AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION APRIL 20, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WIRELESS, INC.
(Exact name of registrant as specified in its charter)
----------------
DELAWARE 3663 94-3269426
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
5452 BETSY ROSS DRIVE
SANTA CLARA, CA 95054
(408) 727-8383
(Name and Address, including zip code, and telephone number, including area
code, of the registrant's principal executive offices)
----------------
WILLIAM J. PALUMBO
CHIEF EXECUTIVE OFFICER AND PRESIDENT
WIRELESS, INC.
5452 BETSY ROSS DRIVE
SANTA CLARA, CA 95054
(408) 727-8383
(Address, including zip code, and telephone number, including area code, of
agent for service)
----------------
COPIES TO:
WARREN T. LAZAROW, ESQ. JOHN L. DONAHUE, ESQ.
DAVID G. ODRICH, ESQ. CHRISTINE K. TALARIDES, ESQ.
JONATHAN G. SHAPIRO, ESQ. BLAIR M. WALTERS, ESQ.
BROBECK, PHLEGER & HARRISON LLP PILLSBURY MADISON & SUTRO LLP
TWO EMBARCADERO PLACE 2550 HANOVER STREET
2200 GENG ROAD PALO ALTO, CA 94304
PALO ALTO, CA 94303 (650) 233-4500
(650) 424-0160
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
----------------
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
======================================================================================================
AMOUNT TO BE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED (1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value ........................... $86,250,000 $22,770
======================================================================================================
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
********************************************************************************
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
********************************************************************************
SUBJECT TO COMPLETION, DATED APRIL 20, 2000
P R O S P E C T U S
SHARES
[LOGO]
COMMON STOCK
$ PER SHARE
-------------------
We are selling shares of our common stock. The underwriters named in this
prospectus may purchase up to additional shares of our common stock
to cover over-allotments.
This is an initial public offering of our common stock. We currently
expect the initial public offering price of the common stock to be between
$ and $ per share and we have applied to have our common
stock included for quotation on the Nasdaq National Market under the symbol
"WLSS."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------
PER SHARE TOTAL
----------- ----------
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Wireless, Inc. (before expenses) $ $
The underwriters are offering the shares subject to various conditions.
The underwriters expect to deliver the shares to purchasers on or about
, 2000.
-------------------
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
, 2000
INSIDE FRONT COVER
The page consists of an orange circle, part of which disappears off of
the page to the right, appearing on a light blue background. Inside the circle
is a diagram of several buildings connected by lines. The building in the center
is captioned "Communication Service Provider." Underneath are two groups of
houses. The line between the center building and the first group of three houses
is captioned "Cable Service" in bold and underneath "6 Mbps." The line between
the center building and the second group of two houses is captioned "Digital
Subscriber Service" in bold and underneath "256 Kbps." Beneath all five houses
is the caption "Residential" in bold. Directly to the left of the center
building is a larger building captioned "Small and Medium Businesses" in bold.
The line between the larger building and the center building is captioned "T-1
service" in bold and underneath "1.5 Mbps." Towards the top left corner is a
tall building captioned "Large Businesses." The line between the tall building
and the center building is captioned "Fiber Optic Service" in bold and
underneath "45 Mbps." A cloud appearing above the center building connected to
it by a line contains the words "Internet Applications" and six bullets, reading
"E-commerce," "Large data transfers," "Streaming video and audio,"
"Telecommuting," "Distance learning," and "Web-based conferencing." Below the
diagram inside the circle is the text: "High-speed Internet access within a
broadband service coverage area is limited by existing telephone and cable
facilities, and the expensive installation costs associated with fiber optic and
T-1 technology." At the inside left edge of the circle are the words "Wired
broadband service coverage boundary." Outside the orange circle on the light
blue background to the lower left are eight houses amongst which appears the
word "Residential" in bold and 4 larger buildings in the middle of which is the
caption "Small & Medium Businesses" in bold. Centered between the larger
buildings and the houses but outside the orange circle are the words "Dial-up
Access Only" in bold and underneath "56 Kbps." At the lower right corner of the
page is the text: "High-speed Internet access services are unavailable outside a
limited coverage area." In the top left corner of the page on the light blue
background is the Wireless logo, which consists of the word "Wireless" with the
first four letters in black and the last four in blue, multi-colored dots
appearing above the "i", "r" and "e", the capital letters "INC" in the top right
corner, the letters "TM" in the lower right corner and a semi-circular blue line
underneath. Underneath the logo are the words "Broadband without Boundaries."
GATEFOLD
The gatefold consists of three large columns stretching across both pages
of the gatefold with text appearing over the columns on the left top of the
page. The text reads: "Key benefits of our broadband wireless access solution:"
underneath which are five bullets reading "Cost-effective design and
implementation," "Rapid installation," "Scalable design," "Remote management"
and "Network compatibility." To the left of the text is the Wireless logo, which
consists of the word "Wireless" with the first four letters in black and the
last four in blue, multi-colored dots appearing above the "i," "r" and "e," the
capital letters "INC." in the top right corner, the letters "TM" in the lower
right corner and a semi-circular blue line underneath.
The first column is split in half. The heading for the top half contains
the words "WaveNet Access" in bold and underneath, the words
"point-to-multipoint," all on a blue background, below which is a diagram
consisting of five small buildings, four of which are labeled "Insurance,"
"Office Supply," "Bank," "Retailer" and the fifth of which is not labeled. Red
dots emanate from a Wireless product on the top of each building to a large
telephone pole at the right of the column on which a Wireless device is mounted.
Under the dots are the words "4-5 Mbps." Below the diagram are the words
"WaveNet Access" in bold and underneath the words "A point-to-multipoint system
that transports voice and data traffic to multiple end-users within a local
area."
The heading for the bottom half of the first column contains the word
"StarPort" in bold and underneath, the words "Point-to-multipoint," all on a
yellow background, below which is a diagram consisting of four houses and a
personal computer below the first house. There is a personal computer visible
inside the first house as well. Both personal computers are connected to a small
Wireless device. Red dots emanate from a Wireless product within each building
to a large telephone pole at the right of the column on which a Wireless device
is mounted. Under the dots are the words "4-5 Mbps." Below the diagram is the
word "StarPort" in bold and underneath the words "A point-to-multipoint system
that provides Internet access to multiple end-users at DSL rates."
The heading for the second column contains the words "WaveNet Link" in
bold and underneath the words "Point-to-point," all on a red background. A line
connects the large pole on the right side of the upper half of the first column
to a large pole on the left side of the second column on which another Wireless
device appears. Above
this pole are the words "WaveNet Link 4X" in bold. A caption over the line
connecting the two poles reads "Voice and data traffic" in bold. A second line
connects the pole on the right side of the lower half of the first column to
another pole on the left side of the second column. Above this pole are the
words "WaveNet Link EX" in bold. A caption over the line connecting the two
poles reads "Internet traffic." Red dots emanate from both poles on the left
side of the second column to two poles on the right side of the second column,
on which are mounted Wireless devices. Under the red dots between the pole
coming from the upper half of the first column are the words "16 Mbps" and under
the dots between the pole coming from the lower half of the first column are the
words "16 Mbps." In the center of the second column are the words "WaveNet
Link," in bold and underneath the words "A point-to-point system that transports
voice and data between two locations."
The heading for the third column contains the words "WaveNet Transport" in bold
and underneath the words "High-capacity transport," all on an orange background.
Two lines connect the two poles on the right side of the second column to a
large box on the left side of the third column out of which a pole emerges with
a microwave antenna at the top. Below the box are the words "Interconnection
Node" in bold. Red dots emanate from the microwave antenna to another similar
antenna on top of a building in the center of the third column. The words
"Service Provider" in bold appear below the building. A thick red line connects
the building to a blue cloud on the right side of the column, inside of which
are the words "Telecommunication Network or Internet" in bold. A caption over
and under the red line reads "IP or ATM."
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................................................................................... 4
Risk Factors......................................................................................... 8
Forward-Looking Statements........................................................................... 20
Use of Proceeds...................................................................................... 21
Dividend Policy...................................................................................... 21
Capitalization....................................................................................... 22
Dilution............................................................................................. 23
Selected Financial Data.............................................................................. 24
Management's Discussion and Analysis of Financial Condition and Results of Operations................ 26
Business............................................................................................. 33
Management........................................................................................... 44
Executive Compensation and Other Information......................................................... 48
Certain Transactions................................................................................. 55
Principal Stockholders............................................................................... 60
Description of Capital Stock......................................................................... 62
Material United States Federal Income and Estate Tax Consequences to Non-United States Holders....... 66
Shares Available for Future Sale..................................................................... 68
Underwriting......................................................................................... 70
Legal Matters........................................................................................ 72
Experts.............................................................................................. 72
Additional Information............................................................................... 72
Index to Financial Statements........................................................................ F-1
-------------------
Until ________________________ , 2000, all dealers that buy, sell or
trade the common stock, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
3
PROSPECTUS SUMMARY
BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS,
INCLUDING "RISK FACTORS," AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE
NOTES THERETO, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
OUR COMPANY
We are a global provider of broadband wireless access solutions that
enable Internet and communication service providers, telephone operating
companies and private network operators to deliver voice and high-speed data
services to their customers. We provide a portfolio of wireless systems that
connect end-users to public and private telecommunication networks in domestic
and international markets. Our systems allow an Internet or communication
service provider or enterprise to rapidly install high-speed communications
throughout a service area at a lower cost than a comparable wired network. More
than 200 customers in over 50 countries have purchased and installed our
systems.
Our portfolio of systems allows end-users to transmit voice and data
simultaneously via Internet protocol, or IP, or asynchronous transfer mode, or
ATM, architectures, two leading industry standards for telecommunication
transport. Our broadband wireless access solutions address a wide range of
applications in different markets, including:
o enabling Internet service providers to offer direct Internet access;
o rapidly installing new networks for communication service providers;
o supplementing telephone operating companies' existing wired networks;
o establishing communication networks in regions without existing
infrastructures; and
o establishing private corporate networks.
Our systems are available in a broad range of frequency assignments,
enabling us to address the different regulatory requirements of multiple
geographic markets. We have systems installed and operating in Argentina,
Brazil, Chile, China, Mexico, Panama, the Philippines, Poland and the United
States. In 1999, 83% of our revenues were derived internationally. Our global
service organization provides customer support 24 hours per day, 7 days a week
and offers network design and installation services as part of our wireless
solution.
As the Internet and public and private communication networks have become
essential for communication, e-commerce and information exchange, the volume of
voice and high-speed data traffic worldwide has increased dramatically. In
addition, user applications, such as electronic mail, telecommuting and
business-to-business exchanges have further increased the amount of network
traffic. This increase in network traffic has resulted in a demand for greater
transmission capacity, or bandwidth, and high-speed, or broadband services to
support it. Bandwidth limitations between service providers' central offices and
end-users, often referred to as the last mile bottleneck, have constrained
service providers from delivering broadband services to end-users. We believe
that traditional dial-up modem technology is insufficient to support the growth
in network traffic and demand for high-speed data transmission. Although wired
access network infrastructures using cable, digital subscriber line, or DSL, and
fiber optic systems can deliver greater bandwidth than that provided by dial-up
modem technology, these systems are not universally available to end-users. This
last mile bottleneck is frustrating a broad base of business, residential and
small office/home office users, many of whom require high-speed access to data.
Broadband wireless access technology can solve many of the problems
imposed by wired networks. Broadband wireless technology enables rapid
implementation of high-speed network access in a cost-effective manner relative
to wired networks. We believe that wireless network providers will be able to
gain a greater share of the network access market because, unlike wired network
providers, they are not required by federal law to share their wireless networks
with competing service providers. A broadband wireless network is often the best
option for high-speed communication in remote areas and in many developing
countries due to the lack of an existing wired infrastructure. In these regions,
wireless technologies provide clear advantages over wired networks, including
lower cost, faster installation, greater flexibility and increased reliability.
4
We believe our WAVENET BROADBAND WIRELESS ACCESS portfolio of systems
provides our customers with the following key benefits:
o cost-effective design and implementation;
o rapid installation;
o scalability;
o remote management; and
o network compatibility.
Our goal is to be the global broadband wireless access solution of choice
for Internet and communication service providers, telephone operating companies
and private network operators. Our strategy for achieving this goal includes the
following core elements:
o introducing new wireless access technologies;
o leveraging strategic relationships;
o expanding global market presence;
o emphasizing research and development; and
o continuing to deliver high-quality customer service and support.
As part of our strategy, we are expanding our product line. We are
currently testing in the field a new system called STARPORT which we intend to
commercially introduce during 2000. STARPORT is a point-to-multipoint broadband
wireless access system that does not require a line of sight between
transmission and reception points and supports high-speed Internet traffic.
STARPORT can be installed by the consumer without requiring a communication
service provider to supply a professional technician. STARPORT is designed as a
cost-effective alternative to wire-based cable, DSL and fiber optic
technologies, and is intended to allow a service provider to rapidly supply
services, such as high-speed Internet access, throughout a service area.
STARPORT is specifically designed for the residential, small office and home
office markets. We expect that the consumer will be able to connect an interface
cable from STARPORT to a personal computer and then automatically receive
broadband service at data rates that are comparable to typical DSL service.
We have entered into a strategic relationship with TRW, Inc. which
provides us with technology that we use in our STARPORT system. This technology
was originally developed by TRW Systems and Information Technology Group for
military communications. TRW is an international company that provides advanced
technology products and services. The principal businesses of TRW and its
subsidiaries are the design, manufacture and sale of products and the
performance of systems engineering, research and technical services for industry
and the United States Government in the automotive, aerospace and information
systems markets. As part of this initiative, TRW acquired approximately 18% of
our capital stock outstanding prior to this offering.
Despite our accomplishments, we face many challenges and risks. For
example, we have not achieved, and may never achieve, profitability. In
addition, we expect to incur net losses in the future and these losses may be
substantial. Accordingly, you should carefully consider the information set
forth under the caption "Risk Factors" before deciding to purchase our common
stock.
OUR BACKGROUND
Wireless, Inc. was incorporated on May 7, 1997 in California and in
August 1998 purchased Multipoint Networks, Inc., a California corporation
engaged in the manufacturing of point-to-multipoint data products. We plan to
reincorporate in Delaware prior to the commencement of this offering. References
in this prospectus to "Wireless," "we," "our" and "us" refer to Wireless, Inc.,
a Delaware corporation and its California predecessor and not to the
underwriters. Our principal executive offices are located at 5452 Betsy Ross
Drive, Santa Clara, CA 95054 and our telephone number is (408) 727-8383. Our web
site can be found at www.wire-less-inc.com. Information contained in our web
site is not a prospectus and does not constitute a part of this prospectus.
5
OUR TRADEMARKS
Our trademarks and service marks include WIRELESS, WAVENET, WAVENET
ACCESS, WAVENET LINK, WAVENET TRANSPORT, STARPORT and RAN with the accompanying
design and the Wireless logo. Each trademark, trade name or service mark of any
other company appearing in this prospectus belongs to its holder.
