. Dividends on the Series B
preferred stock accrue interest at 11% per annum. To the extent we do not meet
specific earnings before interest, taxes and amortization targets in any given
fiscal year, the Series B dividend rate increases to a rate of up to 15% for the
entire subsequent fiscal year. Dividends were accrued at 11% in 1998 and 1999.
For the period ended June 30, 2000, dividends of $746,000 (unaudited) were
accrued at 15% (unaudited). On December 31, 1998, the entire amount of accrued
dividends totaling $1,726,000 were paid. Dividends accrued and unpaid at
December 31, 1999 totaled $987,000. Interest accrues on any unpaid dividends at
the dividend rate on a quarterly basis.
SERIES C. See Note 16 for a discussion of our issuance of Series C
convertible preferred stock in September 2000.
F-15
<PAGE> 74
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SEGMENT REPORTING
We have adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS 131 requires disclosures of selected information
about operating segments and related disclosures about products and services,
geographic areas, and major customers. SFAS 131 requires operating segments to
be determined based on the way management organizes a company for purposes of
making operating decisions and assessing performance. Based on the guidelines of
SFAS 131, we have determined that we have two reportable operating segments
arising from sales of our two main product groups: antennas and power products.
We use gross profit as the bases for evaluating product segment performance
and for deciding how to allocate resources to the two segments. Our management
does not review total assets, depreciation and amortization, or interest expense
by operating segment. The accounting policies for reported segments are the same
as for Centurion as a whole.
GEOGRAPHIC INFORMATION. We maintain manufacturing facilities in North
America, Asia, and Europe. We use the shipments of products from each location
as the basis of attributing sales to individual continents. Intergeographic
sales are accounted for based on the estimated fair market value of the products
sold. In computing income from operations for foreign subsidiaries, no
allocations of corporate expenses have been made. Geographic total asset
information is based on the physical location of the assets at the end of each
fiscal year including intangibles associated with the Sigma acquisition.
Corporate assets are all assets not directly associated with an operating
segment and consist primarily of cash and deferred income taxes. Financial
information relating to our operations and total assets by geographic area is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales:
North America............... $105,231 $104,427 $ 91,938 $42,737 $41,277
Europe...................... -- -- 2,727 -- 3,607
Asia........................ 1,154 10,103 16,815 5,150 18,521
Intergeographic Sales....... (1,174) (2,496) (1,836) (1,488) (943)
-------- -------- -------- ------- -------
Total............... $105,211 $112,034 $109,644 $46,399 $62,462
======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ----------------
1997 1998 1999 1999 2000
------- ------- ------ ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income from operations:
North America..................... $10,870 $10,995 $1,678 $ 469 $1,645
Asia.............................. (539) 2,174 2,686 947 3,258
Europe............................ -- (111) (84) (172) 10
------- ------- ------ ------ ------
$10,331 $13,058 $4,280 $1,244 $4,913
======= ======= ====== ====== ======
</TABLE>
F-16
<PAGE> 75
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Total Assets:
North America....................................... $37,568 $34,743 $31,503
Europe.............................................. -- 8 6,694
Asia................................................ 2,173 5,617 6,821
Corporate........................................... 1,355 4,004 4,318
------- ------- -------
$41,096 $44,372 $49,336
======= ======= =======
</TABLE>
Information on our two operating segments for the three years ended
December 31, 1997, 1998 and 1999, and for the six months ended June 30, 1999 and
2000, is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales:
Antennas.................... $ 42,704 $ 55,306 $ 56,654 $24,989 $30,252
Power products.............. 62,507 56,728 52,990 21,410 32,210
-------- -------- -------- ------- -------
$105,211 $112,034 $109,644 $46,399 $62,462
======== ======== ======== ======= =======
Gross Profit:
Antennas.................... $ 10,752 $ 17,286 $ 12,725 $ 5,239 $ 8,223
Power products.............. $ 9,149 $ 7,606 $ 4,954 $ 1,791 $ 3,661
-------- -------- -------- ------- -------
$ 19,901 $ 24,892 $ 17,679 $ 7,030 $11,884
======== ======== ======== ======= =======
</TABLE>
DEPENDENCE ON MAJOR CUSTOMERS. Our customer Ericsson accounted for 53%,
51%, 49%, 45% and 55% of our net sales for the years ended December 31, 1997,
1998, 1999 and for the six months ended June 30, 1999 and 2000 (unaudited),
respectively. Our customer Motorola accounted for 29%, 29%, 27%, 27% and 28% for
the years ended December 31, 1997, 1998, 1999 and for the six months ended June
30, 1999 and 2000 (unaudited), respectively.
