<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number: 0-15895
June 30, 1998
- -------------
DIGITAL MICROWAVE CORPORATION
-----------------------------
(Exact name of registrant specified in its charter)
Delaware 77-0016028
- ------------------------------- ----------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
170 Rose Orchard Way
San Jose, CA 95134
- ------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408)943-0777
-------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of outstanding shares of the Registrant's common stock, par value
$.01 per share, was 46,689,392 on July 31, 1998.
<PAGE>
INDEX
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PAGE
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
PART II - OTHER INFORMATION
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18-19
SIGNATURE 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
6/30/98 03/31/98
------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $14,764 $ 25,130
Short-term investments 6,637 15,220
Accounts receivable, net 60,303 74,897
Inventories 65,981 60,981
Deferred tax asset 6,321 6,685
Other current assets 8,819 8,896
------- --------
Total current assets 162,825 191,809
PROPERTY AND EQUIPMENT, NET 32,906 32,528
OTHER ASSETS 15,352 16,063
------- --------
Total assets $ 211,083 $240,400
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital
lease obligations $ 128 $ 238
Accounts payable 27,002 33,793
Income taxes payable 736 1,298
Accrued liabilities 20,542 26,373
------ ------
Total current liabilities 48,408 61,702
LONG-TERM LIABILITIES:
Capital lease obligations, net of
current maturities 185 204
------ ------
Total liabilities 48,593 61,906
STOCKHOLDERS' EQUITY
Common Stock and paid-in capital 159,346 159,173
Accumulated other comprehensive income (3,829) (1,615)
Retained earnings 6,973 20,936
------- -------
Total stockholders' equity 162,490 178,494
Total liabilities and stockholders' equity $ 211,083 $240,400
------- -------
------- -------
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $53,003 $ 64,558
Cost of sales 41,660 41,346
------ ------
Gross profit 11,343 23,212
------ ------
Operating expenses:
Research and development 4,975 4,299
Selling, general and administrative 13,996 12,907
Restructuring costs 7,212 -
------ ------
Total operating expenses 26,183 17,206
------ ------
Operating (loss) income (14,840) 6,006
Other income (expense):
Interest income 424 629
Interest expense (27) (203)
Other expense, net 508 60
--- ----
Income (loss) before provision for income taxes (13,935) 6,492
Provision for income taxes 27 682
----- ---
Net income (loss) $ (13,962) $ 5,810
----------- --------
----------- --------
Basic earnings (loss) per share $ (0.30) $ 0.14
----------- --------
----------- --------
Diluted earnings (loss) per share $ (0.30) $ 0.13
---------- --------
---------- --------
Basic weighted average shares outstanding 46,682 42,763
Dilutive stock options - 1,992
--------- -------
Diluted weighted average shares outstanding 46,682 44,755
--------- -------
--------- -------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
<S> <C> <C>
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (13,962) $ 5,810
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 3,289 2,203
Provision for valuation reserves 4,909 883
Provision for warranty reserves 1,975 606
Changes in assets and liabilities, net of
effect of acquisition:
Decrease (increase) in accounts receivable 12,617 (2,921)
Increase in inventories (9,404) (5,323)
Decrease (increase) in deferred tax asset 238 (777)
Increase in other current assets (1,310) (80)
Increase (decrease) in accounts payable (6,297) 848
Increase (decrease) in income tax payable (565) 816
Decrease in other accrued liabilities (7,264) (10,131)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (15,774) (8,066)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (6,132) (991)
Proceeds from available-for-sale securities 14,625 3,823
Acquisition of businesses, net of cash acquired - (11,883)
Investment in Granger Associates Ltd. - (4,000)
Proceeds from the sale of investments 461 -
Purchases of property and equipment (5,883) (3,523)
------ -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,071 (16,574)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to bank - (6,849)
Payment of capital lease obligations (130) (247)
Payment of assumed acquisition debt - (3,286)
Sale of common stock 171 26,009
------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 41 15,627
Effect of exchange rate changes on cash 2,296 364
------- ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,366) (8,649)
Cash and cash equivalents at beginning of year 25,130 39,908
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $14,764 $31,259
------- -------
------- -------
SUPPLEMENTAL DATA
Interest paid $ 27 $ 204
Income taxes paid $ 565 $ 464
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
DIGITAL MICROWAVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Digital Microwave Corporation and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated.
While the financial information furnished is unaudited, the financial
statements included in this report reflect all adjustments (consisting only
of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the results of operations for the interim periods
covered and of the financial condition of the Company at the date of the
interim balance sheet. The results for interim periods are not necessarily
indicative of the results for the entire year. The condensed consolidated
financial statements should be read in connection with the Digital
Microwave Corporation financial statements included in the Company's annual
report and Form 10-K for the Fiscal year ended March 31, 1998.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
where cost includes material, labor and manufacturing overhead.
Inventories consist of:
<TABLE>
<CAPTION>
(In thousands)
June 30, 1998 March 31, 1998
------------- --------------
(Unaudited)
<S> <C> <C>
Raw materials $ 27,292 $ 23,524
Work in process 15,761 18,545
Finished goods 22,928 18,912
--------- ---------
$ 65,981 $ 60,981
--------- ---------
--------- ---------
</TABLE>
OTHER ASSETS
Included in other assets are goodwill and other intangibles which
are being amortized on a straight line basis over their useful
lives ranging from 5 to 10 years.
6
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RESTRUCTURING COSTS
The restructuring costs of $7.2 million consist of a $5.8 million write-off
related to the discontinuance of internal information technology systems
projects and a write-off of $1.4 million related to severance and other
related costs associated with a reduction in the Company's workforce.
CURRENCY TRANSLATION
The functional currency of the Company's subsidiaries located in the United
Kingdom and Latin America is the U.S. dollar. Accordingly, all of the
monetary assets and liabilities of these subsidiaries are remeasured into
U.S. dollars at the current exchange rate as of the applicable balance
sheet date, and all non-monetary assets and liabilities are remeasured at
historical rates. Sales and expenses are remeasured at the average exchange
rate prevailing during the period. Gains and losses resulting from the
remeasurement of the subsidiaries' financial statements are included in the
Consolidated Statements of Operations. The Company's other international
subsidiaries use their local currency as their functional currency. Assets
and liabilities of these subsidiaries are translated at the exchange rates
in effect at the balance sheet date, and income and expense accounts are
translated at the average exchange rates during the year. The resulting
translation adjustments are recorded directly to a separate component of
stockholders' equity.
FINANCIAL INSTRUMENTS
The Company enters into forward foreign exchange contracts to hedge some of
its firm committed backlog and certain assets and liabilities denominated
in foreign currencies. At June 30, 1998, the Company had forward foreign
exchange contracts to exchange various foreign currencies for U.S. dollars
in the gross amount of $17.6 million. Market value gains and losses on
forward foreign exchange contracts are recognized as offsets to the
exchange gains or losses on the hedged transactions.
NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement on Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share," which became effective on December 15, 1997. As a
result, the Company's reported earnings per share, after adjustment for the
November 1997 stock split, were restated for all prior periods presented.
Under SFAS 128, basic earnings per share are computed by dividing net
income by the weighted average number of common shares outstanding during
the period. Diluted earnings per share are computed by dividing net
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<PAGE>
income by the weighted average number of common shares and dilutive stock
options outstanding during the period. Net loss per share is computed using
only the weighted average number of common shares outstanding during the
period, as the inclusion of common equivalent shares would be
anti-dilutive.
MERGERS AND ACQUISITIONS
In May 1997, the Company acquired all of the outstanding shares of Granger,
Inc., a U.S. manufacturer of wireless products and provider of installation
services. The purchase price of Granger, Inc., including the assumption of debt
and the purchase of certain product rights, totaled $14.7 million. A portion of
the purchase price was allocated to the net assets acquired based on their
estimated fair values. The fair value of the tangible assets acquired and
liabilities assumed was $5.8 million and $1.9 million, respectively. The
purchase price in excess of the net assets acquired of $10.8 million is recorded
as goodwill on the accompanying balance sheet and is being amortized over 10
years. The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the accompanying financial statements include the
results of Granger, Inc. since the date of acquisition. No pro forma financial
statements for the periods presented have been provided as the pro forma amounts
are not materially different from the amounts as presented.
In addition, concurrent with the acquisition of Granger, Inc., the Company made
a minority investment in Granger Associates, Ltd., a privately held company
based in the United Kingdom, for $4.0 million. This minority investment has been
accounted for using the cost method of accounting. In April 1998, the Company
sold approximately 10% of this investment for $460,000, net of selling costs.
In March 1998, the Company's stockholders approved the issuance of Common Stock
of the Company pursuant to an agreement to merge with MAS Technology Limited
("MAS Technology"), a New Zealand company, which designs, manufactures, markets
and supports digital microwave radio links for the worldwide telecommunications
market. Under the terms of the agreement, the Company exchanged 1.2 shares of
its Common Stock for each outstanding share of MAS Technology stock and stock
options. The Company issued approximately 8.4 million shares to MAS Technology
share and option holders. The combination qualified as a tax-free reorganization
accounted for as a pooling-of-interests transaction. Accordingly, the historical
financial statements of the Company have been restated to reflect the results of
MAS Technology for all periods presented.
The following table shows the reconciliation of the historical results of the
Company to the results presented in the accompanying Statements of Operations
for the quarter ended June 30, 1997.
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Revenue: Digital Microwave $56,733
MAS Technology 9,564
Intercompany sales (1,739)
-------
Total $64,558
------
Net Income: Digital Microwave $5,785
MAS Technology (4)
Intercompany profit
eliminations 29
------
Total $5,810
-----
</TABLE>
LITIGATION AND CONTINGENCIES
The Company is subject to legal proceedings and claims that arise in
the normal course of its business. In the opinion of management,
these proceedings will not have a material adverse effect on the
financial position and results of operations of the Company.
CONCENTRATION OF CREDIT RISK
Trade receivables concentrated with certain customers primarily
in the telecommunications industry and in certain geographic
locations potentially subject the Company to concentration of
credit risk. In addition to sales in Western Europe and North
America, the Company actively markets and sells products in Asia,
Eastern Europe, South America, the Middle East and Africa. The
Company performs on-going credit evaluations of its customers'
financial conditions and generally requires no collateral,
although sales to Asia, Eastern Europe, South America, the Middle
East and Africa are primarily paid through letters of credit.
The Company will continue to be affected, for the foreseeable future,
by the unstable economies in Asia. Further, it is not possible to
determine the future effect a continuation of the economic crisis may
have on the Company's liquidity and earnings. Related effects will be
reported in the financial statements as they become known and
estimable.