THE OFFERING
Common stock offered................................. Shares
Common stock to be outstanding
after the offering................................... Shares
Use of proceeds...................................... For general corporate purposes, including working
capital and capital expenditures. $2.5 million of the
proceeds will be paid to TRW in connection with the
license of certain technology. We may also use a
portion of the proceeds for possible acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............... "WLSS"
-------------------
Unless otherwise indicated all information in this prospectus:
o assumes no exercise of the underwriters' over-allotment option;
o reflects the conversion of all of our outstanding preferred stock into
common stock upon the effectiveness of the registration statement; and
o reflects our reincorporation into Delaware before the commencement of
this offering.
See "Description of Capital Stock" and "Underwriting."
EXCEPT WHERE OTHERWISE NOTED, REFERENCES IN THIS PROSPECTUS TO 1998 AND
1999 REFER TO THE TWELVE MONTHS ENDING DECEMBER 31, 1998 AND DECEMBER 31, 1999,
RESPECTIVELY, AND REFERENCES TO THE PERIOD FROM INCEPTION TO DECEMBER 31, 1997
REFER TO THE PERIOD BEGINNING MAY 7, 1997 AND ENDING DECEMBER 31, 1997.
6
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following tables set forth our summary financial, operating and
balance sheet data. You should read this information together with the financial
statements and the related notes included elsewhere in this prospectus, as well
as the information set forth under the captions "Selected Financial Data,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The pro forma financial data presented below reflects:
o the issuance of 3,000,000 shares of Series F Preferred Stock in January
2000;
o the conversion of all outstanding shares of preferred stock into
common stock;
o the exercise of outstanding warrants to purchase 68,000 shares of
preferred stock at a weighted-average exercise price of $1.62 per
share and the conversion of such shares into 68,662 shares of common
stock;
o the exercise of outstanding warrants to purchase 160,000 shares of
common stock at a weighted-average exercise price of $3.06 per share,
which by their terms expire or automatically convert within 30 days of
the completion of this offering; and
o the issuance of 3,429,352 shares of common stock valued at $5.00 per
share in January 2000 in connection with a Purchase and License
Agreement.
The pro forma, as adjusted balance sheet data presented below reflects the
above factors as well as the estimated net proceeds from the sale of
___________ shares of common stock at an assumed initial public offering price
of $ _______ per share after deducting estimated underwriting discounts and
commissions and our estimated offering expenses. See Note 1 of Notes to
Financial Statements for a detailed explanation of the determination of the
shares used to compute actual and pro forma basic and diluted net loss per
share.
PERIOD FROM
MAY 7, 1997
INCEPTION) TO YEARS ENDED DECEMBER 31,
(DECEMBER 31, ----------------------------------
1997 1998 1999
---------------- ---------------- ----------------
STATEMENT OF OPERATIONS DATA:
Revenue....................................................... $ 201 $ 11,172 $ 21,296
Gross profit (loss)........................................... (220) 2,081 5,502
Total operating expenses...................................... 3,438 9,267 18,774
Operating loss................................................ (3,658) (7,186) (13,272)
Net loss....................................................... $ (3,644) $ (7,476) $ (13,699)
================ ================ ================
Basic and diluted net loss per share........................... $ -- $ (6.18) $ (4.30)
================ ================ ================
Basic and diluted weighted average shares used in computation
of net loss per share....................................... 1,210,364 3,187,334
Pro forma basic and diluted net loss per share ................ $ (0.84)
================
Pro forma basic and diluted weighted average shares used in
computation of net loss per share .......................... 16,302,544
AS OF DECEMBER 31, 1999
----------------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------------- ---------------- ----------------
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 1,140 $ 16,742
Working capital................................................ 5,122 20,724
Total assets................................................... 17,038 49,785
Long-term liabilities ......................................... 239 239
Total stockholders' equity..................................... 9,412 42,160
7
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST
IN SHARES OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS
AND FINANCIAL RESULTS MAY SUFFER. IN THAT CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
RISKS RELATING TO OUR COMPANY
OUR PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE HAVE ONLY BEEN OPERATING OUR
BUSINESS SINCE MAY 1997.
We were incorporated in May 1997 and did not ship our first wireless
access product until September 1998. We have limited meaningful historical
financial data upon which to base projected revenues and planned operating
expenses and upon which investors may evaluate us and our prospects. In
addition, our operating expenses are largely based on anticipated revenue trends
and a high percentage of our expenses are and will continue to be fixed. You
should consider the risks and difficulties frequently encountered by companies
like ours in a new and rapidly evolving market. Our ability to sell products and
the level of success we achieve depends on the level of demand for broadband
wireless access and networking products, which is a new and rapidly evolving
market.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE OR
SUSTAIN PROFITABILITY.
As of December 31, 1999, we had an accumulated deficit of $24.8 million,
and we expect to continue to incur net losses. We anticipate continuing to incur
significant sales and marketing and general and administrative expenses and
significantly increasing our research and development expenses as a result of
products under development. As a result, we will need to generate significantly
higher revenues to achieve or sustain profitability and we cannot be certain
that we will be able to generate these revenues. We incurred net losses of $3.6
million, $7.5 million and $13.7 million in 1997, 1998 and 1999, respectively. We
expect to continue to incur net losses for the foreseeable future.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY ADVERSELY AFFECT THE TRADING PRICE OF
OUR COMMON STOCK.
Our operating results have varied in the past and are likely to vary in
the future. It is possible that our revenues and operating results may be below
the expectations of securities analysts or investors in future quarters. If we
fail to meet or surpass the expectations of securities analysts or investors,
the market price of our stock will most likely fall. Fluctuations in our
operating results could be caused by a number of factors, including:
o the timing and cancellation of customer orders;
o our ability to introduce new systems and technologies on a timely
basis;
o market acceptance of our systems and our customers' services;
o introduction of products and systems by our competitors;
o our ability to respond to fluctuations in customer order levels;
o the timing of our investments in research and development;
o the timing and provision of returns from our distributors;
o whether our customers buy from a distributor, an original equipment
manufacturer or directly from us;
o cost and availability of components and subassemblies;
o competitive pressures on selling prices;
o finished system availability and quality;
o general economic conditions; and
o changes in system mix.
Given that any one or more of those factors could have an adverse effect
on our business, the prediction of future operating results is difficult and
uncertain. In addition, some of our operating expenses are relatively fixed
8
and, as a result, we may not be able to reduce our operating costs in response
to unanticipated reductions in our revenues or the demand for our systems.
WE DEPEND UPON TECHNOLOGY LICENSED FROM THIRD PARTIES, AND IF WE DO NOT MAINTAIN
THESE LICENSE ARRANGEMENTS, OUR BUSINESS WILL BE SERIOUSLY HARMED.
We license technology that is used in our broadband wireless access
systems from third parties under agreements with a limited duration and we may
not be able to maintain these license arrangements. If we fail to maintain these
license arrangements or we are unable to maintain these licenses on affordable
terms, we would not be able to ship our systems for the broadband wireless
access market, and our business would be seriously harmed.
OUR BUSINESS MODEL DEPENDS UPON OBTAINING AND PROTECTING OUR INTELLECTUAL
PROPERTY, AND IF WE FAIL TO PROTECT OUR PROPRIETARY RIGHTS, OUR BUSINESS COULD
BE HARMED.
Our ability to compete depends substantially upon our internally
developed technology, and, in particular, upon our ability to obtain and
preserve patent and other intellectual property rights covering our systems and
development and testing tools. Our efforts to obtain patent, trade secret,
copyright and other intellectual property rights in connection with our products
are likely to be expensive, may not be effective and may have unpredictable
consequences. If we are not successful in protecting our intellectual property,
our business could be substantially harmed.
OUR PENDING PATENTS MAY NEVER BE ISSUED, AND EVEN IF ISSUED, MAY PROVIDE
US WITH LITTLE PROTECTION.
We regard the protection of patentable inventions as important to our
future opportunities. We currently hold two U.S. patents and have two patent
applications pending before the U.S. Patent and Trademark Office relating to our
point-to-multipoint wireless networking technology. We also share ownership of
two patent applications pending before the U.S. Patent and Trademark Office,
obtained under a Purchase and License Agreement with TRW, relating to our
STARPORT point-to-multipoint wireless networking technology. In addition, under
the Purchase and License Agreement with TRW, we obtained rights in technology in
the field of wireless communications systems that may lead to additional patent
applications. However, none of our technology is patented outside of the United
States nor do we currently have any international patent applications pending.
We cannot assure you that:
o patents will be issued from our currently pending or future
applications;
o our existing patents or any new patents will be sufficient in scope to
provide meaningful protection or any commercial advantage to us;
o an issued patent will not be successfully challenged by one or more
third parties, resulting in our loss of the right to prevent others
from exploiting the inventions claimed in the patents;
o foreign intellectual property laws will protect our intellectual
property rights; or
o others will not independently develop similar or superior products,
duplicate our products or design around any patents issued to us.
TO PROTECT OUR PROPRIETARY RIGHTS, WE RELY UPON TRADEMARKS, COPYRIGHTS
AND TRADE SECRETS, WHICH ARE ONLY OF LIMITED VALUE.
We rely on a combination of laws, such as copyright, trademark and trade
secret laws, and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. We currently have
registered trademarks for the marks "WAVENET," and "RAN" and applications
pending before the United States Patent and Trademark Office for additional
marks, including "STARPORT," and the Wireless logo. However, none of our
trademarks are registered outside of the United States, nor do we have any
trademark applications pending outside of the United States. Moreover, despite
any precautions which we have taken:
o laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
o other companies may claim common law trademark rights based upon state
or foreign law which precede our federal registration of such marks;
and
9
o policing unauthorized use of our systems and trademarks is difficult,
expensive and time-consuming and, therefore, we are unable to determine
the extent to which piracy of our systems and trademarks may occur,
particularly overseas.
The establishment of trade secrets, proprietary know-how and copyright
rights used in our business relies upon confidentiality and other provisions in
agreements with employees, consultants and other contracting parties. Such
contracting parties may not comply with the terms of their agreements with us
and we may not be able to adequately enforce our rights or, if enforceable, the
remedies may be inadequate. In contracts with our suppliers, customers and
others, we usually include indemnification provision concerning intellectual
property matters. We cannot assure you that the indemnification that we receive
will be adequate nor that the indemnification that we give will not harm our
business.
See "Business--Intellectual Property and Proprietary Rights."
WE MAY BECOME INVOLVED IN COSTLY AND TIME CONSUMING LITIGATION OVER PROPRIETARY
RIGHTS.
Substantial litigation regarding intellectual property rights exists in
our industry. Intellectual property rights are uncertain and involve complex
legal and factual questions. We expect that software and hardware in our
industry may be increasingly subject to third-party infringement claims as the
number of competitors grows and the functionality of products in different
industry segments overlaps. Third parties may currently have, or may eventually
be issued, patents that would be infringed by our products or technology. We
cannot be certain that any of these third parties will not make a claim of
infringement against us with respect to our products and technology.
In particular, our STARPORT system under development relies upon direct
sequence spread spectrum technology. There are a number of patents relating to
this technology held by different companies which may impact our STARPORT
system. If our STARPORT system infringes any of these patents and we are unable
to negotiate a license, then we may be required to redesign the STARPORT system
or we may not be able to sell it.
Any litigation, brought by us or others, could result in the expenditure
of significant financial resources and the diversion of management's time and
efforts. In addition, litigation in which we are accused of infringement may
cause product shipment delays, require us to develop non-infringing technology
or require us to enter into royalty or license agreements even before the issue
of infringement has been decided on the merits. If any litigation were not to be
resolved in our favor, we could become subject to substantial damage claims and
be enjoined from the continued use of the technology at issue without a royalty
or license agreement. These royalty or license agreements, if required, might
not be available on acceptable terms, or at all, and could harm our business. If
a successful claim of infringement were made against us and we could not develop
non-infringing technology or license the infringed or similar technology on a
timely and cost-effective basis, our business could be significantly harmed.
WE CURRENTLY SELL A LIMITED NUMBER OF SYSTEMS. OUR SUCCESS DEPENDS ON SALES OF
THOSE SYSTEMS AND THE DEVELOPMENT AND SALE OF FUTURE SYSTEMS.
Our future growth depends on the commercial success of our line of
WAVENET broadband wireless access networking systems and the development and
sale of our WAVENET ACCESS 3500 and STARPORT system lines. Our WAVENET ACCESS
2400, WAVENET ACCESS 2458, WAVENET LINK, WAVENET TRANSPORT, and RAN systems and
those systems that we resell are the only systems that have been shipped to our
customers. We may experience design or manufacturing difficulties that could
delay or prevent our development, introduction or marketing of new systems and
enhancements of existing systems. Any of these difficulties could cause us to
incur unexpected expenses or lose revenue. We cannot assure you that we will
successfully complete the development or introduction of these systems. Failure
of our current or planned systems to operate as expected could delay or prevent
their adoption. If our target customers do not adopt, purchase, and successfully
install our current and planned systems, our revenues will not grow.
IF THE DEVELOPMENT OF OUR STARPORT SYSTEM IS MATERIALLY DELAYED OR FAILS TO
PERFORM TO CUSTOMER EXPECTATIONS, OUR BUSINESS WILL BE SUBSTANTIALLY HARMED AND
WE MAY LOSE OUR EXCLUSIVE LICENSE TO THE TECHNOLOGY.
We obtained an exclusive license from TRW in January 2000 to use the
technology employed by our STARPORT system in base stations configured for
outdoor use. If we do not offer a commercial version of a product containing
10
the STARPORT technology for sale by July 14, 2001, unless the delay is the fault
of TRW or attributable to specified reasons, we will lose our exclusivity with
respect to the license. Our future growth depends on the success of our STARPORT
system and we are committed to spending substantial amounts of money to develop
and commercialize products based upon STARPORT technology. If we fail to
successfully commercialize products containing STARPORT technology our prospects
will be severely diminished. Moreover, if we were to lose our exclusivity with
TRW or if our STARPORT system did not perform to customer expectations once we
completed development, our business would be substantially harmed. See
"Business--Strategic Relationship with TRW" and "Certain Transactions--Strategic
Relationship with TRW."
IF THE RADIO FREQUENCY IN WHICH OUR WAVENET ACCESS 3500 SYSTEM OPERATES IS
REASSIGNED, OR IF THE COMMERCIAL RELEASE OF THIS SYSTEM IS DELAYED, OUR BUSINESS
WILL BE SUBSTANTIALLY HARMED.
We have expended significant resources to design our WAVENET ACCESS 3500
system to operate in this band. We cannot assure you that this frequency band
will remain available for use by point-to-multipoint broadband wireless access
systems by the time we develop and launch this system. The reassignment of the
3.5 GHz frequency band to services other than broadband wireless access
technology would significantly harm our business. Moreover, if the WAVENET
ACCESS 3500 system does not satisfy our customers' expectations or if its
release is materially delayed, our business would be substantially harmed.
IF OUR BROADBAND WIRELESS ACCESS SYSTEMS UNDER DEVELOPMENT DO NOT FUNCTION WELL,
WE COULD LOSE SALES OPPORTUNITIES, SUFFER INJURY TO OUR REPUTATION, OR
EXPERIENCE WARRANTY CLAIMS.