The sales percentages also approximate the concentration in trade
receivables from these two major customers.
13. STOCK OPTION PLANS
During 1997, we adopted the 1997 Stock Option Plan whereby 638,300 shares
(subsequently amended to 1,250,000 shares) of our common stock have been
reserved for issuance to eligible employees in the form of nonqualified or
incentive stock options. The 445,000 options outstanding under the 1997 Plan as
of June 30, 2000 (unaudited) vest ratably over four years and have a term of ten
years.
During 2000, we adopted the 2000 Non-Employee Director Option Plan whereby
200,000 shares of our common stock have been reserved for issuance to our
non-employee directors in the form of nonqualified stock options. The 75,000
options outstanding under the 2000 Plan at June 30, 2000 (unaudited) vest
ratably over four years and generally have a term of ten years.
F-17
<PAGE> 76
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------ ---------------------------------------
1997 1998 1999 1999 2000
------------------ ------------------ ------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period.................... -- $0.00 300,000 $0.29 387,500 $0.55 387,500 $0.55 387,500 $0.55
Granted................... 300,000 $0.29 87,500 $1.46 -- $0.00 -- $0.00 132,500 $2.87
Exercised................. -- $0.00 -- $0.00 -- $0.00 -- $0.00 -- $0.00
Forfeited................. -- $0.00 -- $0.00 -- $0.00 -- $0.00 -- $0.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Outstanding, end of
period.................... 300,000 $0.29 387,500 $0.55 387,500 $0.55 387,500 $0.55 520,000 $1.14
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Options exercisable at
period end................ -- 75,000 171,875 162,500 259,325
------- ------- ------- ------- -------
Weighted average fair value
of options granted during
the period................ $0.14 $0.58 N/A N/A $1.29
----- ----- ----- ----- -----
Options available for
grant..................... 338,300 250,800 250,800 250,800 118,300
======= ======= ======= ======= =======
</TABLE>
Additional information relating to stock options outstanding and
exercisable at December 31, 1999, summarized by exercise price is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.29 300,000 6.9 $0.29 150,000 $0.29
$1.20 50,000 7.8 $1.20 12,500 $1.20
$1.80 37,500 8.5 $1.80 9,375 $1.80
------- --- ----- ------- -----
387,500 7.2 $0.55 171,875 $0.44
======= === ===== ======= =====
</TABLE>
In the six months ended June 30, 2000, we granted 132,500 stock options at
a weighted average exercise price of $2.87 per share. On the grant dates, the
deemed fair value of the options was $5.26 and was in excess of the exercise
price for the total of all options granted during such period by approximately
$316,000. Accordingly, we have recognized such excess as deferred compensation
which will be amortized to expense over the four-year vesting period of these
options.
Subsequent to June 30, 2000, we granted 112,500 additional stock options
with a weighted average exercise price of $9.22 per share. On the grant dates,
the deemed fair value of the options was in excess of the exercise price by
approximately $139,000. Accordingly, we will recognize such excess as additional
deferred compensation which will be amortized to expense over the four-year
vesting period of these options.
As permitted, we have adopted the disclosure only provisions of SFAS No.