CREDIT ARRANGEMENTS
During June and July 1998, the Company amended its agreement with
a major U.S. bank to increase the unsecured credit facility from
$20 million to $25 million, extend the expiration date of the
agreement to September 30, 1998, and to change certain other
terms of the agreement.
SUBSEQUENT EVENT
On July 22, 1998, the Company signed a definitive agreement to
merge with Innova Corporation, a Washington corporation which
designs, manufactures, markets and supports millimeter wave
radios for use as low-to-medium
9
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capacity wireless communication links in developed and developing
telecommunications markets. Subject to the conditions described below,
under the terms of the agreement, the Company will exchange 1.05 shares
of its Common Stock for each outstanding share of common stock of Innova.
In addition, the Company will exchange stock options and warrants
using the same ratio. The Company expects to issue approximately
18.5 million shares to Innova shareholders, option and warrant
holders. Based upon the capitalization of Digital Microwave and
Innova as of July 22, 1998, Innova shareholders will own
approximately 27% of the Company's outstanding Common Stock
following consummation of the proposed merger, assuming no
exercise of outstanding options to acquire the Common Stock of
Digital Microwave or the common stock of Innova. The merger is
intended to qualify as a tax-free reorganization and will be
accounted for as a pooling-of-interests transaction. This
transaction, which has been approved by the Board of Directors
of each company, is expected to close within approximately 90
days subject to regulatory review, approval by each company's
stockholders and other customary closing conditions. There can
be no assurance, however, that the proposed merger will be
consummated by the Company.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement on Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains
and losses) in a full set of general-purpose financial
statements. The following table reconciles comprehensive income
under the provisions of SFAS 130 for the three months ended June
30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Net income (loss) $ (13,962) $ 5,810
Other comprehensive loss,
net of tax
Unrealized currency loss (2,213) (224)
Unrealized holding gain on
short investments - 74
-------- ------
Comprehensive income (loss) $ (16,175) $ 5,660
-------- ------
-------- ------
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement on Financial Accounting
Standards No. 133 ("SFAS 133") "Accounting for Derivative and
Similar Financial Instruments and for Hedging Activities" which
requires companies to value derivative financial instruments,
including those used for hedging
10
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foreign currency exposures, at current market value with the impact of any
changes in market value being charged against earnings. The Company must
adopt SFAS 133 in the first quarter of the fiscal year ended March 31,
2000. The Company has not determined the effect that SFAS 133 will have on
its financial statements.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain items
from the Company's Condensed Consolidated Statements of Operations as
percentages of net sales:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
<S> <C> <C>
1998 1997
---- ----
Net sales 100.0% 100.0%
Cost of sales 78.6 64.0
---- ----
Gross profit 21.4 36.0
Research & development 9.4 6.7
Selling, general & administrative 26.4 20.0
Restructuring costs 13.6 -
---- ----
Operating income (loss) (28.0) 9.3
Other income, net 1.7 0.8
--- ---
Income (loss) before provision for income taxes (26.3) 10.1
Provision for income taxes - 1.1
---- ---
Net income (26.3)% 9.0%
------- ----
------- ----
</TABLE>
Net sales for the first quarter of Fiscal 1999 were $53.0 million, compared to
$64.6 million reported in the same quarter of Fiscal 1998. The decrease in net
sales was primarily due to a slowdown in demand for the Company's products in
Asia, which began with the downturn in Asian economies. However, such decrease
in the Company's net sales has been accelerated by the heightened pricing and
competitive pressures of the telecommunications market in other regions of the
world. As a result, revenues from Asia and Europe in the first quarter of
Fiscal 1999 significantly decreased from the comparable period of the prior
year.
11
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During the first quarter of Fiscal 1999, the Company received $48.5 million in
new orders shippable over the next twelve months, compared to $83.2 million in
the first quarter of Fiscal 1998. Twelve month backlog at June 30, 1998 was
$71.2 million, compared to $83.2 million at March 31, 1998.
The Company includes in its backlog purchase orders with respect to which a
delivery schedule has been specified for product shipment within one year.
Orders in the Company's current backlog are subject to changes in delivery
schedules or to cancellation at the option of the purchaser without significant
penalty. Accordingly, although useful for scheduling production, backlog as of
any particular date may not be a reliable measure of sales for any future
period.
Gross profit as a percentage of net sales for the first quarter of Fiscal 1999
was 21.4% compared to 36.0% in the same quarter of Fiscal 1998. The decline in
gross profit was primarily the result of the under-utilization of the Company's
manufacturing capacity due to the Company's lower sales volume, lower average
selling prices and higher provision for inventory reserves. The Company reduced
its workforce at the end of the first quarter of Fiscal 1999 as it expects sales
volumes to remain lower for at least the next six months and competitive
pricing pressure on the Company's products to continue. In addition, the
Company expects continued decreased sales in Asia for the foreseeable future due
to the continuing economic and political instability there. SEE "FACTORS THAT
MAY AFFECT FUTURE FINANCIAL RESULTS."
Research and development expenses increased by $0.7 million, from $4.3
million in the first quarter of Fiscal 1998 to $5.0 million in the same
period in Fiscal 1999. As a percentage of net sales, research and
development expenses were 9.4% in the first quarter of Fiscal 1999 compared
to 6.7% in the first quarter of Fiscal 1998. Such increase was due primarily
to the 17.9% decrease in net sales over the comparable period. The increase
in research and development expenses in absolute dollars was primarily
attributable to the Company's development of its new Altium-TM- high-capacity
wireless product platform. The Company believes research and development
expenses will be lower in the second quarter of Fiscal 1999 due to the
Company's workforce reduction as described above. However, the Company
remains committed to continuing its new product rollouts in order to
maintain and enhance its competitive position.
Selling, general and administrative expenses increased to $14.0 million in the
first quarter of Fiscal 1999 from $12.9 million in the first quarter of Fiscal
1998. As a percentage of net sales, selling, general and administrative
expenses were 26.4% in the first quarter of Fiscal 1999 compared to 20.0% in the
comparable quarter of Fiscal 1998. The increase in selling, general and
administrative expenses in absolute dollars was mostly attributable to an
increased provision for bad debts related to uncollectable accounts receivable
The restructuring costs of $7.2 million in the first quarter of Fiscal 1999
consist of a write off of $5.8 million related to the discontinuance of several
internal information technology ("IT") systems projects and $1.4 million for
severance and related costs associated with a reduction in the Company's
workforce. At June 30, 1998, the remaining restructuring reserve was comprised
primarily of $1.2 million for the discontinuance of IT systems projects and $1.4
million for severance and related costs. In the fourth quarter of Fiscal 1998,
the Company
12
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recorded merger and restructuring expenses of $14.6 million, which primarily
included payments to the Company's investment bankers of $3.4 million for
brokering the Company's merger with MAS Technology, legal and accounting fees
of $0.9 million, asset valuation reserves for inventory, receivables and
warranty totaling $7.1 million, as well as various other costs of $3.2
million, which included office closures and contract terminations. In
addition, as of June 30, 1998, the remaining restructuring reserve related to
the Company's merger with MAS Technology was comprised principally of $6.2
million for asset valuation reserves, and $0.3 million for other
restructuring costs.
Interest income decreased to $0.4 million in the first quarter of Fiscal 1999
compared to $0.6 million in the similar quarter of Fiscal 1998. This decrease
was due primarily to lower average cash balances. The decrease in interest
expense in the first quarter of Fiscal 1999 was primarily attributable to lower
debt balances as compared to the same quarter of the prior year. Other income
increased by $0.4 million in the first quarter of Fiscal 1999 due primarily to
foreign exchange gains.
The Company did not record a tax benefit in the first quarter of Fiscal 1999 as
it cannot be certain of profitability in Fiscal 1999. In the first quarter of
Fiscal 1998, the Company recorded a provision for income taxes at an effective
rate of 11%. This was less than the statutory rate primarily due to the
utilization of net operating loss carry forwards and the deferred tax asset
originated from warranty and asset valuation reserves.
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
The statements in this Form 10-Q concerning the Company's future products,
expenses, revenues, gross margins, liquidity and cash needs, as well as the
Company's plans and strategies, contain forward-looking statements concerning
the Company's future operations and financial results within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements are based on current expectations and the Company
assumes no obligation to update this information. Numerous factors, such as
economic and competitive conditions, timing and volume of incoming orders,
shipment volumes, product margins, and foreign exchange rates, could cause
actual results to differ materially from those described in these statements,
and prospective investors and stockholders should carefully consider the factors
set forth below in evaluating these forward-looking statements.
Sales of the Company's products are concentrated in a small number of customers.
For the first quarter of Fiscal 1999, the top three customers accounted for 17%
of the net sales. As of June 30, 1998, three of the Company's customers
accounted for 23% of the backlog. The worldwide telecommunications industry is
dominated by a small number of large corporations, and the Company expects that
a significant portion of its future product sales will continue to be
concentrated in a limited number of customers. The loss of any existing
customer, a significant reduction in the level of sales to any existing
customer, or the failure of the Company to gain additional customers could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, a substantial portion of shipments may
occur near the end of each quarter. Accordingly, the Company's results are
13
<PAGE>
difficult to predict and delays in product delivery or closing of a sale can
cause revenues and net income to fluctuate significantly from anticipated levels
and from quarter to quarter.
Manufacturers of digital microwave telecommunications equipment are
experiencing, and are likely to continue to experience, intense price pressure
which has resulted, and is expected to continue to result, in downward pricing
pressure on the Company's products. As a result, the Company has experienced,
and expects to continue to experience, declining average sales prices for its
products. The Company's ability to maintain its gross profit margins is
dependent upon its ability to continue to improve manufacturing efficiencies,
reduce material costs of products, and to continue to introduce new products and
product enhancements. Any inability of the Company to respond to increased
price competition would have a material adverse effect on the Company's
business, financial condition and results of operations.
The markets for the Company's products are extremely competitive, and the
Company expects that competition will increase. The Company's existing and
potential competitors include established and emerging companies, such as, L.M.
Ericsson, Northern Telecom, Siemens AG, Farinon Division of Harris Corporation,
P-COM, Alcatel, Nokia, NERA, NEC, and SIAE, many of which have more extensive
engineering, manufacturing, and marketing capabilities and significantly greater
financial, technical, and personnel resources than the Company. The Company
believes that its ability to compete successfully will depend on a number of
factors, both within and outside its control, including price, quality,
availability, customer service and support, breadth of product line, product
performance and features, rapid delivery, reliability, timing of new product
introductions by the Company, its customers and its competitors, and the ability
of its customers to obtain financing.