To date, our broadband wireless access systems under development,
including STARPORT and WAVENET ACCESS 3500, are currently undergoing, or will
soon undergo, trial deployments. These broadband wireless access systems may
contain undetected or unresolved errors when they are first introduced or as a
result of changes we make to reduce manufacturing costs. In addition, these
broadband wireless access systems are integrated with other network elements and
there may be incompatibilities between these elements and our broadband wireless
access systems under development that adversely affect the service provider or
its subscribers. If these broadband wireless access systems fail, or do not
function adequately, we could experience:
o delays in, or losses of, sales opportunities;
o diversion of development resources;
o injury to our reputation; and
o increased service, warranty and replacement costs.
In addition, these broadband wireless access systems may contain
undetected or unresolved errors when they are first introduced or as a result of
changes we make to reduce manufacturing costs. These broadband wireless access
systems are integrated with other network elements. There may be
incompatibilities between these elements and our broadband wireless access
systems under development that adversely affect the service provider or its
subscribers.
OUR INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY ADDITIONAL RISKS
UNIQUE TO THOSE MARKETS.
Revenues from customers outside North America accounted for 83% of our
total revenues for 1999. We anticipate that revenues from customers outside
North America will continue to account for a significant portion of our total
revenues for the foreseeable future. Expansion of our international operations
has required, and will continue to require, significant management attention and
resources. In addition, we remain heavily dependent on distributors to market,
sell and support our systems internationally. Our international operations are
subject to additional risks, which could harm our results of operations,
including the following:
o difficulties of staffing and managing foreign operations;
o longer customer payment cycles and greater difficulties in collecting
accounts receivable;
o unexpected changes in regulatory requirements, telecommunications
standards, exchange rates, trading policies, tariffs and other
barriers;
o uncertainties of laws and enforcement relating to the protection of
intellectual property;
11
o language barriers;
o potential adverse tax consequences; and
o political and economic instability.
We currently sell broadband wireless access systems to customers in over
50 countries on 6 continents. During 1999, system sales to Mexico totaled $7.6
million or 35.9% of total revenues. System sales to the Philippines totaled $3.0
million or 13.9% of total revenues. One customer in Mexico represented $3.0
million or 13.9% of total revenues in 1999. These countries have recently
experienced significant problems with their economies, which have adversely
affected the value of their currency, availability of credit and their ability
to engage in foreign trade in general. If their economies do not improve, our
ability to collect payments and gain future revenue opportunities may suffer.
Although all of our sales are currently denominated in U.S. Dollars, we
cannot accurately predict the impact that any future fluctuations in foreign
currency exchange rates may have on our operating results and financial
condition.
WE DEPEND ON CONTRACT MANUFACTURERS AND SOLE-SOURCE SUPPLIERS. IF THESE
MANUFACTURERS OR SUPPLIERS ARE UNABLE TO FILL OUR ORDERS ON A TIMELY BASIS, WE
MAY BE UNABLE TO DELIVER PRODUCTS TO MEET CUSTOMER ORDERS.
We depend on contract manufacturers and sole-source suppliers to
manufacture our broadband wireless access systems. We operate on a purchase
order basis and do not have long-term supply contracts with our contract
manufacturers. We manufacture only small quantities of products at our own
facilities. If our manufacturers are unable or unwilling to continue
manufacturing our components in required volumes or in the event of a reduction
or interruption of supply or a degradation of quality, we would have to identify
and train acceptable alternate manufacturers, which could take as long as six
months and cause our results of operations to suffer.
In addition, many of our key components have long lead times, are
purchased from sole-source vendors for which alternate sources are not currently
available, and are complex to manufacture. In the event of an interruption of
supply, or a degradation in quality, as many as six months could be required
before we would begin receiving adequate supplies from alternate suppliers, if
any. As a result, shipments could be delayed and our revenues and results of
operations would suffer. It is possible that a source supplier may not be
available when needed, and we may not be able to satisfy our production
requirements at acceptable prices and on a timely basis, if at all. Any
significant interruption in supply would affect the allocation of our systems to
customers, which in turn could cause us to lose customers and harm our business.
BECAUSE WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS, OUR CUSTOMERS MAY
CEASE PURCHASING OUR SYSTEMS AT ANY TIME.
We do not have long-term contracts with our customers. As a result, our
agreements with our customers do not provide any assurance of future sales. Our
customers can stop purchasing our systems at any time without penalty. Our
customers are free to purchase systems from our competitors. In addition, in
many cases, our customers are not required to make minimum purchases of our
systems. Sales are typically made pursuant to individual purchase orders, often
with extremely short lead times. If we are unable to fulfill these orders in a
timely fashion, we will lose sales and customers and our business will be
significantly harmed.
MANY NETWORKS THAT INCLUDE OUR SYSTEMS REQUIRE SYSTEM INTEGRATION EXPERTISE AND
THIRD-PARTY FINANCING, WHICH WE ARE UNABLE TO PROVIDE. IF SOURCES FOR SYSTEM
INTEGRATION OR FINANCING CANNOT BE OBTAINED AS NEEDED, CUSTOMERS MAY NOT BUY OUR
SYSTEMS.
Some customers using our systems purchase them as a part of a larger
network installation program that can require capital expenditures in the
hundreds of millions of dollars. In some circumstances, these customers require
their equipment vendors to integrate equipment into these larger networks and to
finance the installation. We are unable to provide integration services or
financing and will have to rely on the ability of our system integrators and
third parties to integrate or finance these transactions. In the event that we
are unable to identify distributors and system integrators that are able to
provide integration services or financing on our behalf, we would be unable to
compete for the business of some customer accounts and our business would be
harmed.
12
IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS
COULD BE SERIOUSLY HARMED.
We have expanded our operations in recent years and we anticipate that
further expansion will be required to address potential growth in our customer
base and market opportunities. This expansion has placed, and future expansion
is expected to place, a significant strain on our management, technical,
operational, administrative and financial resources. We have recently hired new
employees, including a number of key managerial and operations personnel, who
have not yet been fully integrated into our operations.
Our current and planned expansion of personnel, systems, procedures and
controls may be inadequate to support our future operations. We may be unable to
attract, retain, motivate and manage required personnel, including finance,
administrative and operations staff, or to successfully identify, manage and
exploit existing and potential market opportunities because of inadequate
staffing. We may also be unable to manage further growth in our relationships
with our distributors and other third parties. If we are unable to manage growth
effectively, our business, financial condition and results of operations could
be harmed.
IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATION AND OUR DISTRIBUTION
CHANNELS OR SUCCESSFULLY MANAGE OUR EXPANDED SALES ORGANIZATION, OUR ABILITY TO
INCREASE OUR REVENUES WILL BE HARMED.
Historically, we have relied primarily on our direct sales organization to
sell our systems domestically and on a limited number of distributors to sell
our systems internationally. We may not be able to successfully expand our
direct sales organization and the cost of any expansion may exceed the revenue
generated. To the extent that we are successful in expanding our direct sales
organization, we cannot assure you that we will be able to compete successfully
against the significantly larger and well-funded sales and marketing operations
of many of our current or potential competitors. In addition, if we fail to
develop relationships with significant distributors, or if these distributors
are not successful in their sales or marketing efforts, sales of our systems may
decrease and our business would be significantly harmed.
OUR DISTRIBUTORS MAY NOT GIVE PRIORITY TO OUR SYSTEMS WHICH MIGHT RESULT IN
LOWER PRODUCT SALES.
We expect that our distributors will also sell competing systems. These
distributors may not continue, or may not give a high priority to, marketing and
supporting our systems. This and other channel conflicts could result in
diminished sales through the indirect channel and harm our operating results. If
our distributors do not prioritize selling our systems, our business and results
of operations could be harmed.
OUR OPERATING RESULTS WILL SUFFER IF SALES DO NOT INCREASE AS ANTICIPATED TO
SUPPORT THE EXPENSES OF EXPANDING OUR BUSINESS.
Because our operating expenses for personnel, new system development and
inventory continue to increase, we must continue to generate increased sales to
offset these increased expenses. We have limited ability to reduce expenses
quickly in response to any revenue shortfall. In response to anticipated long
lead times to obtain inventory and materials from our contract manufacturers and
suppliers, we have in the past and may continue to need to order in advance of
anticipated customer demand. Advance ordering has and may continue to result in
higher inventory levels. To sell this increasing inventory, we have depended on
and will continue to depend on an increase in customer demand. Any significant
shortfall in customer demand would harm our quarterly and annual operating
results.
CONTROL BY OUR EXISTING STOCKHOLDERS COULD DISCOURAGE POTENTIAL ACQUISITIONS OF
OUR BUSINESS THAT OTHER STOCKHOLDERS MAY CONSIDER FAVORABLE.
Upon completion of this offering, our executive officers, directors and 5%
or greater stockholders and their affiliates will own ______ shares or
approximately ______ % of the outstanding shares of common stock. Acting
together, these stockholders would be able to control all matters requiring
approval by stockholders, including the election of directors. This
concentration of ownership could have the effect of delaying or preventing a
change in our control or otherwise discouraging a potential acquirer from
attempting to obtain control of us, which in turn could harm the market price of
our common stock or prevent our stockholders from realizing a premium over the
market price for their shares of common stock.
13
OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DISCOURAGE POTENTIAL
ACQUISITIONS OF OUR BUSINESS BY THIRD PARTIES THAT STOCKHOLDERS MAY CONSIDER
FAVORABLE.
Some provisions of our certificate of incorporation and bylaws and of
Delaware law may discourage, delay or prevent a merger or acquisition that
stockholders may consider favorable. This may reduce the market price of our
common stock. A summary of these provisions is included in "Description of
Capital Stock--Anti-Takeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."
OUR HEADQUARTERS AND MANY OF OUR CONTRACT MANUFACTURERS ARE LOCATED IN NORTHERN
CALIFORNIA WHERE NATURAL DISASTERS MAY OCCUR.
Currently, our corporate headquarters and many of our contract
manufacturers are located in Northern California. Northern California
historically has been vulnerable to natural disasters such as earthquakes, fires
and floods, which at times have disrupted the local economy and posed physical
risks to our and our manufacturers' property. We presently do not have redundant
site capacity in the event of a natural disaster. In the event of a natural
disaster, our business would suffer.
WE MAY HAVE LIABILITY FOR OPTIONS WE GRANTED AND STOCK WE ISSUED IN VIOLATION OF
SECURITIES LAWS.
We granted stock options to various individuals between June 1997 and April
2000 under our 1997 Stock Option/Stock Issuance Plan. A substantial portion of
the shares of our common stock that are subject to the grants were not qualified
or exempted under applicable state securities laws and therefore the options may
have been granted in violation of these laws. As a result, we may have potential
liability under state securities laws to the individuals and entities to whom
the options were granted or who purchase shares of our common stock upon the
exercise of those options. Any liability to the option holders will be in the
form of a rescission offer to them in which they will have the opportunity to
rescind their option grants in return for a cash payment from us based upon a
percentage of the exercise price payable under their options, and any liability
to individuals or entities who actually purchase shares under the options will
be in the form of an offer from us to repurchase those shares for a cash amount
equal to the exercise price paid for the shares, together with interest due to
both the option holders and the stock purchasers who accept the offers which is
to accrue from the date of the option grant and the date of the option exercise,
respectively. We are currently analyzing this matter and cannot, at this time,
ascertain the extent of our potential liability, if any. Nevertheless, the
exercise prices in effect for the options granted prior to this offering range
from $0.05 to $5.00 per share, and accordingly, we do not believe that our
potential liability would exceed $275,000 in the aggregate for any potential
liability associated with those option grants. We do not anticipate that many of
our current employees, who, as of December 31, 1999, held options for 1,706,047
shares, will accept such a rescission offer for their option grants, because the
exercise price of those options is substantially below the price per share in
this offering. In addition, we will apply to the satisfaction of any liability
we determine we have to any option holders who have actually exercised their
options whatever portion we retain of the monies paid to us in connection with
those option exercises.
14
RISKS RELATING TO OUR INDUSTRY
SOME OF OUR SYSTEMS HAVE LONG SALES CYCLES, WHICH COULD CAUSE OUR RESULTS OF
OPERATIONS AND STOCK PRICE TO FLUCTUATE.
Some of our systems have sales cycles that are long and unpredictable. As a
result, our revenues may fluctuate from quarter to quarter and fail to
correspond with our expenses. This would cause our operating results and stock
price to fluctuate. Our customers typically perform numerous tests and
extensively evaluate our systems before incorporating them into networks. The
time required for testing, evaluation, design and integration of our systems
into a customer's network typically ranges from two to six weeks. If a customer
decides to supply commercial service using our systems, it can take an
additional six to twelve months before it can commence installation of our
products. Some additional factors that affect the length of our sales cycle
include:
o acquisition of roof rights;
o installation and planning of network infrastructure;
o complexity of a given network;
o scope of a given project;
o availability of radio frequency; and
o regulatory issues.
In addition, the delays inherent in our sales cycle raise additional risks
of customer decisions to cancel or change their product plans. Our business
could be harmed if a significant customer reduces or delays orders or chooses
not to install networks incorporating our systems.
INTENSE COMPETITION IN THE MARKET FOR COMMUNICATIONS EQUIPMENT COULD PREVENT US
FROM INCREASING OR SUSTAINING REVENUES OR ACHIEVING OR SUSTAINING PROFITABILITY.
The market for high-speed, wireless, point-to-point and point-to-multipoint
communications equipment is rapidly evolving and highly competitive. Increased
competition is likely to result in price reductions, shorter product life
cycles, reduced gross margins, longer sales cycles and loss of market share, any
of which would harm our business. As a provider of high-speed wireless
communications equipment, we compete with a number of large communications
equipment suppliers in the point-to-multipoint market, including Adaptive
Broadband Corporation, BreezeCOM, Ltd., Gigabit Wireless, Inc., Lucent
Technologies, Inc., Netro Corporation, and Wavtrace Inc., as well as with
smaller start-up companies. We also compete with communications equipment
suppliers, such as BreezeCom, Digital Microwave Corporation, Lucent and P-Com,
Inc., in the point-to-point market. In addition, well-capitalized companies such
as Ericsson, Inc., Motorola, Inc., Nokia Corporation, QUALCOMM Corporation and
Siemens AG are potential entrants into either market. Our broadband wireless
access technology also competes with wired solutions such as cable, DSL, fiber
optic systems and high-speed lines leased from communication service providers,
such as T-1 lines.
We expect our competitors to continue to improve the performance of their
current systems and to introduce new systems or new technologies that may
supplant or provide lower cost alternatives to our systems. To be competitive,
we must continue to invest significant resources in research and development,
sales and marketing and customer support. We cannot be sure that we will have
sufficient resources to make these investments or that we will be able to make
the technological advances necessary to be competitive. As a result, we may not
be able to compete effectively against our competitors.
WE EXPECT AVERAGE SELLING PRICES OF OUR BROADBAND WIRELESS ACCESS SYSTEMS TO
DECREASE WHICH WOULD REDUCE GROSS MARGINS OR REVENUES, AND, AS A RESULT, WE MUST
CONTINUE TO REDUCE OUR SYSTEM COSTS IN ORDER TO PRICE OUR SYSTEMS COMPETITIVELY.
The market for broadband wireless access systems is characterized by
declining average selling prices resulting from factors such as increased
competition, the introduction of new products and systems and competitive
pressures from traditional wired broadband network access technologies. We
anticipate that average selling prices will decrease in the future in response
to product and system introductions by competitors, or in response to other
factors, including pricing pressures from significant customers. Additionally,
because lower prices are typically
15
charged on sales made through indirect channels, increased indirect sales could
adversely affect our average selling prices and result in lower gross margins.