123. Accordingly, no compensation expense, except as specifically described
above, has been recognized for the stock option plans. Had compensation expense
been determined based on the fair value at the dates of grant consistent with
the
F-18
<PAGE> 77
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provisions of SFAS No. 123, our net income per share would have been reported as
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net income (loss) applicable to common
stockholders:
As reported............................ $ 3,064 $ 3,425 $ 780 $ (476) $ 1,442
Pro forma.............................. 3,053 3,400 722 (507) 1,416
Diluted net income (loss) per share:
As reported............................ $ 0.38 $ 0.42 $ 0.07 $ (0.06) $ 0.17
Pro forma.............................. 0.38 0.41 0.07 (0.06) 0.16
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the minimum value method, using an expected life of 10 years, a zero
expected dividend yield and a risk free interest rate of 5.2% to 6.5%.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
14. HISTORICAL EARNINGS PER SHARE
Basic and diluted net income (loss) per share ("EPS") are presented on the
face of our consolidated financial statements of operations. Conversion of our
Series A convertible preferred stock is not assumed for periods in which the
conversion would have an antidilutive effect. A reconciliation of the EPS
numerator is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- -----------------
1997 1998 1999 1999 2000
------ ------ ------ ------- ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss) available for common
stockholders................................ $3,064 $3,425 $ 780 $ (476) $1,442
Adjustments:
Dividends on convertible preferred stock.... -- -- -- -- --
------ ------ ------ ------- ------
Adjusted net income available to common
stockholders................................ $3,064 $3,425 $ 780 $ (476) $1,442
====== ====== ====== ======= ======
</TABLE>
The reconciliation of the EPS denominator is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ----------------
1997 1998 1999 1999 2000
----- ----- ------ ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding-basic......... 8,000 8,000 8,097 8,000 8,197
Dilutive impact of stock options.................. 112 232 308 -- 388
Dilutive impact of convertible preferred stock.... -- -- 2,000 -- --
----- ----- ------ ----- -----
Weighted average shares outstanding-diluted....... 8,112 8,232 10,405 8,000 8,585
===== ===== ====== ===== =====
</TABLE>
F-19
<PAGE> 78
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. UNAUDITED PRO FORMA EARNINGS PER SHARE AND PRO FORMA STOCKHOLDERS' EQUITY
(DEFICIT)
Upon the closing of our initial public offering (see Note 16), all
outstanding Series A convertible preferred stock will be converted into our
common stock and all outstanding Series B redeemable preferred stock will be
redeemed.
Pro forma basic and diluted net income (loss) per share have been computed
to give effect to common equivalent shares from Series A convertible preferred
stock and to include Series C convertible preferred stock issued in September
2000 (see Note 16), that will convert upon the closing of our initial public
offering (using the as-if-converted method) for the year ended December 31, 1999
and the unaudited six months ended June 30, 1999 and 2000. The computation also
includes the pro forma effect of the redemption of the Series B redeemable
preferred stock and the pro forma effects of the Xertex acquisition (see Note
16).