The Company expects that international sales will continue to account for the
majority of its net product sales for the foreseeable future. As a result, the
Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements, fluctuations in foreign currency
exchange rates, such as recently experienced in Asia, imposition of tariffs and
other barriers and restrictions, the burdens of complying with a variety of
foreign laws, and general economic and geopolitical conditions, including
inflation and trade relationships. In addition, recent events in Asia,
including depreciation of certain Asian currencies, failures of financial
institutions, stock market declines, and reduction in planned capital investment
as key enterprises, may continue to adversely impact the Company's revenues in
Asian markets. There can be no assurance that currency fluctuations, changes in
the rate of inflation or any of the aforementioned factors will not continue to
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's manufacturing operations are highly dependent upon the delivery of
materials by outside suppliers in a timely manner. In addition, the Company
depends in part upon subcontractors to assemble major components and subsystems
used in its products in a timely and satisfactory manner. The Company does not
generally enter into long-term or volume purchase agreements with any of these
suppliers, and no assurance can be given that such materials, components, and
subsystems will be available in the quantities required by the Company, if at
all. The inability of the Company to develop alternative sources of supply
quickly and on a cost-effective basis could materially impair the Company's
ability to manufacture and deliver its products in a timely manner. There can
be no assurance that the
14
<PAGE>
Company will not experience material supply problems or component or
subsystem delays in the future.
The Company has pursued, and will continue to pursue, growth opportunities
through internal development and acquisitions of complementary businesses and
technologies. Acquisitions may involve difficulties in the retention of
personnel, diversion of management's attention, unexpected legal liabilities,
and tax and accounting issues. There can be no assurance that the Company will
be able to successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired businesses into its operations, or expand into
new markets. Once integrated, acquired businesses may not achieve comparable
levels of revenues, profitability, or productivity as the existing business of
the Company or otherwise perform as expected. The Company's failure to manage
its growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex as virtually
every company's computer operation will be affected in some way. The Company's
computer programs, which process its operational and financial transactions,
were designed and developed without considering the impact of the upcoming
change in century. In addition, some of the Company's products being shipped
today are not Year 2000 compliant. If not corrected, the Company's computer
programs and products could fail or create erroneous results by or at the Year
2000.
The Company is taking steps to ensure its products and computer programs will
continue to operate on and after January 1, 2000. The Company has formed a
project team consisting of staff from Manufacturing, Customer Service, Finance,
Human Resources, Sales, Marketing, Legal, Engineering and Information Technology
departments and is lead by a project manager. A five phase solution process
has been established consisting of (1) awareness, (2) assessment, (3)
renovation, (4) validation, and (5) implementation. This team is currently in
the second phase which includes evaluating both the Company's products and
information technology ("IT") systems at greatest risk and identifying
alternative solutions to correcting the Year 2000 problem. The Company
estimates that it will complete this five phase process for all of its
significant systems by December 31, 1998. The Company's Year 2000 project team
has identified its manufacturing IT system as its highest priority and plans to
install an upgrade to the Company's current manufacturing system supplied by the
vendor of that system. The Company has not yet evaluated its non-IT systems.
Non-IT systems include systems or hardware containing embedded technology such
as microcontrollers. The Company believes that it will expend $0.5 million
investigating and remedying issues related to Year 2000 compliance involving
internal operations. However, if systems material to the Company's operations
have not been made Year 2000 compliant by the completion of the project, the
Year 2000 issue could have a material adverse effect on the Company's financial
statements. The Company has not yet developed a contingency plan to operate in
the event that any noncompliant critical systems are not remedied by January 1,
2000. The Company expects to develop such a contingency plan by December 31,
1998.
15
<PAGE>
The Company is contacting its primary suppliers and subcontractors to determine
that they are developing plans to address processing transactions in the Year
2000 and to monitor their progress toward Year 2000 capability. The responses
received by the Company to date have indicated that steps are currently being
implemented to address this concern.
Based on the steps being taken to address this issue and the progress to date,
the Company's management believes that the Year 2000 compliance expenses will
not have a material adverse effect on the Company's earnings. However, there
can be no assurance that Year 2000 problems will not occur with respect to the
Company's computer systems. Furthermore, the Year 2000 problem may impact other
entities with which the Company transacts business, and the Company cannot
predict the effect of the Year 2000 problem on such entities or the resulting
effect on the Company. As a result, if preventative and/or corrective actions
by the Company or those the Company does business with are not made in a timely
manner, the Year 2000 issue could have a material adverse effect on the
Company's business, financial condition and results of operations.
Beginning in January 1999, a new currency called the "euro" is scheduled to be
introduced in certain Economic and Monetary Union ("EMU") countries. During
2002, all EMU countries are expected to be operating with the euro as their
single currency. Uncertainty exists as to the effect the euro currency will
have on the marketplace. Additionally, all of the final rules and regulations
have not yet been defined and finalized by the European Commission with regard
to the euro currency. The Company has assessed the effect the euro formation
will have on its internal systems and the sale of its products. Most of the
Company's European sales and operating transactions are based primarily in U.S.
dollars or U.K. pounds sterling, neither of which are subject to the euro
conversion. In addition, the Company plans to upgrade its internal computer
systems in early 1999 to convert the European currency to euro. The Company's
management believes that the cost of upgrading the Company's systems in
connection with the euro conversion will not be material and that such
conversion will not have a material adverse effect on the Company's business,
financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities in the first quarter of Fiscal 1999 was
$15.8 million, compared to net cash used for operating activities of $8.1
million in the first quarter of Fiscal 1998. The decline in cash provided from
operations was primarily the result of the net loss for the quarter. In
addition, inventories increased as actual sales were less than forecasted
sales. Accounts payable and other accrued liabilities decreased during the first
quarter of Fiscal 1999 due to payments for merger costs, bonuses, and profit
sharing accrued at March 31, 1998, the end of Fiscal 1998 and reduced inventory
purchases. Accounts receivable decreased due to higher collections and lower
sales during the first quarter of Fiscal 1999 as compared to the first quarter
of Fiscal 1998.
To partially offset the cash used by operations, the Company received over
$8.0 million in net proceeds from the sale of its short-term investments
during the first quarter of Fiscal 1999.
16
<PAGE>
Purchases of property and equipment increased by $2.4 million in the first
quarter of Fiscal 1999 compared to the first quarter of Fiscal 1998 and was
mostly attributable to continued progress payments on the Company's new
manufacturing facility in the United Kingdom. In the first quarter of Fiscal
1998, the Company completed the acquisition of Granger, Inc. for total
consideration of $14.7 million and purchased a minority interest in Granger
Associates, Ltd., a UK company, for $4.0 million.
In the first quarter of Fiscal 1998, MAS Technology, a subsidiary of the
Company, sold approximately $25.0 million of ordinary shares in a public
offering. A portion of these proceeds were used to pay off MAS Technology's
outstanding debt of approximately $5.0 million. In addition, Digital Microwave
Corporation paid off its outstanding debt of $2.0 million in the first quarter
of Fiscal 1998, excluding lease obligations.
During June and July 1998, the Company amended its agreement with a major U.S.
bank to increase the unsecured credit facility from $20.0 million to $25.0
million, extend the expiration date of the agreement to September 30, 1998, and
to change certain terms of the agreement.
At June 30, 1998, the Company's principal sources of liquidity consisted of
$20.2 million in cash and cash equivalents and short-term investments and the
$25.0 million revolving bank credit facility. The Company's credit facility
agreement requires the Company to meet certain financial covenants, including
various liquidity and debt ratios, tangible net worth and profitability
requirements. As of June 30, 1998, the Company was in compliance with these
covenants, as amended. The Company is currently negotiating an increase in
and extension of this credit facility. The Company's management believes
that the Company will receive an increase in and extension of its credit
facility; however, there can be no assurance that this will occur.
The Company believes that it will be necessary to borrow against its credit
facility to meet both its working capital and capital expenditure
requirements through Fiscal 1999. In addition, the Company may require
additional financing from other sources; however, there can be no assurance
that the Company will be able to obtain such additional financing in the
required time frame on commercially reasonable terms, or at all. Management
has implemented plans to reduce the Company's cash requirements through a
combination of reductions in working capital, equipment purchases and
operating expenditures. Management believes that such plans combined with
existing cash balances and other sources of liquidity will enable the Company
to meet its cash requirements through Fiscal 1999. However, there can be no
assurance that the Company will be able to implement these plans or that it
will be able to do so without a material adverse effect on the Company's
business, financial results or results of operations.
17
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PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
Effective as of June 29, 1998, the Securities and Exchange Commission has
amended Rule 14a-4 of the Securities and Exchange Act of 1934, as amended (the
"Act"), so that any stockholder proposal submitted with respect to Digital
Microwave Corporation's 1999 Annual Meeting of Stockholders, which proposal is
submitted outside the requirements of Rule 14a-8 under the Act, will be
considered untimely for purposes of Rule 14a-4 and 14a-5 if notice thereof is
received by Digital Microwave Corporation after May 29, 1999.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
For a list of exhibits to this Form 10-Q, see the exhibit index
located on page 18.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on April 3, 1998, relating to
the Company's completion of the merger with MAS Technology Limited, a
New Zealand Company, on March 24, 1998.
18
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
10.1* Product Purchase Agreement dated as of June 1, 1998, by and between
Digital Microwave Corporation and Solectron Corporation.
10.2 First Amendment to Credit Agreement dated as of June 1, 1998, by and
between Digital Microwave Corporation and Bank of America National
Trust and Savings Association.
10.3 Second Amendment to Credit Agreement dated as of July 22, 1998,
effective as of June 30, 1998, by and between Digital Microwave
Corporation and Bank of America National Trust and Savings
Association.
27.1 Financial Data Schedule for the quarter ended June 30, 1998.
27.2 Restated Financial Data Schedule for the quarter ended June 30, 1997.
* Confidential treatment of certain portions of this exhibit has been
requested.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL MICROWAVE CORPORATION
Date: August 14, 1998 By /s/ Carl A. Thomsen
--------------- ------------------------
Carl A. Thomsen
Vice President, Chief Financial
Officer and Secretary
20
<PAGE>
Exhibit 10.1
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is entered into as of June 1, 1998
("Effective Date") by and between Solectron Corporation with a place of business
at 847 Gibraltar Drive, Milpitas, CA 95035 ("Solectron") and Digital Microwave
Corporation having its principal office at 170 Rose Orchard Way, San Jose, CA
95134 ("DMC").