Therefore, we must continue to develop and introduce on a timely basis new
systems that incorporate features that can be sold at higher average selling
prices. Failure to do so would cause our revenues and gross margins to decline,
which would significantly harm our business.
We may be unable to reduce the cost of our systems sufficiently to enable
us to compete with others. Our cost reduction efforts may not allow us to keep
pace with competitive pricing pressures or lead to improved gross margins. In
order to remain competitive, we must continually reduce the cost of
manufacturing our systems through design and engineering changes. We may not be
successful in redesigning our systems or delivering our systems to market in a
timely manner. We cannot assure you that any redesign will result in sufficient
cost reductions to allow us to reduce the price of our systems to remain
competitive or improve our gross margin.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND TO COMPETE EFFECTIVELY,
WE MUST CONTINUALLY INTRODUCE NEW SYSTEMS THAT ACHIEVE MARKET ACCEPTANCE.
The market for broadband wireless access systems is characterized by
rapidly changing technology and evolving industry standards. Our success will
depend to a substantial degree on our ability to develop and introduce in a
timely and cost-effective manner enhancements to our existing systems. Our
success also depends upon introducing new products that meet changing customer
requirements and evolving industry standards. Our technology or our systems may
become obsolete upon the introduction of alternative technologies by larger
competitors with more extensive research and development capabilities. If we
fail to introduce, and achieve market acceptance of, new systems and products in
a timely manner, our business, operating results and financial condition will be
materially harmed.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE EMERGING BROADBAND
WIRELESS ACCESS MARKET.
The market for broadband wireless access technology has only recently begun
to develop and is rapidly evolving. Because this market is new, it is difficult
to predict its potential size or future growth rate. Our success in generating
revenue in this emerging market will depend, among other things, on the growth
of this market. If the market for broadband wireless access technology fails to
develop or develops more slowly than expected, or if our systems do not achieve
widespread market acceptance in this market, our business would be significantly
harmed.
WE WILL FACE CHALLENGES TO OUR BUSINESS IF OUR TARGET MARKET ADOPTS ALTERNATE
STANDARDS FOR WIRELESS TRANSMISSION, OR IF OUR SYSTEMS FAIL TO COMPLY WITH
EVOLVING INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS.
Broadband wireless access technology is extremely complex, and products
must adhere to a continually changing set of standards and compliance
requirements. Currently, our systems meet the present protocol standards for
data transmission. The protocol definitions for data transmission, however, are
established by standards organizations over which we have no direct influence.
We have invested substantial amounts of engineering resources into developing
interfaces that are compliant with these standards. Should these organizations
change the standards for data transmission or its associated technology, or if
these organizations introduce new and substantially different standards for data
transmission, we may not be able to introduce systems in a timely manner that
meet these new and evolving standards. If we fail to introduce systems that meet
new and evolving data transmission standards, our business would be
significantly harmed.
A MAJORITY OF SERVICE PROVIDERS THAT USE WIRELESS TECHNOLOGIES ARE EMERGING
COMPANIES WITH UNPROVEN BUSINESS MODELS.
Many of our customers are service providers that are using wireless
technologies to attract and retain new end-user customers. Many of these service
providers are emerging companies with a limited degree of success in the
broadband wireless access industry. The broadband wireless access market is
intensely competitive, and the service providers typically are forced to reduce
the monthly access charges they impose upon their subscribers in order to
attract and retain additional subscribers. The reduction in monthly access
charges reduces the amount of capital available for service providers to invest
in additional wireless infrastructure. These service providers may therefore
become under-capitalized and may not be able to remain in business for a
substantial period of time. The failure or loss of these service providers as
customers would significantly harm our business.
16
WE NEED TO DEVELOP SYSTEMS THAT WORK IN A VARIETY OF DIFFERENT COUNTRIES WHICH
HAVE DIFFERENT REGULATORY REQUIREMENTS.
Our systems are subject to the rules and regulations of the governing
bodies for radio transmission and telecommunications in the countries in which
our products are designed to operate. In the United States, the Federal
Communications Commission, or FCC, determines the rules, regulations and
procedures under which products must be certified. The FCC is also responsible
for establishing which frequency bands can be allocated for use by systems that
are intended to provide broadband wireless access and networking systems. In the
United States, operation of unlicensed radio communications equipment is subject
to the conditions that no harmful interference is caused to authorized users of
the band, and that interference, including interference that may cause undesired
operation, must be accepted from all other users of the band. This includes
other unlicensed operators, authorized operators such as amateur licensees,
Industrial, Scientific and Medical equipment, and U.S. Government operations.
Unlicensed operators that cause harmful interference to authorized users, or
that exceed permitted radio frequency emission levels, may be required to cease
operations until the condition causing the harmful interference or excessive
emissions has been corrected. If any of our systems interfere with these
authorized operators, or if any authorized operators cause interference
resulting in undesired operation, we may be prevented from operating these
systems and our business may be harmed.
Outside of the United States, our products are subject to the rules and
regulations as set forth by the governing bodies for radio transmission and
telecommunications of the host country. In most cases, the rules and regulations
differ substantially between countries, and radio design is therefore
significantly affected. We are therefore at great risk in entering new markets
when we do not presently have radio technology designed to meet the local rules
and regulations.
THERE MAY BE POTENTIAL HEALTH AND SAFETY RISKS RELATED TO OUR BROADBAND WIRELESS
ACCESS SYSTEMS WHICH COULD NEGATIVELY AFFECT SALES.
There has been recent public concern regarding the potential health and
safety risks of electromagnetic emissions. Our broadband wireless access systems
intentionally emit electromagnetic radiation. If safety or health issues do
arise, our system sales could decline or cease. Even if safety concerns
ultimately prove to be without merit, negative publicity could materially harm
our ability to market our systems. In addition, we may be subject to litigation,
with or without basis in fact, alleging that we are responsible for injuries or
illnesses relating to this radiation. If this litigation were not resolved in
our favor, our results of operation could be materially harmed. Moreover, even
if the litigation were resolved in our favor, the costs of litigating or of
settlement could be significant.
BECAUSE OF INTENSE COMPETITION, WE MAY NOT BE ABLE TO RECRUIT OR RETAIN
QUALIFIED PERSONNEL.
Our growth in operations has placed significant demands on our management,
engineering staff and facilities. Continued growth will require us to hire more
engineering, manufacturing, sales and administrative personnel. We may not be
able to attract and retain the necessary qualified personnel to accomplish our
business objectives and we may experience constraints that could harm our
ability to satisfy customer demand in a timely fashion or to support our
customers and operations. We have at times experienced, and continue to
experience, difficulty in recruiting qualified personnel. Recruiting qualified
personnel is an intensely competitive and time-consuming process. We will need
to train new sales and marketing personnel before they achieve full
productivity. The design and installation of broadband wireless access
technology can be complex. Accordingly, we need highly trained professional
services and customer support personnel to service our customers. We cannot be
certain that we will be able to successfully attract and retain additional
qualified personnel. In addition, recently hired employees may not successfully
integrate into our management team. The inability to attract and retain
qualified personnel or to assimilate them into our business could significantly
harm our business.
WE MAY BE HARMED BY DELAYED YEAR 2000 PROBLEMS.
Although the date is now past January 1, 2000, and we have not experienced
immediate harm from the transition to the Year 2000, we cannot provide assurance
that we or our suppliers and customers have not been affected in a manner that
is not yet apparent. In addition, some computer programs that were date
sensitive to the
17
Year 2000 may not have been programmed to process the Year 2000 as a leap year,
and any negative consequential effects remain unknown. In particular, we are
subject to:
o costs associated with the failure of our products to be year 2000
compliant, including potential warranty or other claims from our
customers, which may result in significant expenses to us;
o business shutdowns or slowdowns as a result of a failure of the
internal management systems we use to run our business, which could
disrupt our business operations;
o interruption of system or component supplies, or a reduction in
product quality, as a result of the failure of systems used by our
suppliers; and
o reductions or deferrals in sales activities as a result of year 2000
compliance issues of our distributors and system integrators.
As a result, we will continue to monitor our Year 2000 compliance and the Year
2000 compliance of our suppliers and customers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
RISKS RELATING TO THIS OFFERING
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND OUR SHARE PRICE MAY
DECLINE AFTER THIS OFFERING.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our common stock will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for the shares was determined by negotiations
between us and the representatives of our underwriters and may not be indicative
of the prices that will prevail in the trading market. The market price of our
common stock could be subject to wide fluctuations in response to a number of
risk factors, most of which are outside our control. Some of these include:
o quarter-to-quarter variations in our operating results;
o our announcements about the performance of our products and our
competitors' announcements about performance of their products;
o changes in earnings estimates by, or failure to meet the expectations
of, analysts;
o government regulatory action, particularly affecting licensed radio
frequency bands;
o increased price competition;
o developments or disputes concerning intellectual property rights;
o general conditions in the computer and telecommunications industries
in general, and the broadband access industry, in particular;
o economic conditions in international markets in which we do business;
o the ability of our contract manufacturers and sole-source suppliers to
fill our orders on a timely basis; and
o our customers' purchasing decisions and the timing of those decisions.
Furthermore, stock markets have experienced extreme price and volume
fluctuations that have affected and continue to affect the market prices of
equity securities of many technology companies. These fluctuations often have
been unrelated or disproportionate to the historical performance of those
companies. Market fluctuations as well as general economic, political and market
conditions such as recessions, interest rate changes or currency or exchange
rate fluctuations, may negatively impact the market price of our common stock.
SUBSTANTIAL NUMBERS OF SHARES OF OUR COMMON STOCK WILL BECOME AVAILABLE FOR SALE
IN THE PUBLIC MARKET SIMULTANEOUSLY, WHICH COULD CAUSE THE MARKET PRICE OF OUR
STOCK TO DECLINE.
Sales of substantial amounts of common stock in the public market following
this offering, or the appearance that a large number of shares is available for
sale, could cause the market price of our common stock to decline. In
18
addition to the adverse effect a price decline could have on holders of common
stock, that decline would likely impede our ability to raise capital through the
issuance of additional shares of common stock or other equity securities. Upon
completion of this offering, we will have outstanding ____________ shares of
common stock, based upon shares outstanding as of December 31, 1999, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options after December 31, 1999. Of these shares, the ___________
shares sold in the offering will be freely tradable. Upon the expiration of
lock-up agreements between our stockholders and us or Salomon Smith Barney Inc.,
another ____________ shares of common stock will become eligible for sale
simultaneously 180 days after the date of the final prospectus relating to this
offering. Salomon Smith Barney may, in its sole discretion and at any time,
release all or any portion of the securities subject to lock-up agreements. The
remaining ___________ shares will be restricted securities that have been held
for less than one year and are not yet salable under Rule 144. See "Shares
Eligible for Future Sale."
After this offering, if certain conditions are met, the holders of
approximately 20,509,837 shares of common stock and the holders of warrants to
purchase up to approximately 552,500 shares of common stock will be entitled to
require us to register their shares under the Securities Act. These shareholders
and holders of an additional 68,662 shares of our common stock issuable upon the
exercise of outstanding warrants also have the right to participate in any
registration of our shares which we undertake on our own. If these shareholders
exercise their registration rights, a large number of our shares may be
registered and sold in the public market. This could adversely affect the
trading price for our shares. If we attempted to raise money through a
registration and sale of our stock and these shareholders forced us to allow
them to participate in the registration, our ability to raise the amount of
money we need to execute our business plan could be adversely affected. See
"Description of Capital Stock--Registration Rights."
YOU WILL NOT HAVE CONTROL OVER MANAGEMENT'S USE OF THE PROCEEDS FROM THIS
OFFERING AND THE PROCEEDS MAY NOT BE APPROPRIATELY USED.
We expect to use the net proceeds from the offering for general corporate
purposes, including working capital, product development and capital
expenditures. $2.5 million of the proceeds will be paid to TRW in connection
with the license of the STARPORT technology. We may use a portion of the
proceeds to invest in complementary businesses or products or to obtain the
right to use complementary technologies. However, we will have broad discretion
in how we use the net proceeds from the offering, and we may ultimately decide
to use the proceeds for purposes other than the above and may not use proceeds
for any one or more of the above purposes. You will not have the opportunity to
evaluate the economic, financial or other information on which we base our
decisions on how to use the net proceeds or to approve these decisions. If our
management uses poor judgment in spending our proceeds, our business will be
harmed.
19
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which involve risks
and uncertainties. These forward-looking statements are not historical facts but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and assumptions. We use words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and variations
of these words and similar expressions to identify forward-looking statements.
These statements are not guarantees of future performance and are subject to
certain risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
These risks and uncertainties include those described in "Risk Factors" and
elsewhere in this prospectus. You should not place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this prospectus. We undertake no obligation to update these statements
or publicly release the result of any revision to the forward-looking statements
that we may make to reflect events or circumstances after the date of this
prospectus or to reflect the occurrence of unanticipated events.
20
USE OF PROCEEDS
Our net proceeds from the sale and issuance of the ______________
shares of common stock offered are estimated to be $______million at an assumed
initial public offering price of $ _______ per share after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, our estimated net
proceeds will be $ ________ million. We are conducting this offering primarily
to increase our equity capital, to create a public market for our common stock
and to facilitate our future access to public equity markets. We intend to use
the net proceeds for general corporate purposes, including working capital,
product development and capital expenditures. $2.5 million of the proceeds will
be paid to TRW, Inc. upon completion of this offering in connection with the
license of the STARPORT technology. In addition, we may use a portion of the net
proceeds to acquire or invest in complementary businesses or products or to
obtain the right to use complementary technologies. We currently have no
agreements or commitments with respect to any acquisition or investment, and we
are not involved in any negotiations with respect to any similar transaction.
Pending these uses, we will invest the net proceeds of the offering in
short-term, interest-bearing investment-grade securities. See "Risk Factors--You
will not have control over management's use of the proceeds from this offering"
and "Certain Transactions--Strategic Relationship with TRW."
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock. We intend
to retain any future earnings to finance the operation and expansion of our
business and do not anticipate declaring or paying cash dividends in the
foreseeable future. Payments of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion. In addition, our loan agreement with Silicon
Valley Bank prohibits the payment or declaration of dividends without its prior
written consent. Consequently, stockholders will need to sell shares of common
stock in order to realize a return on their investment, if any.
21
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on the following three bases:
o on an actual basis;
o on a pro forma basis to give effect to:
o the issuance of 3,000,000 shares of Series F Preferred Stock in
January 2000;
o the conversion of all outstanding shares of preferred stock into
common stock;
o the exercise of outstanding warrants to purchase 68,000 shares
of preferred stock at a weighted-average exercise price of $1.62
per share and the conversion of such shares into 68,662 shares
of common stock;
o the exercise of outstanding warrants to purchase 160,000 shares
of common stock at a weighted-average exercise price of $3.06
per share, which by their terms expire or automatically convert
within 30 days of the completion of this offering; and
o the issuance of 3,429,352 shares of common stock valued at $5.00
per share in January 2000 to TRW in connection with a Purchase
and License Agreement; and
o on a pro forma, as adjusted basis to give effect to the sale of
shares of common stock by us at an assumed initial public
offering price of $ per share after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
You should read this table in conjunction with our financial statements
and the notes to our financial statements appearing elsewhere in this
prospectus.