The reconciliation of the numerator used in the calculation of pro forma
basic and diluted net income (loss) per common shares is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1999 1999 2000
------------ ------ -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss) available for common shares............... $ 780 $(476) $1,442
Adjustments:
Pro forma effects of Xertex acquisition................... (300) (150) (150)
Dividends on convertible preferred stock.................. -- -- 800
Dividends on Series B redeemable preferred stock.......... 987 476 746
Pro forma adjusted net income available for common shares... $1,467 $(150) $2,838
====== ===== ======
</TABLE>
F-20
<PAGE> 79
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of the denominator used in the calculation of pro forma
basic and diluted net income (loss) per common shares is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------
1999 1999 2000
------------ ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Denominator (basic):
Weighted average common shares outstanding.................. 8,097 8,000 8,197
Adjustment for Xertex acquisition........................... 217 217 217
Adjustments to reflect assumed conversion of convertible
preferred stock from the date of issuance:
Series A.................................................. 2,000 2,000 2,000
Series C.................................................. 1,444 1,444 1,444
------ ------ ------
Weighted average shares used in computing basic pro forma
net income (loss) per share............................... 11,758 11,661 11,858
====== ====== ======
Denominator (diluted):
Weighted average common shares outstanding.................. 8,097 8,000 8,197
Adjustment for Xertex acquisition........................... 217 217 217
Dilutive impact from common stock options................... 308 -- 388
Adjustments to reflect assumed conversion of convertible
preferred stock from the date of issuance:
Series A.................................................. 2,000 2,000 2,000
Series C.................................................. 1,444 1,444 1,444
------ ------ ------
Weighted average shares used in computing diluted pro forma
net income (loss) per share............................... 12,066 11,661 12,246
====== ====== ======
</TABLE>
16. SUBSEQUENT EVENTS
FINANCING. On September 6, 2000, we issued 1,444,042 shares of Series C
convertible preferred stock to accredited investors in a private offering. Net
proceeds from the financing were approximately $20.0 million, or $13.85 per
share. In connection with the offering, we amended our Articles of Incorporation
to authorize 1,500,000 shares of Series C convertible preferred stock, par value
$0.01. Dividends on the Series C convertible preferred stock accrue at a rate of
8% per annum. The stock is redeemable at the option of the holders after five
years.
ACQUISITION. On September 11, 2000, we entered into a merger agreement
with Xertex Technologies, Inc. (Xertex) located in Broomfield, Colorado. Xertex
designs, manufactures and sells antennas and antenna products based on their
patented and patent pending technologies. In conjunction with the merger, we
will pay the shareholders of Xertex approximately $750,000 and issue 216,607
shares of our common stock. In addition, we will convert any outstanding Xertex
stock options into options to purchase our common stock. Included within the
merger agreement is a provision requiring that in the event the acquired
operations meet certain 2001 revenue targets, we will provide additional
consideration of 27,076 shares of common stock to certain Xertex shareholders.
The acquisition will be accounted for using the purchase method of accounting.
If issued, the additional consideration will result in additional purchase
price. We are currently evaluating the purchase price allocation related to the
merger, but expect a significant portion of the purchase price to be allocated
to goodwill. Xertex's results of operations prior to the acquisition were not
material.
F-21
<PAGE> 80
CENTURION WIRELESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INITIAL PUBLIC OFFERING. In September 2000, our Board of Directors
authorized management to file a registration statement with the Securities and
Exchange Commission to permit us to offer shares of common stock to the public.
Our Board of Directors also authorized a name change from Centurion
International, Inc. to Centurion Wireless Technologies, Inc., and a change in
the state of incorporation from Nebraska to Delaware, and an increase in our
capitalization to 13,500,000 shares of common stock. In addition, the Board of
Directors approved a ten-for-one stock split. All share and per share amounts in
these financial statements have been adjusted to reflect the impact of the stock
split. If the offering is consummated under terms presently anticipated, all
outstanding shares of Series A convertible preferred stock will convert into
2,000,000 shares of common stock. In addition, all outstanding shares of Series
B redeemable preferred stock will be redeemed for $8,500,000.
SUBSEQUENT TRANSACTIONS (UNAUDITED). In September 2000, we redeemed 2,500
shares of Series B preferred stock held by the former owners of Sigma for
$250,000 plus accrued dividends. In addition, a group of our stockholders
purchased the 197,450 shares of putable common stock held by the former owners
of Sigma for approximately $2,567,000.