The parties hereby agree that upon execution of this Agreement, the following
terms and conditions shall supersede any previously negotiated terms and
conditions regarding the "Altium" Products as provided in the attached
Addendum B.
1.0 TERM
1.1 This Agreement is effective as of the effective date and shall be in effect
for [*] ([*]) [*]. This Agreement shall automatically be renewed for
successive [*] ([*]) [*] increments unless either party requests in
writing, at least [*] ([*]) days in advance that this Agreement not be so
renewed.
2.0 SPECIFICATION COMMENTS
2.1 "Specifications" is defined as the respective specifications for each
Product to be manufactured by Solectron for DMC under this Agreement, as
separately set forth by the revision number specified in the Purchase Order
provided by DMC. Specifications may be amended from time to time by DMC's
documented engineering change orders in accordance with Section 10 of this
Agreement and mutually agreed to by Solectron prior to implementation.
3.0 PRODUCT FORECAST
3.1 It is agreed that DMC will provide Solectron, on a monthly basis, [*] ([*])
day firm purchase orders or material releases, [*] ([*]) months Product
forecasts and [*] ([*]) months rolling forecasts for long lead time items.
This section, as appropriate, may be modified in an addendum to reflect
specific Product requirements.
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
1
<PAGE>
4.0 MATERIAL PROCUREMENT
4.1 Solectron is authorized to purchase materials using standard purchasing
practices including, but not limited to, acquisition of material
recognizing Economic Order Quantities, ABC buy policy and long lead time
component management in order to meet the Purchase Order requirements of
DMC. DMC recognizes its financial responsibility and assumes liability for
long lead items beyond the purchase order coverage. The long lead time item
list (attached as Addendum "A") will be reviewed quarterly as provided in
Section 6.2 of this Agreement.
4.2 Solectron agrees to purchase components according to the DMC approved
vendor list ("AVL") including any sourcing plans as provided by the
addenda.
4.3 In the event of a termination or a cancellation of a Purchase Order or
Material Release, and/or discontinuance of Product or excess material
created by an engineering change, DMC agrees to compensate Solectron for
Products and material inventory as follows: (i) [*], (ii) [*], (iii) [*],
and (iv) [*].
4.4 Solectron shall undertake reasonable efforts to cancel all applicable
component purchase orders and reduce component inventory through return for
credit programs or allocate components for alternate programs if applicable
and will provide information on this material's disposition to DMC within
[*] ([*]) working days. DMC reserves the right to review all supporting
Solectron documentation which delineates costs incurred due to purchase
order cancellations.
5.0 ASSEMBLY PRICE LIST
5.1 Items and prices listed in the "Assembly Price List" (attached as Addendum
"B") may be added to or deleted from providing such additions or deletions
meet all of the terms and conditions of this Agreement.
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
2
<PAGE>
6.0 PURCHASE ORDERS AND PRICE REVIEWS
6.1 DMC agrees to provide Solectron Purchase Orders or Material Releases [*]
([*]) days in advance of delivery (or as otherwise provided by an addendum)
and shall become effective upon acceptance of the order by Solectron within
[*] ([*]) days of receipt of said Purchase Order. Financial liability for
DMC will be limited to material that covers the [*] day released purchase
order, plus the long lead time material as listed in addendum A, as well as
non-cancelable and non-returnable material and component supplier minimum
buy material as provided in Addendum D.
6.2 Solectron and DMC will meet every twelve (12) months during the term of
this Agreement to review pricing and determine whether any price increase
or decrease is required. Any price change shall apply only to purchase
orders or material releases issued after the effective date of such price
change per Addendum "B", assembly price list.
6.3 Material Fluctuations. If significant price fluctuations occur at any time
in the cost of material required under this Agreement, DMC and Solectron
will review the impact of such fluctuations and discuss in good faith
whether any pricing change should be considered. Significant fluctuation
means a price change of plus or minus (+/-) [*] percent ([*]%) or more of
the quoted Bill of Material ("BOM") cost of any Product.
6.4 Currency Fluctuations. If the currency rate of exchange between United
States Dollars and the currency used for purchase of Products or components
changes significantly DMC and Solectron agree to share equally the effects
of such change. Significant change means a currency rate of exchange
fluctuation of plus or minus (+/-) more than [*] percent ([*]%) of the
quoted BOM cost of any Product.
The currency exchange rate will be determined by using The Wall Street
Journal as the source of reference. The initial baseline exchange rate
will be the rate on the effective date of this agreement. The exchange
rate will be reviewed and reset on the fifteenth day of the last month of
every calendar quarter, by taking the average of the previous three (3)
month exchange rate and using that average as the baseline for the upcoming
quarter. This process will be used for all currencies by which components
are purchased, relative to the U.S. dollar.
If the rate of exchange between U.S. Dollars and the currency used for
purchase of components fluctuates plus or minus (+/-) [*] percent ([*]%) of
the selling price or less during a calendar quarter, the agreement upon
pricing will remain unchanged for products shipped during that quarter.
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[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
3
<PAGE>
If the currency exchange fluctuation exceeds +/- [*] percent ([*]%) of the
selling price of a Product during a quarter, Solectron and DMC agree to
share equally any fluctuation in excess of [*] percent ([*]%) baseline. The
product pricing will be effective immediately and the baseline will be
reset at the new level and be effective for the remainder of the calendar
quarter.
6.5 All Purchase orders issued by DMC shall contain the following:
a) DMC's part number, description, and revision level of Products to be
shipped.
b) Delivery schedule
c) Unit price
d) Place of delivery
7.0 DELIVERY
7.1 Solectron will target 100% on time delivery, defined as shipment of Product
by Solectron within a window of [*] ([*]) days early and [*] days late (of
acknowledged date). This section, as appropriate, may be modified by an
addendum to reflect specific Product requirements.
7.2 All shipments to DMC shall be FOB Solectron's facility.
7.3 Solectron and DMC agree to delivery schedule flexibility requirements
specific to the Product as documented in Addendum "C".
7.4 Upon learning of any potential delivery delays, Solectron will use its best
efforts to notify DMC within [*] ([*]) hours as to the cause and extent of
such delays. Solectron will also, at the time of notification, provide a
plan of recovery which will bring delivery back to the scheduled plan.
7.5 DMC will make best efforts to reschedule out [*] only any delivery that is
outside of the [*] ([*]) day window to a maximum of [*] ([*]) days from the
original delivery date. DMC will not be able to reschedule out within the
[*] ([*]) day window. If there is no future demand for any rescheduled
delivery, DMC will purchase all associated components and all assembled
Product through work in process from Solectron within [*] ([*]) business
days after receipt of material disposition per Section 4.4 of this
Agreement.
7.6 Should DMC require Solectron to undertake export activity on behalf of DMC,
DMC agrees to submit requested export information to Solectron pursuant to
Solectron Guidelines for Customer-Driven Export Shipments as provided in
the addenda.
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
4
<PAGE>
7.7 Risk of Loss. Title to the Products and risk of loss or damage to the
Products will pass to DMC at the FOB point.
7.8 Taxes and Foreign Shipments. The prices set forth in Addendum "B" are
exclusive of any and all state or local sales, use, excise or similar
taxes, which, if applicable, shall be paid by DMC. The prices in Addendum
"B" are also exclusive of any foreign shipping charges, such as forwarding,
agent or brokerage fees, consular invoices, document fees and duties. Such
charges shall be paid by DMC.
8.0 PAYMENT TERMS
8.1 Solectron and DMC agree to payment terms of [*] days from the date of
invoice.
8.2 Currency will be in U.S. Dollars unless specifically negotiated and
reflected in the addenda.
8.3 Until the purchase price and all other charges payable to Solectron
have been received in full, Solectron retains and DMC grants to Solectron a
security interest in the products delivered to DMC and any proceeds
therefrom.
9.0 QUALITY
9.1 Solectron shall manufacture the Products in accordance with the quality
requirements, standards and expectations as mutually agreed to and reflected
in the DMC Quality Plan (CQ-QP001) and Solectron CSI Expectations.
10.0 ENGINEERING CHANGES
10.1 DMC may, upon advance written notice to Solectron, submit engineering
changes for incorporation into the Product. It is important that this
notification include documentation of the change to effectively support an
investigation of the impact of the engineering change. Solectron will make
a reasonable effort to review the engineering change and report to DMC
within one (1) week. If the engineering change concerns a Product which is
currently in production by Solectron , Solectron will review the change and
report back to DMC within one (1) business day. If any such change affects
the price, delivery, or quality performance of said Product, an equitable
adjustment will be negotiated between Solectron and DMC prior to
implementation of the change.
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
5
<PAGE>
10.2 Solectron agrees not to undertake any process changes, design changes,
or process step discontinuance affecting electrical performance and/or
mechanical form and fit without prior written notification and
concurrence of the DMC.
11.0 INVENTORY MANAGEMENT
11.1 Solectron agrees to purchase components according to the DMC approved
vendor list (AVL) including any sourcing plans as provided by the
Addendum A.
11.2 All DMC tooling/equipment furnished to Solectron or paid for by DMC in
connection with this Agreement shall:
a) Be clearly marked and remain the personal property of DMC.
b) Be kept free of liens and encumbrances.
c) Unless otherwise agreed, Solectron is responsible for the general
daily maintenance and correlation of DMC fixtures, tooling and
equipment.
Solectron shall hold DMC property at its own risk and shall not modify
the property without the written permission of DMC. Upon DMC's request,
Solectron shall redeliver the property to DMC in the same condition as
originally received by Solectron with the exception of reasonable wear
and tear. In the event the property is lost, damaged or destroyed,
Solectron's liability for the property is limited to the book value of
the property.
11.3 Obsolescence of Materials. Obsolete materials means any Product part
that has expired or is no longer found on DMC's AVL due to engineering
changes and/or end-of-life. To the extent Solectron cannot mitigate its
material acquisition costs of materials which have become obsolete as a
result of the engineering change or end-of-life of Product, DMC shall pay
such charges claimed by Solectron.
11.4 Excess Material. Excess material means any part which is ordered by
Solectron based on MRP demand, in the performance of this Agreement, that
is not shipped on the date recorded on DMC's Purchase Order due to
engineering changes, changed delivery schedules (push-outs), and/or end
of life. DMC shall be liable for [*]. Solectron shall use reasonable
efforts to return such excess materials for credit or allocate such
excess materials for alternate programs, as outlined in 4.3 of this
Agreement. In the event Solectron is unable to return or allocate such
excess materials, DMC agrees to purchase from Solectron any excess
material aged beyond [*] ([*]) days at raw cost plus burden. In addition,
DMC agrees to compensate Solectron for any charges, including but not
limited to carrying
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
6
<PAGE>
charges at [*] percent ([*]%) of the monthly excess material in stock,
incurred therefor.