AS OF DECEMBER 31, 1999
------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
Capital lease obligations, less current portion........ $ 239 $ 239 $ --
Stockholders' equity:
Convertible Preferred Stock, issuable in series,
$0.001 par value per share, 25,000,000 shares
authorized actual and pro forma; 5,000,000 shares,
$0.001 par value per share, authorized pro forma,
as adjusted; 17,277,858, no shares and no shares
issued and outstanding actual, pro forma and
pro forma as adjusted, respectively............... 22,761 -- --
Common Stock, 100,000,000 shares, $0.001 par value
per share, authorized, actual pro forma and
pro forma, as adjusted; 7,765,538 shares, issued
actual; 31,933,389 shares, issued pro forma;
shares, issued and outstanding
pro forma, as adjusted............................ 8 32
Additional paid-in-capital............................. 17,047 72,531
Note receivable from stockholder....................... (169) (169)
Deferred stock-based compensation...................... (5,415) (5,415)
Accumulated deficit.................................... (24,819) (24,819)
------------ ------------ --------------
TOTAL STOCKHOLDERS' EQUITY...................... 9,412 42,160
------------ ------------ --------------
TOTAL CAPITALIZATION............................ $ 9,651 $ 42,399 $
============ ============ ==============
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of December 31, 1999, and excludes:
o 1,706,047 shares of common stock issuable upon exercise of stock
options outstanding as of December 31, 1999 at a weighted average
exercise price of $0.53 per share;
o 392,460 shares of common stock issuable upon the exercise of
outstanding warrants as of December 31, 1999 at a weighted average
exercise price of $0.79 per share;
o 330,592 shares of common stock issuable upon conversion of an
outstanding convertible promissory note, as of December 31, 1999;
o 8,750,000 shares of common stock reserved for issuance under our 2000
Stock Incentive Plan that incorporates our 1997 Stock Option Plan; and
o 250,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan.
For additional information regarding these shares, see "Executive Compensation
and other Information--Employee Benefit Plans," "Description of Capital Stock"
and Note 6 of Notes to Financial Statements.
22
DILUTION
Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of common stock in the offering exceeds the net
tangible book value per share of common stock after the offering. The pro forma
net tangible book value per share of common stock is determined by subtracting
our total liabilities from the total book value of our tangible assets and
dividing the difference by the number of shares of common stock deemed to be
outstanding on the date of which such book value is determined.
Our pro forma net tangible book value at December 31, 1999, was
approximately $21.8 million, or $0.69 per share. After giving effect to the sale
of the shares of common stock offered by us at the assumed initial public
offering price of $ __________ per share, and after deducting underwriting
discounts and estimated offering expense, our pro forma net tangible book value
at December 31, 1999, would have been $ __________ million, or $ per share.
This represents an immediate increase in net tangible book value of $ _________
per share to existing stockholders and an immediate dilution of $ _________ per
share to new investors purchasing shares of our common stock in this offering.
The following table illustrates this dilution:
Assumed initial public offering price per share............................... $
Pro forma net tangible book value per share at December 31, 1999........... $ 0.69
Pro forma increase per share attributable to new investors.................
---------
Pro forma net tangible book value per share after the offering................
----------
Pro forma dilution per share to new investors................................. $
==========
The following table summarizes, at December 31, 1999, on a pro forma
basis, the total number of shares and consideration paid to us and the average
price per share paid by existing stockholders and by new investors purchasing
shares of common stock in this offering at an assumed initial public offering
price of $ _______ per share before deducting the estimated underwriting
discounts and commissions and estimated offering expenses:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------------- ----------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------------- ----------- ---------------- ----------- ---------------
Existing stockholders................ 31,933,389 % $ 27,297,972 % $ 0.85
New investors........................
-------------- ----------- ---------------- -----------
Total............................. 100.0% $ 100.0%
============== =========== ================ ===========
The above computations are based on the number of shares of common stock
outstanding as of December 31, 1999 and excludes:
o 1,706,047 shares of common stock issuable upon exercise of stock
options outstanding as of December 31, 1999 at a weighted average
exercise price of $0.53 per share;
o 392,460 shares of common stock issuable upon the exercise of
outstanding warrants as of December 31, 1999 at a weighted average
exercise price of $0.79 per share;
o 330,592 shares of common stock issuable upon conversion of an
outstanding convertible promissory note, as of December 31, 1999;
o 8,750,000 shares of common stock reserved for issuance under our
2000 Stock Incentive Plan that incorporates our 1997 Stock Option
Plan; and
o 250,000 shares of common stock reserved for issuance under our
2000 Employee Stock Purchase Plan.
To the extent that any of these options or warrants are exercised, there
could be further dilution to new investors. For additional information regarding
these shares, see "Capitalization," "Executive Compensation and other
Information--Employee Benefit Plans," "Description of Capital Stock" and Note 6
of Notes to Financial Statements.
23
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following selected financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The statement of operations data for the period from May 7,
1997 (inception) to December 31, 1997 and the years ended December 31, 1998 and
1999, and the balance sheet data as of December 31, 1998 and 1999, are derived
from the audited financial statements of Wireless, Inc. included elsewhere in
this prospectus. See Note 1 of Notes to Financial Statements for a detailed
explanation of the determination of the shares used to compute actual and pro
forma basic and diluted net loss per share. The historical results are not
necessarily indicative of results to be expected for future periods.
PERIOD FROM
MAY 7, 1997
(INCEPTION),
TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------------
1997 1998 1999
-------------- -------------- --------------
Revenue.......................................................... $ 201 $ 11,172 $ 21,296
Cost of revenue.................................................. 421 9,091 15,794
-------------- -------------- --------------
Gross profit (loss)...................................... (220) 2,081 5,502
-------------- -------------- --------------
Operating expenses:
Research and development..................................... 708 2,324 3,221
Sales and marketing.......................................... 902 3,811 7,443
General and administrative................................... 258 1,316 2,689
In-process research and development costs acquired........... -- 817 --
Amortization of intangibles.................................. -- 359 1,102
Impairment of an intangible asset............................ 1,500 -- --
Amortization of deferred stock compensation*................. 69 640 4,319
-------------- -------------- --------------
Total operating expenses................................. 3,438 9,267 18,774
-------------- -------------- --------------
Operating loss................................................... (3,658) (7,186) (13,272)
Interest expense (income), net................................... (14) 290 427
-------------- -------------- --------------
Net loss................................................. $ (3,644) $ (7,476) $ (13,699)
============== ============== ==============
Net loss per share:
Basic and diluted............................................ (**) $ (6.18) $ (4.30)
============== ==============
Weighted average number of shares used in computation........ 1,210,364 3,187,334
Pro forma net loss per share (unaudited):
Pro forma basic and diluted loss............................. $ (0.84)
==============
Weighted average number of shares used in computation........ 16,302,544
AS OF DECEMBER 31,
-----------------------------
1998 1999
------------- -------------
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 358 $ 1,140
Working capital.................................................. (4,174) 5,122
Total assets..................................................... 13,215 17,038
Capital lease obligations net of current portion................. 84 239
Total shareholders' equity....................................... 662 9,412
- -------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
------------ -------------- ---------------
(*) Amortization of deferred compensation:
Cost of revenue........................................... $ 13 $ 48 $ 275
Research and development.................................. 14 120 1,657
Sales and marketing....................................... 19 81 560
General and administrative................................ 23 391 1,827
------------- -------------- --------------
Total............................................ $ 69 $ 640 $ 4,319
============= ============== ==============
24
(**) net loss per share is not presented in the period from May 7, 1997
(inception) to December 31, 1997 as all common shares as of December 31,
1997 were unvested and subject to repurchase and, accordingly, are not
considered outstanding for the computations of net loss per share.
The pro forma financial data presented above reflects:
o the issuance of 3,000,000 shares of Series F Preferred Stock in
January 2000;
o the conversion of all outstanding shares of preferred stock into
common stock;
o the exercise of outstanding warrants to purchase 68,000 shares of
preferred stock at a weighted-average exercise price of $1.62 per
share and the conversion of the preferred shares into 68,662 shares of
common stock;
o the exercise of outstanding warrants to purchase 160,000 shares of
common stock at a weighted-average exercise price of $3.06 per share,
which by their terms expire or automatically convert upon the
completion of this offering; and
o the issuance of 3,429,352 shares of common stock valued at
$5.00 per share in January 2000 to TRW in connection with a Purchase
and License Agreement.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE
RELATED NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THOSE
STATEMENTS INCLUDING THE WORDS "EXPECTS," "ANTICIPATES," "INTENDS," "BELIEVES"
AND SIMILAR LANGUAGE. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
SUCH AS THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a global provider of broadband wireless access solutions that
enable Internet and communication service providers, telephone operating
companies and private network operators to deliver voice and high-speed data
services to their customers.
We were incorporated in California on May 7, 1997 to develop advanced
wireless access communications systems for networking and telephony
interconnection solutions. In 1997, under a master distributor agreement with
Innova Corporation, later acquired by Digital Microwave Corporation, we
introduced the ADR series, a family of high capacity digital radios. All of our
1997 revenues and approximately 54% of our 1998 revenues and 25% of our 1999
revenues were derived from this distributor agreement. We subsequently renamed
the ADR series as the WAVENET TRANSPORT DX.
In 1998, we released our ACCESS series of point-to-point spread spectrum
digital radios under a License and Technology Transfer and Manufacturing
Agreement with Wi-LAN, Inc. We also introduced the N2-ACCESS series, a
point-to-point digital radio to offer a smaller, cost-competitive package for
cellular and personal communication services, or PCS, networks. We subsequently
renamed the N2-ACCESS series as the WAVENET LINK series.
On August 26, 1998 we acquired Multipoint Networks, Inc., a California
corporation. The acquisition was accounted for by the purchase method and is
included in our operating results from the date of acquisition forward.
Multipoint developed, manufactured and marketed point-to-point and
point-to-multipoint digital wireless radios for customers connecting lottery
terminals, bank automated teller machines, and point-of-service networks. Just
prior to the acquisition, Multipoint Networks, Inc. designed the WAVENET IP
2400. Initial shipments of the WAVENET IP 2400 were made in early 1998. In May
1999, we introduced the WAVENET IP 2458. We subsequently renamed the WAVENET IP
series as the WAVENET ACCESS series.
We market our products through our direct sales force, complemented by
indirect sales channels consisting of agents, distributors, resellers, system
integrators and value-added resellers. Sales to international markets during
1999 were $17.7 million, or 83% of total sales and $10.2 million, or 91% of
total sales, for 1998. All of our international sales are denominated in U.S.
dollars.
REVENUE. Revenue consists of product and service revenue. Product revenue
is recognized when all of the following occur:
o the product has been shipped;
o title and risk of loss have passed to the customer;
o we have the right to invoice the customer and collection of
receivable is probable; and
o all pre-sales obligations have been fulfilled.
Service revenue is recognized when service obligations have been
completed. Trial sales made directly to the end users are not recognized as
revenue until the trial has been completed and the product has been accepted.
COST OF REVENUE. Cost of revenue consists of materials, manufacturing
labor and overhead, outsourced contract manufacturing costs and cost of
acquiring finished products from original equipment manufacturers.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and related personnel expenses, contract engineering
services, consulting fees, software development tools, and prototype
26
expenses related to the design, development, testing and enhancement of our
products. All research and development costs are expensed as incurred until
technological feasibility of the product is established. After technological
feasibility is established, material development costs are capitalized. To date,
the period between technological feasibility and general release of the product
has been short and development costs have been insignificant. Accordingly, the
Company has expensed all development costs. We expect these expenses to increase
significantly in the future as we seek to develop new products and enhance
existing products. A significant portion of the increase in research and
development expenses is expected to be in the contracting of independent and
third party research and development vendors in connection with the development
of our STARPORT system. See "Certain Transactions--Strategic Relationship with
TRW."
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and related personnel expenses of our sales agents and
direct sales force. In addition, sales and marketing expenses consist of travel,
trade show, advertising, promotional and public relations expenses. Also
included are costs related to testing and certifying our products to meet
regulatory requirements in various foreign countries. We intend to pursue sales
and marketing campaigns aggressively and therefore expect these expenses to
increase in the future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related personnel expenses for executive, accounting
and administrative personnel, as well as accounting and legal fees and other
general corporate expenses. As we add personnel and incur additional costs
related to the growth of our business and operating as a public company, we
expect that general and administrative expenses will also increase. We allocate
the total costs for information services and facilities to each functional area
that uses the information services and facilities based on our relative
headcount. These allocated costs include medical insurance premiums,
communication charges and rent and other facility-related costs.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. In connection with granting
stock options to our employees, directors and consultants, we recorded deferred
stock-based compensation totaling approximately $10.3 million through December
31, 1999. This amount represents the total difference between the exercise
prices of stock options and the deemed fair market value of the common stock for
accounting purposes on the date these stock options were granted or other
measurement dates. This amount is included as a component of stockholders'
equity and is being amortized on an accelerated basis over the vesting period of
the options, in accordance with FASB Interpretation No. 28. We have recorded
stock-based compensation expense of $0.6 million during the year ended December
31, 1998, and approximately $4.3 million in 1999, leaving $5.4 million to be
amortized in future periods. Of this amount, $3.7 million will be amortized in
2000, $1.1 million will be amortized in 2001, $0.5 million will be amortized in
2002 and $0.1 million will be amortized in 2003.
INTEREST EXPENSE (INCOME), NET. Interest expense consists primarily of
interest expense paid on bank borrowings, short-term promissory notes from
investors and the $1.0 million convertible note due on September 1, 2004.
Interest income consists of interest earned on excess cash.
INCOME TAXES. We have incurred net losses in each quarter since our
inception. As of December 31, 1999, we had an accumulated deficit of $24.8
million. Our net losses resulted from significantly higher manufacturing,
marketing, selling, service and research and development expenditures relative
to our sales levels. We expect to continue experiencing significant increases in
operating expenses, particularly in research and development and sales and
marketing. As a result, we expect to incur additional losses and continued
negative cash flow from operations for the foreseeable future.
We have not made a provision for federal or California state income taxes
for any period because we have incurred operating losses since inception. As of
December 31, 1999, we had approximately $30.0 million of net loss carryforwards
for federal income tax purposes and approximately $17.0 million of net loss
carryforwards for California state income tax purposes. Utilization of the net
operating loss carryforwards is subject to our ability to generate future
profits and, in addition, may be subject to annual limitations due to an
ownership change as defined in Section 382 of the Internal Revenue Code.
27
RESULTS OF OPERATIONS
The following table presents selected financial data for the periods
indicated as a percentage of total revenue.