F-22
<PAGE> 81
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES
[LOGO]
------------------------------
Prospectus
, 2000
------------------------------
BANC OF AMERICA SECURITIES LLC
CHASE H&Q
U.S. BANCORP PIPER JAFFRAY
C.E. UNTERBERG, TOWBIN
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 various
allotments or subscriptions.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Centurion in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $21,252.00
NASD filing fee............................................. 8,550.00
Nasdaq National Market listing fee.......................... 90,000.00
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. 3,000.00
Transfer agent and registrar fees........................... *
Miscellaneous expenses...................................... *
==========
Total............................................. *
</TABLE>
------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article Fifth of our amended and restated certificate of incorporation
provides for the indemnification of directors and officers to the fullest extent
permissible under Delaware law.
Article Fifth of our articles of incorporation also provides for the
indemnification of officers, directors and third parties acting on our behalf if
such person acted in good faith and in a manner reasonably believed to be in and
not opposed to our best interest, and, with respect to any criminal action or
proceeding, the indemnified party had no reason to believe his or her conduct
was unlawful.
Reference is also made to Section 8(a) of the Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of
Centurion against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our inception, we have issued unregistered securities to a limited
number of persons, as described below. None of these 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, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each such 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 such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
On September 6, 2000, we issued 1,444,042 shares of Series C convertible
preferred stock, $0.01 par value, at $13.85 per share, or approximately $20.0
million in total, to Cornerstone Equity Investors IV, L.P., Prudential Private
Equity Investors III, L.P., Kuck Investment Partners, L.P., State of Wisconsin
Investment
II-1
<PAGE> 83
Board, Randolph Street Partners III, K&E Investment Partners, LLC-2000DIF and
certain individuals. The Series C convertible preferred stock will automatically
convert to 1,444,042 shares of common stock immediately prior to the
consummation of this offering.
On April 18, 1997, we issued 85,000 shares of Series B redeemable preferred
stock, $0.01 par value, at $100 per share, or $8,500,000 in total, to
Cornerstone Equity Investors IV, L.P. and Prudential Private Equity Investors
III, L.P. On July 5, 1999, we issued 2,500 shares of Series B redeemable
preferred stock, $0.01 par value, at $100 per share, or $250,000 in total, to
Anthony Boyle, Michael McGinley and Peter Crowley. The Series B redeemable
preferred stock will be redeemed for a total amount of $8,750,000
contemporaneously with the consummation of this offering.
On April 18, 1997, we issued 160,000 shares of Series A convertible
preferred stock, as well as $27,000,000 in cash and $3,000,000 in holdback
notes, in exchange for 90 shares of common stock, to Kuck Investment Partners,
L.P., Scott M. Kuck and Lance J. Kuck. The Series A convertible preferred stock
will automatically convert to 2,000,000 shares of common stock immediately prior
to the consummation of this offering.
On April 18, 1997, we issued 7,000,000 shares of our common stock, $0.01
par value, at $0.29 per share, or $2,030,000 in total to Cornerstone Equity
Investors IV, L.P., Prudential Private Equity Investors III, L.P., and P.
Jackson Bell. On that date, we issued 1,000,000 shares of our common stock,
$0.01 par value, to Kuck Investment Partners, L.P. in exchange for the
cancellation of 10 shares of common stock. On June 2, 1999, we issued 197,450
shares of our common stock, $0.01 par value, for a total purchase price of
$1,750,000 to Anthony Boyle, Michael McGinley and Peter Crowley.
From inception to September 15, 2000, we have not issued and sold any
shares of our common stock to employees, consultants, and directors pursuant to
the exercise of options granted under our stock option plans.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1 Underwriting Agreement.*
2.1 Recapitalization Agreement, dated April 18, 1997, by and
among the Registrant, certain stockholders of the
Registrant, Cornerstone Equity Investors IV, L.P., and
certain other purchasers.
2.2 Asset and Share Purchase Agreement, dated as of June 2,
1999, by and among the Registrant and Sigma Wireless
Technologies Ltd.
2.3 Amendment to Asset and Share Purchase Agreement, dated as of
June 2, 1999, by and among the Registrant and Sigma Wireless
Technologies Ltd.