12.0 CONFIDENTIAL INFORMATION
12.1 Solectron and DMC agree to execute, as part of this Agreement, a
Nondisclosure Agreement for the reciprocal protection of confidential
information.
12.2 Subject to the terms of the Nondisclosure Agreement and the proprietary
rights of the parties, Solectron and DMC agree to exchange, at least
semi-annually, relevant process development information and business
plans to include market trends, process technologies, product
requirements, new product developments, available capacity and other
information to support technology advancements by both Solectron and DMC.
13.0 WARRANTY
13.1 Solectron warrants for a period of [*] ([*]) months from the date of
manufacture of the Product, that (i) the Product will conform to the
specifications applicable to such Product at the time of its manufacture,
which are furnished in writing by DMC and accepted by Solectron; (ii)
such Product will be of good material (supplied by Solectron), and
workmanship and free from defects for which Solectron is responsible in
the manufacture; (iii) such Product will be free and clear of all liens
and encumbrances and that Solectron will convey good and marketable title
to such Product. In the event that any Product manufactured shall not be
in conformity with the foregoing warranties, Solectron shall, at
Solectron's option, either credit DMC for any such nonconformity (not to
exceed the purchase price paid by DMC for such Product), or, at
Solectron's expense, replace, repair or correct such Product. The
foregoing constitutes DMC's sole remedies against Solectron for breach of
warranty claims.
13.2 Solectron shall have no responsibility or obligation to DMC under
warranty claims with respect to Products that have been subjected to
abuse, misuse, accident, alteration, neglect or unauthorized repair by a
DMC customer.
THE WARRANTIES CONTAINED IN THIS SECTION ARE IN LIEU OF, AND SOLECTRON
EXPRESSLY DISCLAIMS AND DMC WAIVES ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR ARISING BY COURSE OF DEALING
OR PERFORMANCE, CUSTOM, USAGE IN THE TRADE OR OTHERWISE, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE AND
FITNESS FOR A PARTICULAR USE.
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
7
<PAGE>
14.0 TERMINATION
14.1 If either party fails to meet any one or more of the terms and conditions
as stated in either this Agreement or the addenda, Solectron and DMC
agree to negotiate in good faith to resolve such default. If the
defaulting party fails to cure such default or submit an acceptable
written plan to resolve such default within [*] ([*]) days following
notice of default, the nondefaulting party shall have the right to
terminate this Agreement by furnishing the defaulting party with [*]
([*]) days written notice of termination.
14.2 This Agreement shall immediately terminate should either party; (i)
become insolvent; (ii) enter into or file a petition, arraignment or
proceeding seeking an order for relief under the bankruptcy laws of its
respective jurisdiction; (iii) enter into a receivership of any of its
assets or; (iv) enter into a dissolution of liquidation of its assets or
an assignment for the benefit of its creditors.
14.3 Either Solectron or DMC may terminate this Agreement without cause by
giving [*] ([*]) days advance written notice to the other party.
14.4 Duty to Mitigate Costs. Both parties shall, in good faith, undertake
reasonable efforts to mitigate the costs of termination as described
above in Section 4.4. By way of example, Solectron shall use its best
efforts to cancel all applicable materials and reduce inventory through
return for credit programs or allocate these materials for alternate
programs or products, if possible.
15.0 DISPUTE RESOLUTION
15.1 In the spirit of continued cooperation, the parties intend to and hereby
establish the following dispute resolution procedure to be utilized in
the unlikely event any controversy should arise out of or concerning the
performance of this Agreement.
15.2 It is the intent of the parties that any dispute be resolved informally
and promptly through good faith negotiation between Solectron and DMC.
Either party may initiate negotiation proceedings by written notice to
the other party setting forth the particulars of the dispute. The
parties agree to meet in good faith to jointly define the scope and a
method to remedy the dispute. If these proceedings are not productive of
a resolution, then senior management of Solectron and DMC are authorized
to and will meet personally to confer in a bona fide attempt to resolve
the matter.
15.3 Should any disputes remain existent between the parties after completion
of the two-step resolution process set forth above, then the parties
shall promptly submit any dispute to mediation with an independent
mediator. In the event mediation is
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[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
8
<PAGE>
not successful in resolving the dispute, the parties agree to submit the
dispute to binding arbitration as provided by their respective
jurisdiction.
16.0 LIMITATION OF LIABILITY
IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, WARRANTY, OR
TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, PRODUCT LIABILITY, OR
OTHERWISE, SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL, EXEMPLARY DAMAGES OF ANY KIND WHETHER OR NOT
EITHER PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
17.0 PATENT, COPYRIGHT AND TRADEMARK INDEMNITY
Each party (the "indemnifying party") shall defend, indemnify, and hold
harmless the other party from any claims by a third party of infringement
of intellectual properties resulting from the acts of the indemnifying
party pursuant to this Agreement, provided that the other party (i) gives
the indemnifying party prompt notice of any such claims, (ii) renders
reasonable assistance to the indemnifying party thereon, and (iii)
permits the indemnifying party to direct the defense of the settlement of
such claims.
18.0 RETURN MATERIAL AUTHORIZATION
18.1 In the event Product is found to be defective by DMC, DMC will provide
written notification to Solectron and Solectron will provide DMC with a
Return Material Authorization (RMA) number prior to DMC returning the
Product to Solectron. Solectron will provide a RMA number to DMC within
[*] of receipt of such notification from DMC. If DMC Product returns in
any [*] exceed [*] per cent ([*]%) of Product shipped during that quarter
Solectron will have [*] to evaluate and disposition the Products before
issuing a RMA number to DMC.
18.2 Upon receipt of the RMA number, DMC will use its best efforts to return
the Product to Solectron. Solectron will pay shipping costs for returning
defective Product to Solectron. Thereafter, Solectron will use its best
efforts to repair and return the Product within [*] ([*]) days of receipt
of said Product to DMC. Solectron will pay shipping costs to return
repaired Product to DMC or to DMC's customers site. If Product returned
by DMC is No Trouble Found ("NTF") by Solectron, DMC will pay all
shipping charges and reimburse Solectron on a time and materials basis
for testing and evaluation of NTF Product.
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
9
<PAGE>
19.0 GENERAL
19.1 It is the intent of the parties that this Agreement and its addendum's
shall prevail over the terms and conditions of any purchase order,
acknowledgment form or other instrument.
19.2 This Agreement may be executed in one or more counterparts, each of which
will be deemed the original, but all of which will constitute but one and
the same document. The parties agree this Agreement and its addenda may
not be modified except in writing signed by both parties.
19.3 Notices. Unless otherwise specified in the Agreement, all notices and
other communications permitted or required by the provisions of those
documents shall be in writing.
19.4 Severability. In the event that one or more of the provisions, or parts
thereof, contained in the Agreement shall for any reason be held to be
invalid, illegal, or unenforceable by a court of competent jurisdiction,
the same shall not invalidate or otherwise affect any other provision in
the Agreement, and the Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained therein.
19.5 Waiver. No failure or delay on the part of either party hereto in
exercising any right or remedy under the Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
right or remedy. No provision of the Agreement may be waived except in
writing signed by the party granting such waiver.
19.6 Each party to this Agreement will maintain insurance to protect itself
from claims (i) by the party's employees, agents and subcontractors under
Worker's Compensation and Disability Acts, (ii) for damages because of
injury to or destruction of tangible property resulting out of any
negligent act, omission or willful misconduct of the party or the party's
employees or subcontractors, (iii) for damages because of bodily injury,
sickness, disease or death of its employees or any other person arising
out of any negligent act, omission, or willful misconduct of the party or
the party's employees, agents or subcontractors.
19.7 Neither party shall delegate, assign or transfer its rights or
obligations under this Agreement, whether in whole or part, without the
written consent of the other party. Failure by either party to enforce
any provision of this Agreement shall not be deemed to be a continuing
waiver or a waiver of any other default or other term and condition.
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
10
<PAGE>
19.8 Force Majeure. Neither party shall be liable for any failure or delay
in its performance under this Agreement due to acts of God, acts of
civil or military authority, fires, floods, earthquakes, riots, wars or
any other cause beyond the reasonable control of the delayed party
provided that the delayed party: (i) gives the other party written
notice of such cause within [*] ([*]) days of the discovery of the
event; and (ii) uses its reasonable efforts to remedy such delay in its
performance.
19.9 DMC and Solectron mutually agree to jointly work towards process
improvements in the following areas:
- Total Price
- Quality
- Manufacturing Time
- On-time Delivery
- Design Improvements in Manufacturability, Quality and Price
- Repair/Returns
19.10 Both DMC and Solectron have been and shall continue to be in material
compliance with the provisions of all applicable federal, state and
local laws, regulations, rules and ordinances applicable to the
transactions governed by this Agreement.
19.11 This Agreement shall be governed by, and construed in accordance with
the laws of the State of California, excluding its conflict of laws
provisions. In any action to enforce this Agreement, the prevailing
party shall be awarded all court costs and reasonable attorney fees
incurred.
19.12 Disclosure This Agreement is to be considered confidential. Neither
party shall disclose either the existence, the terms or conditions, or
the subject matter of this Agreement without the prior written consent
of the other party.
19.13 Publicity Neither party shall use the other party's name in any
publicity or use the other party's name in any notice to any third party
without the prior written consent of the other party, such consent not
to be unreasonably withheld.
Agreed:
SOLECTRON CORPORATION DIGITAL MICROWAVE
By: /s/ JIM WILLIAMS By: /s/ SAM SMOOKLER
----------------------- ----------------------
Name: Jim Williams Name: Sam Smookler
--------------------- --------------------
Title: Vice President Title: President & COO
-------------------- -------------------
Date: 6/11/98 Date: 6/11/98
--------------------- --------------------
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
11
<PAGE>
ADDENDUM "A"
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
12
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
13
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
14
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
15
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
16
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
17
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
18
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
19
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
20
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
21
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
22
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
23
<PAGE>
[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
24
<PAGE>
ADDENDUM "B"
PRICING
A: Unit price for Altium InDoor Unit (IDU). All prices are in United
States dollars ($).