PERIOD FROM YEARS ENDED
MAY 7, 1997 DECEMBER 31,
(INCEPTION), TO -------------------
DECEMBER 31, 1997 1998 1999
------------------- -------- --------
STATEMENTS OF OPERATIONS DATA:
Revenue....................................................... 100% 100% 100%
Cost of revenue............................................... 209.7 81.4 74.2
Gross profit (loss)........................................ (109.7) 18.6 25.8
Operating expenses:
Research and development................................... 352.8 20.8 15.1
Sales and marketing........................................ 449.3 34.1 35.0
General and administrative................................. 128.7 11.8 12.6
In-process research and development costs acquired......... -- 7.3 --
Amortization of intangibles................................ -- 3.2 5.2
Impairment of an intangible asset.......................... 747.3 -- --
Amortization of deferred stock compensation................ 34.4 5.7 20.3
Total operating expenses............................... 1,712.5 82.9 88.2
Operating loss................................................ (1,822.2) (64.3) (62.3)
Interest expense (income), net................................ (6.9) 2.6 2.0
Net loss................................................. (1,815.3)% (66.9)% (64.3)%
COMPARISON OF PERIOD FROM INCEPTION TO DECEMBER 31, 1997 AND YEARS ENDED
DECEMBER 31, 1998 AND 1999
REVENUE. Total revenue increased from $0.2 million from inception through
December 31, 1997 to $11.2 million in 1998 and $21.3 million in 1999. The
increase in revenue in 1998 reflected the sale of our WAVENET TRANSPORT DX
system to a single large customer, the introduction of our WAVENET LINK series
point-to-point radios in September 1998 and the inclusion of revenue of
Multipoint Networks, Inc. from the date of acquisition on August 26, 1998. The
increase in revenue in 1999 was attributable to higher sales resulting from the
introduction of the WAVENET ACCESS 2458 and the WAVENET LINK series.
COST OF REVENUE. Cost of revenues from inception through December 31,
1997 represented mainly manufacturing overhead and the cost of equipment that we
resold. Cost of revenue increased from $0.4 million in 1997 to $9.1 million in
1998 and $15.8 million in 1999, primarily due to the related increase in
revenue. As a percentage of revenue, cost of revenue decreased from 209.7% to
81.4% and 74.2% during the same period, primarily due to a change in the mix of
products sold, the introduction of our WAVENET ACCESS 2458 and WAVENET LINK
families of systems and the distribution of manufacturing costs over a greater
number of units sold. Cost of revenue in 1999 included a provision of
approximately $1.5 million for inventory obsolescence related to the earlier
legacy products acquired from Multipoint Networks, Inc.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
from $0.7 million from inception through December 31, 1997 to $2.3 million in
1998 and $3.2 million in 1999. The increases in research and development
expenses were primarily attributable to the addition of engineering personnel
and associated support required to expand and enhance our product lines.
Research and development as a percentage of total revenues decreased from 352.8%
in 1997 to 20.8% in 1998 and 15.1% in 1999. We expect our research and
development expenses to increase significantly, both in terms of absolute dollar
amount and as a percentage of total revenue, due to the anticipated increase in
contract engineering expenses and the increase in senior engineering staff to
support our new development projects, including our STARPORT system.
28
SALES AND MARKETING. Sales and marketing expenses increased from $0.9
million from inception through December 31, 1997 to $3.8 million in 1998 and
$7.4 million in 1999. The increase in sales and marketing was related to the
expansion of our sales and marketing organization, trade show expenses and the
increase in commission expenses resulting from higher revenue. Sales and
marketing expense as a percentage of total revenue decreased from 449.3% in 1997
to 34.1% in 1998 and increased to 35.0% in 1999. We expect to continue
increasing our marketing and branding efforts and to recruit additional sales
personnel. Accordingly, we anticipate that sales and marketing expenses will
increase in absolute dollars and will vary as a percentage of total revenue from
year to year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $0.3 million from inception through December 31, 1997 to $1.3 million in
1998 and $2.7 million in 1999 due primarily to increases in salaries and legal,
accounting and consulting expenses. Also included in general and administrative
expenses for 1999 was a one-time building lease termination charge of $0.2
million. We also made a provision for approximately $1.0 million for potential
bad debts in 1999. General and administrative expenses as a percentage of total
revenue decreased from 128.7% in 1997 to 11.8% in 1998 and increased to 12.6% in
1999. We expect that general and administrative expenses will increase in
absolute dollars as we add personnel and incur additional costs relating to the
anticipated growth of our business and our operation as a public company.
However, we expect that these expenses will vary as a percentage of total
revenues from year to year.
IN-PROCESS RESEARCH AND DEVELOPMENT COSTS ACQUIRED. In-process research
and development of $0.8 million was fully expensed in 1998 upon acquisition as a
result of our determination that the acquired technology had not yet achieved
technological feasibility and that the technology did not have an alternative
future use. The in-process research and development related to Multipoint's
WAVENET ACCESS technology. The valuation of the in-process research and
development was based upon the present value of forecasted operating cash flows
that were expected to be generated from the technology. The valuation also took
into account that the technology was approximately 85% complete as of the
acquisition date.
AMORTIZATION OF INTANGIBLES. All recorded intangible assets relate to the
acquisition of Multipoint Networks, Inc. Amortization expense associated with
intangible assets was $0.4 million in 1998 and $1.1 million in 1999. As of
December 31, 1999, the remaining balance to be amortized by the end of 2003 was
$3.1 million.
IMPAIRMENT OF AN INTANGIBLE ASSET. In 1997, we entered into a License and
Technology Transfer and Manufacturing Agreement with Wi-LAN, Inc. Under this
license agreement, Wi-LAN agreed to license and transfer technology to us in
exchange for 3,000,000 shares of our Series A Preferred Stock, valued at $0.50
per share. An asset worth $1.5 million was recorded for the licensed and
transferred technology. In 1997 we determined that the licensed and transferred
technology was not applicable to our needs. As such, we recorded an impairment
charge of $1.5 million related to this acquired technology. On June 3, 1998 the
license agreement was replaced by a new license agreement and a manufacturing
agreement. In February 2000, we terminated the manufacturing agreement due to a
discontinuance of the product line.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred
stock compensation increased from $0.1 million from inception through December
31, 1997 to $0.6 million in 1998 and $4.3 million in 1999. As of December 31,
1999, the remaining balance to be amortized by the end of 2003 was $5.4 million.
Of this amount, $3.7 million will be amortized in 2000, $1.1 million will be
amortized in 2001, $0.5 million will be amortized in 2002 and $0.1 million will
be amortized in 2003.
INTEREST EXPENSE (INCOME), NET. Interest expense (income), net changed
from interest income of $14,000 from inception through December 31, 1997 to
interest expense of $0.3 million in 1998 and $0.4 million in 1999 reflecting
increases in various bridge financings from investors as well as utilization of
bank credit facilities.
29
QUARTERLY RESULTS OF OPERATIONS
Set forth below is our revenue for the eight quarters ended December 31,
1999. This information should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this prospectus.
The operating results for any quarter are not necessarily indicative of results
for any future period.
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
---------- ----------------------- ---------------------- ---------- ----------- -----------
(IN THOUSANDS)
Revenue................$ 997 $ 1,705 $ 4,412 $ 4,059 $6,276 $ 3,489 $ 5,326 $ 6,205
Revenue for the third quarter of 1998 was $4.4 million, reflecting an
increase over second quarter 1998 principally related to the inclusion of
Multipoint's revenues commencing on August 26, 1998. Revenue for the first
quarter of 1999 was $6.3 million, significantly higher than 1998 fourth quarter
revenue of $4.0 million primarily due to the resale of WAVENET TRANSPORT DX and
other OEM equipment to a single customer. Revenue for the second quarter of
1999 was $3.5 million. The decrease from the first quarter of 1999 relates to a
decrease in sales of our WAVENET TRANSPORT DX product. The increase in revenue
for the third quarter of 1999 compared to the second quarter of 1999 relates to
increases in sales related to our WAVENET LINK series.
Our operating results have in the past, and may in the future, fluctuate
on a quarterly and annual basis as a result of various factors. These factors
include, among others:
o the size, timing and terms of customer orders;
o a decrease in the average selling prices of our systems due to
competition;
o the relatively long sales and development cycles for our systems;
o our ability to develop and market new systems;
o the ability to obtain regulatory approval of system installation
in foreign countries;
o the ability to reach and maintain required production volumes and
quality levels for our systems;
o general domestic and international economic conditions;
o market acceptance of our systems and our customers' services;
o introduction of products and systems by our competitors;
o our ability to respond to fluctuations in customer order levels;
o the timing and provision of returns from our distributors; and
o whether our customers buy from a distributor, an OEM or directly
from us.
Therefore, we believe that period-to-period comparisons of our quarterly
operating results are not necessarily meaningful. You should not rely on them to
predict future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from sales of
our preferred stock totaling $35.2 million and other financing activities,
including a bank credit facility, convertible notes for working capital and
capital leases for the purchase of equipment.
As of December 31, 1998 and 1999, cash and cash equivalents were $0.4
million and $1.1 million, respectively. The increase in cash and cash
equivalents from 1998 to 1999 is mostly attributable to funds provided by the
sale of equity for $12.7 million, offset by funds used in operations. We have a
$2.0 million bank credit facility secured by substantially all of our assets
which is subject to certain retrictions relating to eligible accounts
receivable. Borrowings under this bank facility accrue interest at the prime
rate plus 2.5%. As of December 31, 1999, we had not drawn against the bank
credit facility and there is no outstanding balance due. Our credit agreement
expires on February 23, 2001. We have recently renegotiated this line to extend
the credit facility to $5.0 million; however, our ability to access the
additional $3.0 million requires us to either consummate an initial public
offering yielding net proceeds of at least $50 million or raise proceeds of
$15.0 million in equity or convertible debentures. We have committed to issue a
warrant to purchase 37,500 shares of our common stock at an exercise
30
price of $4.00 per share in the event that an initial public offering yielding
net proceeds of at least $50 million is not consummated by May 31, 2000. We have
also issued a convertible promissory note for $1.0 million which matures on
September 1, 2004 and bears interest at a fixed rate of 10% per annum. The note
is convertible at the option of the holder into Series E Preferred Stock at
$3.125 per share. If the note is converted, the holder will receive a warrant to
purchase 32,000 shares of common stock at $0.75 per share.
Cash used by operating activities was $2.8 million during 1998 and $11.5
million during 1999. The increase in cash used by operating activities from 1998
to 1999 resulted principally from additional net losses incurred, an increase in
accounts receivable of $3.7 million to $5.9 million, a decrease in accounts
payable from $5.1 million to $3.4 million and an increase in inventory from $3.8
million to $4.4 million. The increase in accounts receivable reflects an
increase in sales. The decrease in accounts payable reflects an increase in cash
payments to suppliers as a result of bringing current our accounts payable. The
increase in inventory levels reflects anticipated higher sales levels. These
increases in cash used by operating activities are partially offset by non-cash
charges such as amortization of deferred stock compensation, amortization of
intangibles and depreciation and amortization of fixed assets.
Cash provided by investing activities in 1998 was $0.1 million. Cash flow
used by investing activities during 1999 was $0.5 million. The decrease in cash
flow from investing activities from 1998 to 1999 was primarily due to purchases
of property and equipment, including computer equipment, furniture,
manufacturing fixtures, testing equipment and leasehold improvements to our new
facility in Santa Clara, California.
Cash provided by financing activities was $2.8 million in 1998 and $12.8
million in 1999. The increase in cash flow provided by financing activities was
primarily the result of $12.7 million in proceeds from the issuance of common
and preferred stock.
We have experienced a substantial increase in our expenditures since our
inception consistent with growth in our operations and personnel. We expect to
devote substantial additional resources to our research and development efforts,
our sales, support, and marketing organizations, establishing additional
facilities worldwide and building the infrastructure necessary to support our
current and future products, including our STARPORT system. We believe that the
net proceeds of this offering, together with cash and cash equivalents and funds
available under existing credit facilities will be sufficient to meet our
working capital requirements for at least the next 12 months. We may require
additional funds to support our working capital requirements or for other
purposes and may seek to raise additional funds through public or private equity
financings or from other sources. We have received $15.0 million in capital
commitments from various strategic investors in the event that we do not
complete an initial public offering with gross proceeds of at least $25 million
by May 31, 2000. We cannot assure you that additional financing will be
available on acceptable terms, if at all. In addition, although there are no
present understandings, commitments or agreements with respect to acquisitions
of other businesses, products or technologies, we may, from time to time
evaluate these acquisitions. In order to consummate potential acquisitions, we
may issue additional securities or need additional equity or debt financing and
any financing we undertake may be dilutive to existing investors.
YEAR 2000 COMPLIANCE
In August 1998, we initiated a Year 2000 compliance program. The program
was directed by our Director of Management Information Systems and included an
intra-company task force with members from each of our principal departments,
including accounting, engineering, manufacturing, sales and marketing. The task
force was charged with identifying areas of potential risk within each
department and making evaluations, modifications, upgrades or replacements, as
appropriate.
With the change of the new year, we experienced no major problems
associated with Year 2000. The Year 2000 task force continued to monitor the
hardware and software systems used until February 2000. After February, the task
force no longer proactively monitored systems and concluded that we met all Year
2000 compliance standards. As an ongoing effort, we will continue to upgrade
hardware and software systems to cut costs and improve performance.
31
Despite our efforts and our experience with Year 2000 so far, we may
discover Year 2000 compliance problems in our systems that will require
substantial revision. In addition, third-party software, hardware and services
incorporated into our information systems may need to be revised or replaced,
all of which could be time-consuming and expensive and result in the following,
any of which could adversely affect our business, financial condition and
results of operations:
o delay or loss of revenue;
o cancellation of customer contracts;
o diversion of development resources;
o damage to our reputation;
o increased service and warranty costs; and
o litigation costs.
Our failure to fix or replace third-party software, hardware or services
on a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. For a derivative not
designated as a hedging instrument, changes in the fair value of the derivative
are recognized in earnings in the period of change. This statement will be
effective for all annual and interim periods beginning after January 1, 2001.
Management does not believe the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated financial position or results of
operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and sell such products in North,
Central and South America, Africa, Asia and Europe. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. As all sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
products less competitive in foreign markets. We do not use derivative
instruments to hedge our foreign exchange risk. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the nature of
our short-term investments, we have concluded that there is no material market
risk exposure. Therefore, no quantitative tabular disclosures are required.
32
BUSINESS
OVERVIEW
We are a global provider of broadband wireless access solutions that enable
Internet and communication service providers, telephone operating companies and
private network operators to deliver voice and high-speed data services to their
customers. We provide a portfolio of wireless systems that connect end-users to
public and private telecommunication networks in domestic and international
markets. Our systems allow an Internet or communication service provider or
enterprise to rapidly install high-speed communications throughout a service
area at a lower cost than a comparable wired network. More than 200 customers in
over 50 countries have purchased and installed our systems.
Our portfolio of systems allows end-users to transmit voice and data
simultaneously via Internet protocol, or IP, or asynchronous transfer mode, or
ATM, architectures, two leading industry standards for telecommunication
transport. Our broadband wireless access solutions address a wide range of
applications in different markets, including:
o enabling Internet service providers to offer direct Internet access;
o rapidly installing new networks for communication service providers;
o supplementing telephone operating companies' existing wired networks;
o establishing communication networks in regions without existing
infrastructures; and
o establishing private corporate networks.
Our systems are available in a broad range of frequency assignments,
enabling us to address the different regulatory requirements of multiple
geographic markets. We have systems installed and operating in Argentina,
Brazil, Chile, China, Mexico, Panama, the Philippines, Poland and the United
States. In 1999, 83% of our revenues were derived internationally. Our global
service organization provides customer support 24 hours per day, 7 days a week
and offers network design and installation services as part of our wireless
solution.