2.4 Agreement and Plan of Merger, dated as of September 12,
2000, by and among Xertex Acquisition Company, Xertex
Technologies, Inc. and the Registrant.
3.1 Certificate of Incorporation.
3.2 By-Laws.
3.3 Amended and Restated Certificate of Incorporation.*
3.4 Amended and Restated By-Laws.*
4.1 Amended and Restated Registration Rights Agreement, dated as
of September 6, 2000, by and among the Registrant,
Cornerstone Equity Investors IV, L.P., Prudential Private
Equity Investors III, L.P., Kuck Investment Partners, L.P.,
James A. Boyle, Michael McGinley, Peter Crowley, Randolph
Street Partners III, K&E Investment Partners, LLC-2000DIF,
P. Jackson Bell, Behlman Family Revocable Trust, and the
State of Wisconsin Investment Board.
4.2 Specimen Common Stock Certificate.*
5.1 Opinion of Kirkland & Ellis.*
10.1 Centurion Wireless Technologies, Inc. 1997 Stock Option
Plan.
</TABLE>
II-2
<PAGE> 84
<TABLE>
<C> <S>
10.2 Centurion Wireless Technologies, Inc. 2000 Non-Employee
Director Option Plan.*
10.3 Letter Agreement, dated July 21, 2000, between the
Registrant and Donald C. Naab.
10.4 Letter Agreement, dated August 17, 1999, between the
Registrant and Yenho K. Tree.
10.5 Consultancy Agreement, dated July 5, 1999, between Sigma
Wireless Technologies Limited, Centurion International,
Limited and the Registrant.
10.6 Subscription Agreement, dated as of June 2, 1999, by and
among the Registrant, Cornerstone Equity Investors IV, L.P.,
Prudential Private Equity Investors III, L.P., Kuck
Investment Partners, L.P., and James Anthony Boyle, Michael
McGinley, and Peter Crowley.
10.7 Securities Purchase Agreement, dated as of September 6,
2000, by and among Cornerstone Equity Investors IV, L.P.,
the State of Wisconsin Investment Board, Prudential Private
Equity Investors III, L.P., Randolph Street Partners III,
K&E Investment Partners, LLC-2000DIF, Kuck Investment
Partners, L.P., P. Jackson Bell, Behlman Family Revocable
Trust, and the Registrant.
10.8 Revolving Credit, Term Loan and Security Agreement, dated
December 30, 1998, among the Registrant, certain financial
institutions, and PNC Bank, National Association.
10.9 Patent License Agreement, dated October 12, 1998, between
Ericsson Inc. and the Registrant.+
10.10 Patent License Agreement, dated July 5, 1999, between
Finglas Technologies Limited and Centurion International,
Limited.
10.11 Side Letter, dated July 2, 1999, between Finglas
Technologies Limited and Centurion International, Limited.
10.12 Option Agreement, dated July 5, 1999, between Finglas
Technologies Limited and the Registrant.
10.13 Development Agreement, dated July 7, 2000, between Dell
Computer Corporation and the Registrant.+
10.14 Lease Agreement, dated July 15, 1997, by and between
Campbell Properties Corporation and the Registrant.
10.15 Addendum to Lease Agreement, dated September 18, 2000, by
and between Campbell Properties Corporation and the
Registrant.
10.16 Lease Agreement, dated July 5, 1999, by and between Anthony
Boyle, Peter Crowley and Michael McGinley and Centurion
Operations Limited, formerly Sigma Wireless (UK) Limited.
10.17 Lease Contract, dated November 25, 1999, between Shanghai
Changzheng Nonggongshang Company and Centurion Electronics
Shanghai.
10.18 Tenancy Agreement, dated April 28, 2000, between Palm Peak
Trading Sdn. Bhd. and Centurion Wireless Components (M) Sdn.
Bhd.