1) 151-141764-001 Non-protected IDU
[*] units $[*]
2) 151-141763-001 Protected unit IDU
[*] units $[*]
[*] units $[*]
B: Spare Sub-Assembly Cards
021-141740-001 Signal Processor
1 to [*] units $[*]
021-141741-001 ISAC
1 to [*] units $[*]
021-111860-001 OSAC
1 to [*] units $[*]
021-141739-001 Motherboard
1 to [*] units $[*]
021-141745-001 Configuration Card
1 to [*] units $[*]
021-141742-001 Interface Card
1 to [*] units $[*]
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
25
<PAGE>
ADDENDUM "C"
Downward delivery schedule adjustments. DMC shall have the right to reschedule
deliveries of Product(s) contained in purchase orders in accordance with the
following schedule.
Number of days prior to the Maximum percentage of the Product
original schedule delivery quantity by which the scheduled
date that written notice of delivery can be decreased or
a change or rescheduling is rescheduled for later delivery without
received by Solectron. incurring cancellation charges.
00-30 days [*]% can be rescheduled. [*].
Mix changes are acceptable
with [*] ([*]) workdays prior
written notice. DMC remains
fully liable [*].
31-60 days [*]% of total volume can be
rescheduled, [*] ([*]) times
per purchase order only for a
maximum reschedule of [*]
([*]) days from the original
requested delivery date. DMC
is responsible for [*].
61-90 days [*]% of total volume can be
rescheduled, [*] ([*]) times
per purchase order only for a
maximum reschedule of [*]
([*]) days from the originally
requested delivery date. DMC
is responsible for [*].
91 + days [*]% of total volume can be
rescheduled. DMC is
responsible for [*].
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
26
<PAGE>
Upward delivery schedule adjustments. DMC shall have the right to reschedule
deliveries of Product(s) contained in purchase orders in accordance with the
following schedule.
Number of days prior to the Maximum percentage of the Product
original schedule delivery quantity by which the scheduled
date that written notice of delivery can be decreased or
a change or rescheduling is rescheduled.
received by Solectron.
00-30 days [*]% can be rescheduled. [*].
31-60 days [*]% of total volume can be
increased, [*] per purchase
order only for a maximum
reschedule of [*] ([*]) days
from the originally requested
delivery date
61-90 days [*]% of total volume can be
increased, [*] per purchase
order only for a maximum
reschedule of [*] ([*]) days
from the originally requested
delivery date
91+ days [*]% of total volume can be
increased to achieve delivery
increases less than lead-time
plus [*] ([*]) weeks.
Schedule attainment. Solectron agrees to meet the increased volume per the above
schedule based on material availability. DMC acknowledges that any supply line
inadequacies or delays in material availability will impact delivery schedules.
Solectron will promptly communicate any initial schedule notification(s) and any
subsequent schedule changes to DMC. Any additional costs incurred by Solectron
to meet DMC's request will be identified by Solectron and presented to DMC for
payment prior to implementation of the change.
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
27
<PAGE>
ADDENDUM "D"
NCNR/MINIMUM BUY LIST
<TABLE>
<CAPTION>
Assumptions Cust item no top assy no
- -------------- ---------------- -----------------
<S> <C> <C>
027-380800-001 FA021-141742-001 MIN ORDER QTY [*]
028-330100-001 FA021-141741-001 MIN RELEASE QTY [*]
028-361330-155 FA021-141740-001 MIN ORDER QTY [*]
028-361350-001 FA021-141741-001 MIN ORDER QTY [*]
028-361350-004 FA021-141741-001 MIN ORDER QTY [*]
030-303100-001 FA021-141741-001 MIN ORDER QTY [*]
033-341211-039 FA021-141741-001 MIN ORDER QTY [*]
033-341212-001 FA021-141741-001 MIN ORDER QTY [*]
033-341212-001 FA021-141742-001 MIN ORDER QTY [*]
033-341213-044 FA021-141745-001 MIN ORDER QTY [*]
033-341221-016 FA021-141760-001 NC/NR. MIN ORDER [*]. SUPPLIER QUOTED P/N PLS2ODR-HBR
034-302217-006 FA021-141740-001 MIN ORDER [*]
034-322211-008 FA021-141739-001 MIN ORDER QTY [*]
038-302221-008 FA021-141741-001 MIN ORDER & RELEASE QTY [*]
038-362223-006 FA021-141742-001 MIN ORDER & RELEASE QTY [*]
038-372223-004 FA021-141742-001 MIN ORDER & RELEASE QTY [*]
038-381210-005 FA021-141740-001 MIN RELEASE QTY [*]
038-381210-007 FA021-141741-001 MIN RELEASE QTY [*]
038-381210-007 FA021-141742-001 MIN RELEASE QTY [*]
038-382221-003 FA021-141739-001 SUPPLIER QUOTED P/N 162-99630-7058. MIN ORDER QTY [*]
038-392214-007 FA021-141741-001 MIN ORDER QTY [*]
043-325100-140 FA021-141740-001 MIN ORDER QTY [*]
044-335100-170 FA021-141741-001 MIN ORDER QTY [*]
045-310100-001 FA021-141741-001 MIN ORDER QTY [*]
050-342100-890 FA021-141740-001 MIN ORDER QTY [*]
050-392100-809 FA021-141740-001 MIN ORDER [*]
051-369102-186 FA021-141741-001 MIN ORDER QTY [*]
054-361682-759 FA021-141740-001 MIN ORDER [*]
063-312229-760 FA021-141740-001 MIN ORDER QTY [*]
063-313100-760 FA021-141740-001 MIN ORDER QTY [*]
063-313332-750 FA021-141740-001 MIN ORDER QTY [*]
063-314122-750 FA021-141740-001 MIN ORDER QTY [*]
063-316100-760 FA021-141740-001 MIN ORDER QTY [*]
078-361080-002 FA021-141740-001 MIN RELEASE QTY [*]
081-376311-006 FA021-141741-001 MIN ORDER QTY [*]
082-331820-003 FA021-141740-001 [*]SURCHARGE FOR PARTIAL REEL
083-302321-002 FA021-141740-001 MIN ORDER QTY [*]
083-312311-003 FA021-141741-001 [*]
085-393111-001 FA021-141740-001 MIN ORDER QTY [*]
</TABLE>
- -------------------------------------------------------------------------------
[*] = Omitted pursuant to a confidential treatment request. The material
has been filed separately with the Securities and Exchange Commission.
28
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT"), dated as of
June 1, 1998, is entered into by and between DIGITAL MICROWAVE CORPORATION (the
"COMPANY") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the
"BANK").
RECITALS
A. The Company and the Bank are parties to a Credit Agreement dated as of
June 30, 1997 (the "CREDIT AGREEMENT") pursuant to which the Bank has extended
certain credit facilities to the Company.
B. The Company has requested that the Bank agree to certain amendments of
the Credit Agreement.
C. The Bank is willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendments to Credit Agreement.
(a) Section 1.01 of the Credit Agreement shall be amended as follows:
(i) The definition of "Availability Period" shall be amended
in its entirety to read as follows:
""AVAILABILITY PERIOD": the period commencing on the
date of this Agreement and ending on the date that is the
earlier to occur of (a) August 31, 1998 and (b) the date
on which the Bank's commitment to extend credit hereunder
terminates."
(ii) The definition of "Credit Limit" shall be amended by
deleting therefrom "$20,000,000" and substituting
therefor "$25,000,000";
(iii) The definition of "Final Maturity Date" shall be amended
in its entirety to read as follows:
1
<PAGE>
""FINAL MATURITY DATE": (a) in respect of any Advances,
August 31, 1998; (b) in respect of any commercial letters
of credit, February 28, 1999; (c) in respect of any
standby letters of credit, September 30, 1999; and (d) in
respect of any Bank Guaranties, September 30, 1999."
(iv) The following new defined terms shall be inserted in
proper alphabetical order:
""BANK GUARANTY": a guaranty issued hereunder by the
Bank or an Offshore Credit Provider for the Borrower's or
an Acceptable Subsidiary's account."
""BANK GUARANTY OUTSTANDING AMOUNT": at any time, the
amount or Equivalent Amount guaranteed pursuant to any
Bank Guaranty but not disbursed thereunder at such time,
plus all amounts paid under any Bank Guaranty by the Bank
or any Offshore Credit Provider which have not yet been
reimbursed, plus any other obligation or liability of the
Borrower or an Acceptable Subsidiary to the Bank or any
Offshore Credit Provider with respect to any Bank
Guaranty."
(b) Section 2.01 of the Credit Agreement shall be amended as follows:
(i) subsection (a) shall be amended by adding a comma after
"Acceptable Subsidiary" at the end of clause (i) thereof,
re-designating clause (iii) as clause (ii), and adding a
new clause (iii) immediately before the period at the end
of such subsection as follows:
"and (iii) cause to be issued Bank Guaranties for the
Borrower's or an Acceptable Subsidiary's account";
(ii) subsection (c) shall be amended by deleting the word
"and" at the end of clause (i) thereof and inserting a
new clause (iii) immediately after the words "letters of
credit" at the end of clause (ii) thereof as follows:
"and (iii) the Bank Guaranty Outstanding Amount of all
Bank Guaranties"; and
(iii) subsection (d) shall be amended by inserting a "(i)"
immediately before the words "the L/C Outstanding
Amounts" and by inserting immediately after the words
"letters of credit" the following:
2
<PAGE>
"and (ii) the Bank Guaranty Outstanding Amount of all
Bank Guaranties".
(c) Section 2.04(b) of the Credit Agreement shall be amended (i) by
amending clause (ii) to read in its entirety as follows:
"(ii) require drafts payable in dollars or, in the case of a
commercial letter of credit denominated in a Local Currency,
payable in such Local Currency;",
(ii) and by deleting the word "and" at the end of clause (iii), re-designating
clause (iv) as clause (v) and adding a new clause (iv) as follows:
"(iv) be denominated in Dollars or such Local Currency as the
Bank may approve in its sole discretion; and".
(d) Section 2.04(d) of the Credit Agreement shall be amended in its
entirety to read as follows:
"(b) In the event of any request for a drawing under a
commercial letter of credit, the Bank will notify the Borrower.
In the case of letters of credit denominated in dollars, the
Borrower or the applicable Acceptable Subsidiary may, subject to
satisfaction of all conditions to borrowing set forth in this
Agreement, convert the amount of each drawing into a Reference
Rate Advance (which conversion shall be deemed to be a new
Advance). With respect to any unreimbursed drawing of any such
letter of credit which is not converted into a Reference Rate
Advance in whole or in part, because of the Borrower's failure to
satisfy the conditions set forth in Section 4.02 or for any other
reason, the Borrower shall reimburse or cause the applicable
Acceptable Subsidiary to reimburse the Bank prior to 11:00 a.m.