INDUSTRY BACKGROUND
THE DEMAND FOR HIGH-SPEED NETWORK ACCESS
As the Internet and public and private communication networks have become
essential for communication, e-commerce and information exchange, the volume of
voice and high-speed data traffic worldwide has increased dramatically. In
addition, user applications, such as electronic mail, telecommuting and
business-to-business exchanges have further increased the amount of network
traffic. This increase in network traffic has resulted in a demand for greater
transmission capacity, or bandwidth, and high-speed, or broadband services to
support it.
Bandwidth limitations between service providers' central offices and
end-users, often referred to as the last mile bottleneck, have constrained
service providers from delivering broadband services to the end-user. We believe
that traditional dial-up modem technology is insufficient to support the growth
in network traffic and demand for high-speed data transmission. Although wired
access network infrastructures using cable, digital subscriber line, or DSL, and
fiber optic systems can deliver greater bandwidth than that provided by dial-up
modem technology, these systems are not universally available to end-users. This
last mile bottleneck is frustrating a broad base of business, residential and
small office/home office users, many of whom require high-speed access to data.
WIRED SOLUTIONS
The demand for broadband access continues to accelerate, pressuring service
providers to improve and expand existing wired infrastructures. Wired broadband
access solutions that are intended to address this demand include cable modem
service, DSL and fiber optic technology. Often, these technologies require a
trained installation technician and are characterized by a lengthy
implementation process.
33
COAXIAL CABLE MODEM. Coaxial cable modem technology is currently the most
common wired solution for broadband network access. The cable solution is
limited in its effectiveness, however, because:
o performance deteriorates as more subscribers are added because the
users share a common transmission medium;
o performance difficulties worsen as users transmit more data because
transmission capacity has been allocated primarily to receiving data,
or downstream transmission, and cannot be easily reallocated to
transmitting data, or upstream transmission;
o there are inherent privacy limitations because all users share a
common link rather than using an individual link; and
o the current infrastructure is primarily geared towards residential
service, and is unavailable to most business customers.
DSL. DSL service is delivered over existing copper-based wired
infrastructure and is gaining wide acceptance by both residential and business
markets for high-speed Internet access. However, DSL service is limited in its
effectiveness because:
o the length and quality of available copper wires limit transmission
rates;
o the condition of many of the copper lines between the subscriber and
central office prohibits the use of DSL technology; and
o federally mandated regulations require service providers who upgrade
their copper-based infrastructures to offer competing service
providers access to their upgraded infrastructures. As a result,
service providers are reluctant to upgrade their infrastructures, and
copper wire infrastructures are not keeping pace with the increase in
demand for high-speed Internet access.
FIBER OPTIC. Fiber optic transmission systems offer far greater
transmission rates than either cable modem or DSL service offerings. Although
many wide-area networks have been upgraded to fiber optic cable, fiber optic
technology is not a cost effective last-mile broadband access solution due to
its high installation cost. Similarly, dedicated leased lines providing high
speed Internet access, such as T-1 lines, also have high installation costs that
deter most business customers from pursuing them.
WIRELESS SOLUTIONS
Non-movable, or fixed, broadband wireless access technology can solve many
of the problems imposed by wired networks. Broadband wireless technology enables
rapid implementation of high-speed network access in a cost-effective manner
relative to wired networks. We believe that wireless network providers should be
able to gain a greater share of the network access market because, unlike wired
network providers, they are not required by federal law to share their wireless
networks with competing service providers. A broadband wireless network is often
the best option for high-speed communication in remote areas and in many
developing countries due to the lack of an existing wired infrastructure. In
these regions, wireless technologies provide clear advantages over wired
networks, including lower cost, faster installation, greater flexibility and
increased reliability.
Broadband wireless technologies are classified as either point-to-point or
point-to-multipoint:
POINT-TO-POINT. Point-to-point wireless technology is used to transport
data traffic from one location to another, typically in local distribution
applications. Point-to-point wireless systems can interconnect high-speed
data networks between buildings or facilities within the same metropolitan
area. However, implementing a large wireless network based on
point-to-point technology becomes costly and cumbersome as the number of
locations increases. As a result, this technology is not practical for
interconnecting a large number of buildings or facilities.
POINT-TO-MULTIPOINT. Point-to-multipoint wireless technology is used to
interconnect a large number of facilities in a relatively small geographic
area. Point-to-multipoint wireless technology overcomes the limitations of
point-to-point technology by designating a single radio transceiver as the
central base station. The base station uses a radio protocol to control and
manage end-user devices so that data is transmitted and received among
multiple locations with minimal interference. An area served by a single
base station is often referred to as a cell. In order to serve a larger
geographic region and a larger number of facilities, multiple
34
cells are interconnected using point-to-point technology. As a result,
point-to-multipoint systems are combined with point-to-point technology to
deliver broadband wireless access service to a large geographic area.
Historically, most broadband wireless manufacturers focused on delivering
either point-to-multipoint or point-to-point systems. Few companies have merged
both technologies to deliver a single broadband wireless access solution for
large geographic areas that meets the needs of business and residential
end-users over the last mile. The absence of a single broadband wireless
solution is magnified internationally, where the lack of wire-based
infrastructure and the prohibitive costs associated with building new wired
infrastructure render wireless broadband technology the economically feasible
alternative for high-speed network access. We believe that in order to serve the
global broadband wireless access market, a network solution must integrate
point-to-multipoint and point-to-point technologies on a cost-effective basis.
In addition, a solution must be certified by the applicable regulatory agencies
for installation domestically and internationally.
OUR SOLUTION
Our WAVENET BROADBAND WIRELESS ACCESS portfolio of systems includes
point-to-multipoint and point-to-point wireless systems that connect end-users
to the Internet and public and private communication networks. Our systems allow
a service provider to offer high-speed network access to the end-user as a
cost-effective alternative to wired services. These systems assure service
providers a quick time-to-market by permitting rapid installation of complete
high-speed communication networks. In addition, we design our systems to be
compliant with domestic and international standards. We incorporate a worldwide
service organization that provides customer support 24 hours a day, 7 days a
week and offers network design and installation services.
The following describes the key benefits of our broadband wireless access
solution:
COST-EFFECTIVE DESIGN AND IMPLEMENTATION. Our systems provide a
cost-effective combination of point-to-multipoint broadband wireless access
and high-speed point-to-point voice and data transmission.
RAPID INSTALLATION. Our systems are shipped off-the-shelf and are easy
to install. We believe that our systems are extremely reliable. Our
license-exempt products do not require frequency coordination or licensing,
eliminating many of the time-consuming processes required in planning,
coordinating and installing traditional radio technology. License-exempt
operation permits rapid installation to meet customer demand for broadband
wireless access.
SCALABILITY. Our systems are scalable. As more users are added to a
network, a central base station that may have initially been equipped with
a single transmitter can be easily upgraded to accommodate up to ten
transmitters.
REMOTE MANAGEMENT. Our standard network management applications include
a simple network management protocol and a secure Web-based browser
interface. These interfaces allow the system to be managed and administered
remotely through the Internet.
NETWORK COMPATIBILITY. Our wireless systems provide built-in routing
and support industry standard protocols that allow data to be transported
at carrier-quality standards.
Our systems address a broad range of applications in different markets.
Examples of these applications include:
o ENABLING INTERNET SERVICE PROVIDERS TO OFFER DIRECT INTERNET ACCESS.
Digital Wireless Communications, a wireless Internet service provider
based in Savannah, Georgia, focuses on delivering high-speed Internet
service to the small office and home office marketplace. Our WAVENET
ACCESS product permits Digital Wireless Communications to establish
direct Internet access for its customers. This eliminates the need to
coordinate line access with the incumbent communication service
provider and ensures faster availability of services to its customers.
o RAPIDLY INSTALLING NEW NETWORKS FOR COMMUNICATION SERVICE PROVIDERS.
Central City Online, also known as EZNET Total Access, an Internet
service provider based in Huntington, West Virginia, uses our WAVENET
wireless systems to provide high-speed Internet access in direct
competition with the incumbent communication service provider. Our
WAVENET systems have enabled EZNET to become a competitive
35
high-speed wireless Internet service provider in West Virginia. EZNET
is in the process of launching wireless services across nine states
encompassing the mid-Atlantic region.
o SUPPLEMENTING TELEPHONE OPERATING COMPANIES' EXISTING WIRED NETWORKS.
Northern Indiana Telephone Company, or NetNITCO, was unable to meet
customer demand for high-speed Internet access due to limitations in
copper-based DSL. Our WAVENET ACCESS system allowed NetNITCO to
provide high-speed data services to its entire service area thereby
increasing NetNITCO's customer base.
o ESTABLISHING COMMUNICATION NETWORKS IN REGIONS WITHOUT EXISTING
INFRASTRUCTURES. In many parts of the world, communication networks
are incapable of supporting the increasing amount of high-speed data
traffic due to inadequate or poorly maintained equipment. Netcom,
S.A., a communication service provider based in Haiti, determined that
reliable dial-up service was not available in Haiti. By installing our
WAVENET broadband wireless system, Netcom is now able to supply its
Haitian customers with reliable high-speed data services.
o ESTABLISHING PRIVATE CORPORATE NETWORKS. Unibanco, a private banking
enterprise in Brazil, created a dedicated network to meet its branch
banking communications needs. Our WAVENET ACCESS wireless system was
selected because the local service provider could not supply the
network facilities in time to meet Unibanco's requirements. The
resulting network supports voice and high-speed data communications
between Unibanco's headquarters and its branch facilities.
STRATEGY
Our goal is to be the global broadband wireless access solution of choice
for Internet and communication service providers, telephone operating companies
and private network operators. Our strategy for achieving this goal includes the
following core elements:
INTRODUCING NEW BROADBAND WIRELESS ACCESS TECHNOLOGIES. We are devoting
substantial resources to the development of new point-to-multipoint
broadband wireless access technologies. For example, this year we expect to
introduce STARPORT, a broadband access system designed for the residential,
small office and home office markets. Also this year, we expect to begin
shipping the WAVENET ACCESS 3500, a point-to-multipoint system designed
exclusively for use in the licensed spectrum in the international market.
LEVERAGING STRATEGIC RELATIONSHIPS. We have entered into a strategic
relationship with TRW which provides us with technology that we use in our
STARPORT system. We anticipate forming strategic relationships with
additional partners to market and sell STARPORT into the residential, small
office and home office markets. These partners may include Internet and
communication service providers and telephone operating companies. We
intend to leverage these relationships in order to develop a global market
for STARPORT. In the future we may enter into additional strategic
relationships to enhance existing, or develop market opportunities.
EXPANDING GLOBAL MARKET PRESENCE. We intend to add additional direct
sales and sales support resources within the United States and to increase
our direct sales presence in Europe, Asia and Latin America. In addition to
expanding our field sales and systems engineering forces, we intend to
continue to build additional sales channels, both in the United States and
international markets, to expand the distribution of our products. We
expect to continue to establish distribution relationships with service
providers, distributors and value-added resellers to further penetrate our
target markets.
EMPHASIZING RESEARCH AND DEVELOPMENT. We have invested significant
resources in research and development, particularly in the areas of radio
frequency engineering, software and network protocol development. We intend
to increase our investment in research and development substantially in
order to maintain and enhance our technological position. By building on
our expertise in developing broadband wireless access technology, we intend
to develop high-performance product lines that will address the needs of
global wireless broadband markets.
CONTINUING TO DELIVER HIGH-QUALITY CUSTOMER SERVICE AND SUPPORT. We
provide pre- and post-installation support, with 24 hours per day, 7 days a
week coverage on a global basis. We are committed to providing exceptional
service, and we intend to continually enhance our customer service and
support capabilities in order to address the needs of existing and new
markets.
36
TECHNOLOGY
We believe that we have industry-leading multidisciplinary expertise in the
development of broadband wireless access solutions and that our products
incorporate several technologies that provide us with advantages relative to our
competitors.
POINT-TO-MULTIPOINT PROTOCOLS. We have applied our software design
expertise to develop robust point-to-multipoint networking protocols that
allow multiple users to have access in a radio environment without
interfering with each other. We have implemented a sophisticated set of
software resources, including digital signal processing, network routing
and network management, to address many of the unique challenges of
wireless environments. Some of these challenges include interference,
signal fading, path obstructions, signal absorption, security, capacity
requirements and shared operations with other radio systems.
SPREAD SPECTRUM TECHNOLOGY. Spread spectrum transmission is a method
whereby the original signal is spread over a wide range of frequencies so
that the original signal is difficult to detect and is very resistant to
interference from other signals. Some of our WAVENET ACCESS systems use a
form of radio transmission technology known as frequency hopping spread
spectrum. In frequency hopping, the transmitter sends at one frequency for
a period of time and then hops to another frequency and sends again with
the original signal being decoded at the receiving end. Our STARPORT system
uses a form of radio transmission technology known as direct sequence
spread spectrum, a technique that combines an information signal with a
pseudo-random signal to produce a final signal significantly greater in
bandwidth than the original information signal, with improved interference
resistance. We believe that our STARPORT system will deliver extremely
reliable operation in situations where other wireless-based technologies
might suffer from degraded performance.
IP-OVER-ATM. Our STARPORT systems employ Internet protocol, or IP, over
asynchronous transfer mode, or ATM, transport. IP is the leading industry
standard for data transmission within the information technology sector and
is typically used by Internet access providers to transmit data over the
Internet. ATM is the preferred telecommunications industry standard for
switching and transmission of voice and data, and is typically used by
telephone operating companies in their networks. IP-over-ATM transport is a
method for carrying IP traffic over ATM networks. We offer solutions based
on IP, ATM and IP-over-ATM transport, allowing us to market our products to
both Internet service providers and telephone operating companies with
minimum disruption to their network architectures.
ROUTER-BASED WIRELESS NETWORKS. We use a router-based architecture for
our WAVENET ACCESS wireless systems, versus many of our competitors who use
bridge-based architectures. The advantages of routing systems include
scalability, control and security. Unlike bridge-based systems where IP
traffic is bridged to all network nodes, in a router-based system, IP
traffic is routed to desired locations eliminating excess broadcast
traffic. By reducing the excess broadcast traffic, our router-based systems
greatly improve the bandwidth efficiency of our networks in comparison to
systems that do not have internal router capability.
DIGITAL COMMUNICATION TECHNOLOGY. Our strategic relationship with TRW
provides us with access to advanced digital communication technology,
including innovative protocols, algorithms and digital signal processing.
Scientific technology licensed to us by TRW as part of the STARPORT
initiative includes direct sequence spread spectrum waveforms, multiple
access control schemes, quality of service mechanisms and element
management interfaces.
WEB-BASED NETWORK MANAGEMENT. Our products come with WIRELESS
NETMANAGER, a secure Web-based network management system that gives our
clients the ability to easily manage their networks, download software
upgrades, and change or configure software parameters. Additionally,
WIRELESS NETMANAGER allows us to access and analyze our customers' systems
from any location through the Internet, giving us the ability to provide
remote customer support to clients, 24 hours per day, 7 days a week.