10.19 Sublease Agreement, dated April 9, 1999, between AMS
Tijuana, S.A. de C.V. and Centurion International Mexico,
S.A. de C.V.
10.20 Addendum to Sublease Agreement, dated March 6, 2000, between
AMS Tijuana, S.A. de C.V. and Centurion International
Mexico, S.A. de C.V.
21.1 List of subsidiaries of the Registrant.
23.1 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (on signature page).
27.1 Financial Data Schedule, period ended December 31, 1999.
27.2 Financial Data Schedule, period ended June 30, 2000.
</TABLE>
------------
* To be filed by amendment.
+ A request for confidential treatment was filed for portions of this document.
Confidential portions have been omitted and filed separately with the
Commission as required by Rule 406.
II-3
<PAGE> 85
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
We hereby undertake that:
(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 the Registrant 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> 86
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lincoln, State of
Nebraska, on the 22nd day of September, 2000.
Centurion Wireless Technologies, Inc.
By: /s/ GARY L. KUCK
------------------------------------
Gary L. Kuck, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gary L. Kuck, Mark Rossi and Robert H.
Getz and each of them, his attorneys-in-fact, each with the power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, as amended, and all post-effective amendments thereto, and to file the
same, with all exhibits thereto and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY L. KUCK President and Chief Executive September 22, 2000
--------------------------------------------------- Officer, Director (Principal
Gary L. Kuck Executive Officer)
/s/ WILLIAM E. CAMPBELL Chief Financial Officer September 22, 2000
--------------------------------------------------- (Principal Financial
William E. Campbell Officer)
/s/ CRAIG A. JESSEN Controller September 22, 2000
--------------------------------------------------- (Principal Accounting
Craig A. Jessen Officer)
/s/ SUSAN J. KUCK Executive Vice President, September 22, 2000
--------------------------------------------------- Director
Susan J. Kuck
/s/ ROBERT G. BEHLMAN Director September 22, 2000
---------------------------------------------------
Robert G. Behlman
</TABLE>
II-5
<PAGE> 87
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ P. JACKSON BELL Director September 22, 2000
---------------------------------------------------
P. Jackson Bell
/s/ JOHN A. DOWNER Director September 22, 2000
---------------------------------------------------
John A. Downer
/s/ ROBERT H. GETZ Director September 22, 2000
---------------------------------------------------
Robert H. Getz
/s/ MARK ROSSI Director September 22, 2000
---------------------------------------------------
Mark Rossi
</TABLE>
II-6
<PAGE> 88
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE OF
CENTURION WIRELESS TECHNOLOGIES, INC.
To Centurion Wireless Technologies, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Centurion Wireless
Technologies, Inc. (a Delaware corporation) (formerly Centurion International,
Inc. -- a Nebraska corporation) and subsidiaries included in this registration
statement and have issued our report thereon dated September 18, 2000. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule of Centurion Wireless Technologies, Inc.,
"Schedule II -- Valuation and Qualifying Accounts," is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
September 18, 2000
S-1
<PAGE> 89
CENTURION WIRELESS TECHNOLOGIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for Doubtful Accounts................... $ 184 $ -- $ -- $ 184
Inventory Obsolescence Reserve.................... 1,500 410 -- 1,910
------ ---- ------- ------
1,684 410 -- 2,094
====== ==== ======= ======
Year ended December 31, 1998
Allowance for Doubtful Accounts................... $ 184 $ -- $ -- $ 184
Inventory Obsolescence Reserve.................... 1,910 385 (1,351) 944
------ ---- ------- ------
2,094 385 (1,351) 1,128
====== ==== ======= ======
Year ended December 31, 1999
Allowance for Doubtful Accounts................... $ 184 $ -- $ -- $ 184
Inventory Obsolescence Reserve.................... 944 100 (544) 500
------ ---- ------- ------
$1,128 $100 $ (544) $ 684
====== ==== ======= ======
</TABLE>
S-2