(San Francisco time), on each date that any amount is paid by the
Bank under any commercial letter of credit, in an amount equal to
the amount so paid by the Bank. Such reimbursement obligations
in respect of drawings, if not paid when due, shall bear
interest, payable on demand, from the date of such drawing or
payment, at the Floating Rate plus 2.0%. In the case of letters
of credit denominated in a Local Currency, the Borrower or the
applicable Acceptable Subsidiary shall reimburse the Bank or the
applicable Offshore Credit Provider prior to 11:00 a.m. (local
time) (or such other time as may be provided in the related
Application and Security Agreement or other documentation
governing such letter of credit) in the applicable Local Currency
in an amount so paid by the Bank or the Offshore Credit Provider.
Such reimbursement obligations in respect of drawings, if not
paid when due, shall bear interest, payable on demand, from the
date of such drawing or payment, at the rate set forth in the
related Application and Security Agreement or other documentation
governing such letter of credit or, if no such rate is therein
stated, at the local equivalent of the Reference Rate plus 2.0%."
3
<PAGE>
(e) Section 2.05(b) of the Credit Agreement shall be amended by
deleting from clause (i) the words "one year" and substituting therefor the
words "the date which is 13 months", deleting the word "and" at the end of
clause (ii), re-designating clause (iii) as clause (iv) and adding a new clause
(iii) as follows:
"(iii) be denominated in Dollars or such Local Currency as the
Bank may approve in its sole discretion; and".
(f) Section 2.05(d) of the Credit Agreement shall be amended in
its entirety to read as follows:
"(d) In the event of any request for a drawing under a
standby letter of credit, the Bank will notify the Borrower.
In the case of letters of credit denominated in dollars, the
Borrower or the applicable Acceptable Subsidiary may, subject
to satisfaction of all conditions to borrowing set forth in
this Agreement, convert the amount of each drawing into a
Reference Rate Advance (which conversion shall be deemed to be
a new Advance). With respect to any unreimbursed drawing of
any such letter of credit which is not converted into a
Reference Rate Advance in whole or in part, because of the
Borrower's failure to satisfy the conditions set forth in
Section 4.02 or for any other reason, the Borrower shall
reimburse or cause the applicable Acceptable Subsidiary to
reimburse the Bank prior to 11:00 a.m. (San Francisco time),
on each date that any amount is paid by the Bank under any
standby letter of credit, in an amount equal to the amount so
paid by the Bank. Such reimbursement obligations in respect
of drawings, if not paid when due, shall bear interest,
payable on demand, from the date of such drawing or payment,
at the Floating Rate plus 2.0%. In the case of letters of
credit denominated in a Local Currency, the Borrower or the
applicable Acceptable Subsidiary shall reimburse the Bank or
the applicable Offshore Credit Provider prior to 11:00 a.m.
(local time) (or such other time as may be provided in the
related Application and Agreement or other documentation
governing such letter of credit) in the applicable Local
Currency in an amount so paid by the Bank or the Offshore
Credit Provider. Such reimbursement obligations in respect of
drawings, if not paid when due, shall bear interest, payable
on demand, from the date of such drawing or payment, at the
rate set forth in the related Application and Agreement or
other documentation governing such letter of credit or, if no
such rate is therein stated, at the local equivalent of the
Reference Rate plus 2.0%."
(g) The following shall be inserted into the Credit Agreement as
Section 2.07:
"2.07 BANK GUARANTIES. (a) From time to time during the
Availability Period, the Bank may, in its sole discretion,
issue Bank Guaranties to the Borrower and to Acceptable
Subsidiaries. Each Bank Guaranty shall be issued by an
Offshore Credit Provider and pursuant to the laws of the
jurisdiction in which such
4
<PAGE>
Offshore Credit Provider is located and subject to any other
applicable law. Each Bank Guaranty shall be issued pursuant
to the terms and conditions hereof and of a Bank standard form
indemnity agreement and any other Bank standard forms for
guaranties executed by the Borrower or the relevant Acceptable
Subsidiary.
(b) Each Bank Guaranty shall:
(i) expire on or before the date which is 13 months after the
date it is issued, but in any event no later than the Final
Maturity Date; and
(ii) be otherwise in form and substance and in favor of
beneficiaries and for purposes satisfactory to the Bank.
(c) The Borrower or the relevant Acceptable Subsidiary shall pay
the Offshore Credit Provider issuance fees and other fees at
the times and in the amounts the Bank advises the Borrower or
the Acceptable Subsidiary from time to time as being
applicable to Bank Guaranties issued for the Borrower's or the
Acceptable Subsidiary's account.
(d) Each payment by the Offshore Credit Provider under a Bank
Guaranty shall be reimbursed by the Borrower or the Acceptable
Subsidiary to the Offshore Credit Provider in the applicable
currency on the date of such payment. Any sum owed to the
Offshore Credit Provider with respect to a Bank Guaranty
issued under this Section which is not paid when due shall, at
the option of the Offshore Credit Provider in each instance,
be deemed to be a Local Currency Advance to the Borrower or
the Acceptable Subsidiary by the Bank or such Offshore Credit
Provider outstanding under the Revolving Facility and shall
thereafter bear interest at the local equivalent of the
Reference Rate.
(e) At the expiration of the Availability Period, the Bank may
require the Borrower to provide cash collateral in the amount
of the Bank Guaranty Outstanding Amount, and, in addition to
any other rights or remedies which the Bank may have under
this Agreement or otherwise, upon the occurrence of an Event
of Default, the Bank may require the Borrower to provide cash
collateral in the amount of the Bank Guaranty Outstanding
Amount."
5
<PAGE>
(h) Section 7.01 of the Credit Agreement shall be amended by
deleting the word "and" from the end of subsection (h), re-designating
subsection (i) as subsection (k) and inserting new subsections (i) and (j) as
follows:
"(i) indebtedness not to exceed at any time outstanding
$150,000,000 in the aggregate which is subordinated to the
indebtedness and guaranties in favor of the Bank or any affiliate
of the Bank under this Agreement or any other Credit Document
upon terms and conditions satisfactory to the Bank in its sole
discretion;
(j) without duplication, guaranties and other continent
obligations resulting from or acquired in connection with the
acquisition of MAS Technology in an aggregate amount not to
exceed $10,000,000; and"
(i) Section 7.13 of the Credit Agreement shall be amended in
its entirety to read as follows:
"7.13 QUICK RATIO. The Borrower shall not permit as of the last
day of any fiscal quarter on a consolidated basis the sum of
cash, short-term cash investments, marketable securities not
classified as long-term investments and accounts receivable to be
less than 1.35 times current liabilities (which shall include,
without duplication, the sum of the dollar Equivalent Amount of
all outstanding Advances, the Bank Guaranty Outstanding Amount
and the L/C Outstanding Amount)."
(j) Section 7.15 of the Credit Agreement shall be amended in
its entirety to read as follows:
"7.15 TOTAL LIABILITIES TO TANGIBLE NET WORTH. The Borrower
shall not permit as of the last day of any fiscal quarter on a
consolidated basis (i) the Borrower's total liabilities (which
shall include, without duplication, all guaranties and other
contingent obligations permitted under Section 7.01 and the sum
of the dollar Equivalent Amounts of all outstanding Advances, the
Bank Guaranty Outstanding Amount and the L/C Outstanding Amount)
LESS the then outstanding principal amount of subordinated
indebtedness permitted under subsection 7.01(i) to exceed 0.75
times (ii) its Tangible Net Worth PLUS the then outstanding
principal amount of subordinated indebtedness permitted under
subsection 7.01(i)."
(k) Schedule 2 to Exhibit C of the Credit Agreement (the form
of Compliance Certificate) shall be amended and restated in its entirety to read
in the form of Schedule 2 attached hereto.
6
<PAGE>
3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Bank as follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any governmental authority) in
order to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Company contained in
the Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Bank or any
other Person.
4. EFFECTIVE DATE. This Amendment will become effective as of the date
first above written (the "EFFECTIVE DATE"), PROVIDED THAT each of the following
conditions precedent is satisfied:
(a) The Bank has received from the Company a duly executed original
(or, if elected by the Bank, an executed facsimile copy) of this Amendment.
(b) The Bank has received from the Company a copy of a resolution
passed by the board of directors of such corporation, certified by the Secretary
or an Assistant Secretary of such corporation as being in full force and effect
on the date hereof, authorizing the execution, delivery and performance of this
Amendment.
5. RESERVATION OF RIGHTS. The Company acknowledges and agrees that the
execution and delivery by the Bank of this Amendment shall not be deemed to
create a course of dealing or otherwise obligate the Bank to forbear or execute
similar amendments under the same or similar circumstances in the future.
6. MISCELLANEOUS.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
7
<PAGE>
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Bank of a
facsimile transmitted document purportedly bearing the signature of the Company
shall bind the Company with the same force and effect as the delivery of a hard
copy original. Any failure by the Bank to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document which hard copy
page was not received by the Bank.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 9.05 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) Company covenants to pay to or reimburse the Bank, upon demand,
for all reasonable costs and expenses (including allocated costs of in-house
counsel) incurred in connection with the development, preparation, negotiation,
execution and delivery of this Amendment, including without limitation
appraisal, audit, search and filing fees incurred in connection therewith.
[Signature page follows.]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
DIGITAL MICROWAVE CORPORATION
By: /s/ CARL A. THOMSEN
-------------------------------------
Name: Carl A. Thomsen
Title: Vice President, Chief Financial
Officer & Secretary
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ DEBRA STAIGER
-------------------------------------
Name: Debra Staiger
Title: Vice President
9
<PAGE>
Date: ______________, 199__
For the fiscal quarter/year
ended ______________, 199__
SCHEDULE 2
----------
to the Compliance Certificate
($ in 000's)(1)
Actual Required/Permitted
------ ------------------
1. SECTION 7.13 QUICK RATIO.
-------------------------
The ratio of:
A. the sum of:
(i) cash
---------
PLUS
----
(ii) short-term cash investments
---------
PLUS
----
(iii) marketable securities not
classified as long-term
investments
---------
PLUS
----
(iv) current accounts
receivable
---------
(i)+(ii)+(iii)+(iv) =
---------
B. Current Liabilities(2)
A
--- = Not less than 1.35 to
B --------- 1.00.
---------
- --------------
(1) Determined on a consolidated basis, in accordance with GAAP.
(2) Including, without duplication, the sum of the dollar Equivalent Amount
of all outstanding Advances, the Bank Guaranty Outstanding Amount and the
L/C Outstanding Amount.
S-1
<PAGE>
2. SECTION 7.14 MINIMUM TANGIBLE
NET WORTH.
----------
<TABLE>
<CAPTION>
<S> <C>
Tangible Net Worth: Not to be less than the sum of:
(i) Total assets --------- A. 90% of consolidated Tangible
Net Worth as of 12/31/96
-------------
LESS PLUS
---- ----
(ii) goodwill, patents, trademarks,
trade names, organization B. 100% of the net proceeds
expense, treasury stock, received from the issuance
unamortized debt discount and of equity after 12/31/96
expense, deferred charges and -------------
other like intangibles and PLUS
monies due from Affiliates ----
other than Subsidiaries of C. up to $20,000,000 in
the Borrower, officers, intangible assets acquired
directors, or shareholders --------- after 12/31/96
-------------
LESS
----
(iii) reserves applicable
thereto
---------
LESS
----
(iv) all liabilities (including
accrued and deferred income
taxes)
---------
(i)-(ii)-(iii)-(iv) = A + B - C =
--------- -------------
--------- -------------
</TABLE>
S-2
<PAGE>
3. SECTION 7.15 TOTAL LIABILITIES
TO TANGIBLE NET WORTH.
----------------------
<TABLE>
<CAPTION>
<S> <C>
The ratio of:
A. (i) Total Liabilities(1) ---------
LESS
----
(ii) Permitted subordinated
indebtedness
---------
(i) + (ii)
---------
B. (i) Tangible Net Worth
(from 2. above)
---------
PLUS
----
(ii) Permitted subordinated
indebtedness
---------
(i) + (ii)
---------
A
--- --------- Not greater than 0.75 to 1.00.
B ---------
4. SECTION 7.16(a)
LOSSES IN TWO
CONSECUTIVE QUARTERS.
---------------------
A. (i) Operating loss
for fiscal quarter --------- Not to exceed 0 if (ii) shows a loss.
just ended ---------
(ii) Operating loss
for the fiscal quarter
immediately preceding
the fiscal quarter just ---------
ended ---------
B. (i) Net loss for
fiscal quarter
just ended --------- Not to exceed 0 if (ii) shows a loss.
---------
(ii) Net loss for the
fiscal quarter
immediately
preceding the
fiscal quarter
just ended ---------
---------
</TABLE>
- --------------
(1) Including, without duplication, all guaranties and other contingent
obligations and the sum of the dollar Equivalent Amount of all outstanding
Advances, the Bank Guaranty Outstanding Amount and the L/C Outstanding
Amount.
S-3
<PAGE>
5. SECTION 7.16(b)
LOSSES IN ONE QUARTER.
----------------------
<TABLE>
<CAPTION>
<S> <C>
Operating loss for fiscal quarter Not to exceed 5% of Tangible Net
just ended --------- Worth as of immediately preceding
--------- fiscal quarter:
Tangible Net Worth
from last quarter's
Compliance Certificate
Item No. 2
---------
x 5%
=
---------
---------
Net loss for fiscal --------- Not to exceed 5% of Tangible
quarter just ended --------- Net Worth as of immediately
preceding fiscal quarter
as computed above:
---------
---------
</TABLE>
S-4
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("AMENDMENT"), dated as of
July 22, 1998, effective as of June 30, 1998, is entered into by and between
DIGITAL MICROWAVE CORPORATION (the "COMPANY") and BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION (the "BANK").
RECITALS
A. The Company and the Bank are parties to a Credit Agreement dated as
of June 30, 1997, as amended by a First Amendment to Credit Agreement dated
as of June 1, 1998 (as so amended, the "CREDIT AGREEMENT"), pursuant to which
the Bank has extended certain credit facilities to the Company.
B. The Company has requested that the Bank agree to certain amendments
of the Credit Agreement.
C. The Bank is willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 1.01 of the Credit Agreement shall be amended as follows:
(i) The definition of "Availability Period" shall be amended
in its entirety to read as follows:
""AVAILABILITY PERIOD": the period commencing on the
date of this Agreement and ending on the date that is the
earlier to occur of (a) September 30, 1998 and (b) the
date on which the Bank's commitment to extend credit
hereunder terminates."
(ii) The definition of "Final Maturity Date" shall be amended
in its entirety to read as follows:
""FINAL MATURITY DATE": (a) in respect of any Advances,
September 30, 1998; (b) in respect of any commercial
letters of credit, March 31, 1999; (c) in respect of any
standby letters of credit, October 29, 1999; and (d) in
respect of any Bank Guaranties, October 29, 1999."
1
<PAGE>
(b) Section 7.01(k) of the Credit Agreement shall be amended
in its entirety to read as follows:
"(k) other unsecured indebtedness not to exceed
$7,500,000."
(c) Section 7.16 of the Credit Agreement shall be amended in
its entirety to read as follows:
"7.16 CONSECUTIVE QUARTERLY LOSSES; LOSSES IN ONE
QUARTER. Consecutive Quarterly Losses; Losses in One Quarter.
The Borrower on a consolidated basis shall not incur, (a) any
quarterly net or operating losses in any two consecutive fiscal
quarters or (b) any quarterly net or operating loss in excess of
5% of consolidated Tangible Net Worth computed as of the last day
of the immediately preceding fiscal quarter; PROVIDED, THAT, the
Borrower may incur on a one-time basis (i) a consecutive
quarterly net and operating loss for the two consecutive quarters
ending March 31 and June 30, 1998, and (ii) for the quarter
ending June 30, 1998, a quarterly net or operating loss in excess
of 5% of consolidated Tangible Net Worth computed as of the last
day of the immediately preceding fiscal quarter, PROVIDED,
FURTHER, THAT each of the net and operating loss for the quarter
ending June 30, 1998 may not exceed $15,000,000."
3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Bank as follows:
(a) As of the Effective Date, no Default or Event of Default has
occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, notice to or action by, any Person (including any
governmental authority) in order to be effective and enforceable. The
Credit Agreement as amended by this Amendment constitutes the legal,
valid and binding obligations of the Company, enforceable against it in
accordance with its respective terms, without defense, counterclaim or
offset.
(c) As of the Effective Date, all representations and warranties
of the Company contained in the Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the basis of
its own investigation and for its own reasons, without reliance upon the
Bank or any other Person.
4. EFFECTIVE DATE. This Amendment will become effective as of June
30, 1998 (the "EFFECTIVE DATE"), PROVIDED THAT the Bank has received from the
Company on or before July 31, 1998 a duly executed original (or, if elected
by the Bank, an executed facsimile copy) of this Amendment.
2
<PAGE>
5. RESERVATION OF RIGHTS. The Company acknowledges and agrees that
the execution and delivery by the Bank of this Amendment shall not be deemed
to create a course of dealing or otherwise obligate the Bank to forbear or
execute similar amendments under the same or similar circumstances in the
future.
6. MISCELLANEOUS.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and
effect and all references therein and in the other Credit Documents to such
Credit Agreement shall henceforth refer to the Credit Agreement as amended
by this Amendment. This Amendment shall be deemed incorporated into, and a
part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit
of the parties hereto and thereto and their respective successors and
assigns. No third party beneficiaries are intended in connection with
this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. Each of the
parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either
in the form of an executed original or an executed original sent by
facsimile transmission to be followed promptly by mailing of a hard copy
original, and that receipt by the Bank of a facsimile transmitted
document purportedly bearing the signature of the Company shall bind the
Company, with the same force and effect as the delivery of a hard copy
original. Any failure by the Bank to receive the hard copy executed
original of such document shall not diminish the binding effect of
receipt of the facsimile transmitted executed original of such document
which hard copy page was not received by the Bank.
(e) This Amendment, together with the Credit Agreement, contains
the entire and exclusive agreement of the parties hereto with reference
to the matters discussed herein and therein. This Amendment supersedes
all prior drafts and communications with respect thereto. This
Amendment may not be amended except in accordance with the provisions of
Section 9.05 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this
Amendment or the Credit Agreement, respectively.
(g) Company covenants to pay to or reimburse the Bank, upon
demand, for all reasonable costs and expenses (including allocated costs
of in-house counsel)
3
<PAGE>
incurred in connection with the development, preparation, negotiation,
execution and delivery of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
DIGITAL MICROWAVE CORPORATION
By: /s/ CARL A. THOMSEN
-----------------------------------
Name: Carl A. Thomsen
Title: Vice President, Chief Financial
Officer and Secretary
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ DEBRA G. STAIGER
-----------------------------------
Name: Debra G. Staiger
Title: Vice President
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM
10-Q OF DIGITAL MICROWAVE CORPORATION FOR THE QUARTER ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,764
<SECURITIES> 6,637
<RECEIVABLES> 65,936
<ALLOWANCES> 5,633
<INVENTORY> 65,981
<CURRENT-ASSETS> 162,825
<PP&E> 75,537
<DEPRECIATION> 42,631
<TOTAL-ASSETS> 211,083
<CURRENT-LIABILITIES> 48,408
<BONDS> 0
0
0
<COMMON> 467
<OTHER-SE> 162,023
<TOTAL-LIABILITY-AND-EQUITY> 211,083
<SALES> 53,003
<TOTAL-REVENUES> 53,003
<CGS> 41,660
<TOTAL-COSTS> 41,660
<OTHER-EXPENSES> 26,183
<LOSS-PROVISION> 1,838
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (13,935)
<INCOME-TAX> 27
<INCOME-CONTINUING> (13,962)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,962)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF DIGITAL MICROWAVE
CORPORATION FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 31,259
<SECURITIES> 15,114
<RECEIVABLES> 65,462
<ALLOWANCES> 3,836
<INVENTORY> 57,668
<CURRENT-ASSETS> 169,204
<PP&E> 55,955
<DEPRECIATION> 33,744
<TOTAL-ASSETS> 208,691
<CURRENT-LIABILITIES> 52,609
<BONDS> 0
0
0
<COMMON> 372
<OTHER-SE> 155,025
<TOTAL-LIABILITY-AND-EQUITY> 208,691
<SALES> 64,558
<TOTAL-REVENUES> 64,558
<CGS> 41,346
<TOTAL-COSTS> 41,346
<OTHER-EXPENSES> 17,206
<LOSS-PROVISION> 402
<INTEREST-EXPENSE> 203
<INCOME-PRETAX> 6,492
<INCOME-TAX> 682
<INCOME-CONTINUING> 5,810
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,810
<EPS-PRIMARY> .14
<EPS-DILUTED> .13
</TABLE>