PRODUCTS
We manufacture a complete suite of broadband wireless access systems that
provide point-to-multipoint, point-to-point and high-capacity transport. Our
systems provide IP and ATM transport via wireless broadband service for
high-speed network access. These systems are designed as an alternative to
copper-based DSL or
37
cable-based broadband technologies and allow a service provider to rapidly
install high-speed access throughout a service area. Our technology enables
service providers to respond quickly to meet the demand for high-speed network
access, and allows businesses to build high-performance wireless networks to
supplement wired offerings from service providers. We also offer high-capacity
products to transport traffic from a central base station to a service
provider's network. In addition, we manufacture peripheral products that
complete our total network solution.
WAVENET BROADBAND WIRELESS ACCESS SYSTEMS
Our WAVENET BROADBAND WIRELESS ACCESS series is a family of systems
providing broadband wireless access using point-to-multipoint, point-to-point
and high-capacity transport technology that can transmit data over distances of
up to 20 miles. These systems allow a service provider to offer broadband
wireless access as an economic alternative to cable, DSL and fiber optic
technologies. This series includes the following products:
WAVENET ACCESS. Our WAVENET ACCESS point-to-multipoint system
interconnects a large number of facilities in a relatively small area. In
order to serve a larger geographic region and a larger number of
facilities, multiple WAVENET ACCESS systems are interconnected using
point-to-point technology. Connection into the end user's local area
network, or LAN, from the remote WAVENET ACCESS terminal is accomplished
through an industry standard Ethernet cable.
o WAVENET ACCESS 3500. The WAVENET ACCESS 3500 operates in the
international 3.5 gigahertz, or GHz, band currently accepted as
the preferred frequency assignment for fixed broadband radio
access. Up to 7 Mbps of throughput is available to the user.
Central base stations can be scaled to support transmission rates
from 2 Mbps to 57 Mbps. This system is specifically designed for
point-to-multipoint applications in markets outside the United
States.
o WAVENET ACCESS 2458. The WAVENET ACCESS 2458 operates as a full
duplex radio by using both the 2.4 GHz and 5.8 GHz license-exempt
bands. Using the 2.4 GHz band for downstream transmission and the
5.8 GHz band for upstream transmission provides a unique solution
in high interference environments. Up to 2.4 Mbps throughput is
available to each user. Central base stations can be scaled to
support transmission rates from 2 to 30 Mbps. This system is
designed for point-to-multipoint applications in the United
States and selected international markets.
o WAVENET ACCESS 2400. The WAVENET ACCESS 2400 operates in the 2.4
GHz license-exempt band and is European Telecommunications
Service Institute, or ETSI-, approved. With user throughput of up
to 1 Mbps and central base stations which are scaled to support
transmission rates of up to 10 Mbps, it allows an economical
alternative to T-1 and other dedicated leased lines.
WAVENET LINK. The WAVENET LINK series is a family of point-to-point
products using the license-exempt 5 GHz band, available in the United
States and in an increasing number of other countries. Our WAVENET LINK
system transports data traffic from one location to another, typically in
local distribution applications. Our WAVENET LINK systems can interconnect
high-speed data networks between buildings or facilities within the same
metropolitan area and are characterized by low end-to-end signal delay,
ease of installation and simplicity in use.
o WAVENET LINK EX. The WAVENET LINK EX is a cost-effective product
capable of transporting up to 16 Mbps over a distance of up to 10
miles. The radio is mounted outdoors, close to the antenna, to
minimize transmission losses, and is connected to the user's
local access network or in-building distribution system with an
industry standard Ethernet cable. Although primarily used in
point-to-point applications, the product can be used to implement
a point-to-multipoint system with a 100 Mbps effective central
base station capacity and a 16 Mbps user throughput.
o WAVENET LINK 4X. The WAVENET LINK 4X provides a cost-effective
solution for access requirements as well as cellular base station
connectivity with capacities of up to 4 x 2.048 Mbps. This system
features an embedded simple network management protocol. The
indoor unit, or IDU, provides all user interfaces including 2.048
Mbps ports, simple network management protocol access and
external alarm input.
WAVENET TRANSPORT. Our WAVENET TRANSPORT high-capacity wireless systems
are similar to our point-to-point systems but provide considerably higher
data transport rates. These systems transfer
38
aggregated traffic between base stations and service providers' backbone
systems. Like our point-to-point systems, our WAVENET TRANSPORT systems are
characterized by low end-to-end signal delay and simple installation.
o WAVENET TRANSPORT DX. The WAVENET TRANSPORT DX series is a family
of licensed digital microwave radios operating from 13 to 38 GHz,
with digital capacities of up to 34 Mbps. This system is targeted
toward high-speed data transport in selected international
markets.
o WAVENET TRANSPORT MX. The WAVENET TRANSPORT MX is a line-of-sight
digital radio transmission solution operating in millimeter wave
frequency bands for voice, high-speed data, Internet and video
traffic. The WAVENET TRANSPORT MX supports extensive scalable
data rates up to 100 Mbps.
STARPORT
We are currently testing in the field a new system called STARPORT, which
we intend to commercially introduce during 2000. STARPORT is a
point-to-multipoint broadband wireless access system that does not require a
line-of-sight between transmission and reception points and supports high-speed
IP-over-ATM traffic. The current architecture supports operation in the 5.8 GHz
license-exempt frequency band and we expect future development to support
operation in additional frequency bands. STARPORT is designed as a
cost-effective alternative to wire-based cable, DSL or fiber-optic technologies
and is intended to allow a service provider to rapidly supply services, such as
high-speed Internet access, throughout a service area. STARPORT is designed to
be installed by the consumer without the need for the communication service
provider to supply a professional technician. STARPORT consists of base station
units and customer premises units. STARPORT is specifically designed for the
residential, small office/home office markets. We expect that the consumer will
be able to connect an interface cable from STARPORT to a personal computer and
then automatically receive broadband service at data rates comparable to typical
DSL service. The base station units can support data rates of up to 4.3 Mbps per
end-user. STARPORT uses ATM-based network architecture allowing communication
service providers to deliver bandwidth on demand to their end-users. The
technology used in this system is licensed from TRW, Inc. and is subject to
certain restrictions. See "--Strategic Relationship with TRW" and "Certain
Transactions--Strategic Relationship with TRW."
LEGACY PRODUCTS
Multipoint Networks, Inc. developed, manufactured and marketed
point-to-point and point-to multipoint network products, called the RAN series,
prior to its acquisition by Wireless, Inc. The RAN 64/25 and 128/50 are licensed
wireless systems for low data rate connectivity. The RAN 64/25 and 128/50
support a 64 kilobit per second, or kbps, data circuit in a 25 kilohertz, or
kHz, radio channel or a 128 kbps data circuit in a 50 kHz radio channel,
respectively. These systems are typically used to support low-speed traditional
data networks, such as automated teller machine networks.
CUSTOMERS
We have a globally diversified customer base consisting of Internet and
communication service providers, telephone operating companies and private
network operators. During the 12-month period ended December 31, 1999, 49
customers purchased more than $100,000 of our products and 8 customers purchased
more than $500,000 of our products. In the year ended December 31, 1999, one
customer, Celular de Telefonia, accounted for approximately 13.9% of our
revenues. No other customer represented over 10% of revenues in this period.
Approximately 57.4% of our revenues were derived from ten customers in 1999.
SALES AND MARKETING
We market our systems and services globally through our direct sales force
and through a distribution network. We have sales and service offices located in
the United States, Europe, Latin America and Asia. Our distribution network
includes the following channels: systems integrators and distributors, value
added resellers, telephone operating companies and Internet and communication
service providers.
Our direct sales managers provide support to all of the distribution
channels in their geographic territories. They work closely with our channel
partners, participating in end-user briefings, proposals, product training
sessions, end-user seminars, trade shows and other demand-generating activities.
In addition, in partnership with
39
our indirect channels, our direct sales managers are involved in generating and
qualifying end-user leads that result in sales.
Our distributors are responsible for identifying potential business
customers, selling our systems as part of complete solutions and installing and
supporting the equipment at end-user sites. We generally establish relationships
with distributors through written agreements that provide pricing, terms and
conditions under which they may purchase our systems for resale. These
agreements are generally non-exclusive, may be terminated at will and do not
prevent these distributors from carrying competing lines or require them to
attain specific sales levels. We provide significant sales, marketing, training
and technical support to our distributors.
CUSTOMER SUPPORT
We complement our products with a worldwide service organization that
provides product support, network and radio system design, turnkey installation,
maintenance and field engineering. Our distributors are typically responsible
for installation, maintenance and support services to their customers, and we
offer our distributors assistance in providing customer service and support 24
hours per day, 7 days a week.
We offer a 12-month warranty on our systems and provide both in-warranty
and out-of-warranty repair and return services. Tracking of field returns is
handled by our on-line return material authorization system. Our manufacturing
department uses an on-line material control system allowing us to track product
and customer trends and history.
Our customer service department also issues technical support notes,
customer service bulletins, and field support notes to keep our customers and
distributors apprised of any changes, issues or concerns regarding product
performance or need for upgrades.
RESEARCH AND DEVELOPMENT
We have assembled a team of engineers with significant telecommunications
and networking industry experience. Our engineers have expertise in radio
design, wireless networking protocols, data networking, hardware and software.
Our current product development plans focus on the commercialization of our
STARPORT point-to-multipoint system and other next generation systems. We use
digital signal processors and other digital components to reduce the cost of our
systems.
We have made, and will continue to make, a substantial investment in
research and development. We believe that our research and development efforts
are key to our ability to maintain technical competitiveness and to deliver
innovative products that address the needs of the market. However, our product
development efforts may not result in commercially successful products and may
be rendered obsolete by changing technology or new product announcements by
other companies.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely upon a combination of patents, trademarks, trade secrets,
copyrights and a variety of other measures to protect our intellectual property.
We currently hold two U.S. patents and have two patent applications pending
before the U.S. Patent and Trademark Office relating to our point-to-point
wireless networking technology. We also share ownership of two patent
applications pending before the U.S. Patent and Trademark Office, obtained under
a Purchase and License Agreement with TRW, relating to our STARPORT
point-to-multipoint wireless networking technology. In addition, under the
Purchase and License Agreement with TRW, we obtained rights in technology in the
field of wireless communications systems that may lead to additional patent
applications. We currently also have registered trademarks for the marks
"WAVENET," and "RAN" and applications pending before the U.S.Patent and
Trademark Office for additional marks, including "STARPORT," and the Wireless
logo. Although we rely on patent, copyright, trade secret and trademark laws to
protect our technology, we believe that factors such as the technological and
creative skill of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are more essential to establishing
and maintaining technology leadership position.
We generally enter into confidentiality or license agreements with our
employees, consultants, service providers, customers and corporations with whom
we have strategic relationships, and generally control access to
40
and distribution of our software, documentation and other proprietary
information. In addition, we often incorporate the network designs of our
customers into our solutions and have obligations with respect to the use and
disclosure of this information.
We rely on licensed technology for use in our broadband wireless access
systems. We may not be able to maintain these licensing arrangements, or we may
be unable to maintain them on affordable terms. If these license agreements were
not renewed, our business would be severely harmed, and we would not be able to
ship product for the broadband wireless access market. See "Risk Factors--We
depend upon technology licensed from third parties, and if we do not maintain
these license arrangements, our business will be seriously harmed."
The market for broadband wireless access products and systems is
characterized by vigorous protection and pursuit of intellectual property
rights. From time to time, we may receive notice of claims of infringement of
other parties' proprietary rights. Any claims of infringement, whether or not
they have merit, could result in litigation which could severely harm our
business. See "Risk Factors--Our business model depends upon obtaining and
protecting our intellectual property, and if we fail to protect our proprietary
rights, our business could be harmed" and "--We may become involved in costly
and time consuming litigation over proprietary rights."
GOVERNMENT REGULATION
Our systems intentionally radiate radio frequency energy, and therefore
must comply with regulations in the countries where we sell and install our
systems. The process of verifying compliance with radio and network regulations
is known as system certification, and this must be granted before a system is
offered commercially for sale. The Federal Communications Commission, or FCC,
certifies systems we sell and install in the United States. Some regions of the
world, such as Latin America and the Philippines, accept FCC certification as
sufficient approval for operation within these regions. The European
Telecommunications Standards Institute, or ETSI, certifies systems we sell and
install in Europe. Many countries also require additional testing to certify
compliance to local standards and requirements, in addition to FCC or ETSI
rules.
Our systems operate in both licensed and license-exempt frequency
assignments. A licensed frequency assignment requires that, prior to installing
our systems, the operator obtain a conditional license from the appropriate
regulatory body for a specific frequency allocation. A license-exempt frequency
assignment allows an operator to install and activate our systems without
notifying any authority. In the United States, operation of unlicensed radio
communications equipment is subject to the conditions that no harmful
interference is caused to authorized users of the band, and that interference,
including interference that may cause undesired operation, must be accepted from
all other users of the band. This includes other unlicensed operators,
authorized operators such as amateur licensees, Industrial, Scientific and
Medical equipment, and U.S. Government operations. Unlicensed operators that
cause harmful interference to authorized users, or that exceed permitted radio
frequency emission levels, may be required to cease operations until the
condition causing the harmful interference or excessive emissions has been
corrected.
The delays inherent in this regulatory approval process may cause the
rescheduling, postponement or cancellation of the installation of
telecommunications systems by our customers which, in turn, may significantly
reduce sales of systems to these customers. The failure to comply with current
or future regulations or changes in the interpretation of existing regulations
in a particular country could result in the suspension or cessation of sales in
that country, restrictions on our development efforts and those of our
customers, render current systems obsolete, or increase the opportunity for
additional competition. These regulations or changes in interpretation of these
regulations could require us to modify our products and incur substantial
compliance costs.
MANUFACTURING
Our manufacturing operations occupy 38,000 square feet of our facility in
Santa Clara, California and consist of planning, procurement, final assembly,
testing, quality control, shipping, receiving and stock management.
We design and develop a number of the key components of our products,
including printed circuit boards, mechanical enclosures and software. We
outsource the majority of our sub-assembly operations, and we utilize strategic
ISO 9000 certified local and offshore manufacturing partners to provide
sub-assembly of the printed circuit boards and key components. We also outsource
the sub-assembly of the printed circuit boards for some of our WAVENET ACCESS
and WAVENET LINK systems. We provide exact specifications to our manufacturing
partners that
41
provide the sub-assemblies and components for each product. We then conduct
final assembly, burn-in, test and shipment of our products from our headquarters
in Santa Clara, California.
Our manufacturing team works closely with our engineers to manage the
supply chain. We determine the components that are incorporated in our products
and select the appropriate suppliers of these components. All materials used in
our products are processed through a full qualification cycle and are controlled
by an approved vendor list.
Our approach to manufacturing provides the flexibility of outsourcing while
maintaining quality control of delivered products to customers. We believe that
this approach allows us to respond to rapid growth and sudden market shifts. Key
factors that influence our manufacturing operations are cost reduction, quality,
time-to-market and supply of materials. Any interruption in the operations of
our manufacturing partners or material suppliers would harm our ability to meet
scheduled product deliveries to our customers.
We use a rolling four-month forecast based upon anticipated product orders
to determine our material requirements. Lead times for the materials and
components that we order vary significantly and depend on factors such as
specific supplier, contract terms and demand for a component at a given time.
We, along with our contract manufacturers, may terminate our contracts without
cause at any time. At that time, the terminating party must honor all open
purchases. We obtain parts and components through purchase orders and have no
long-term commitments regarding supply or price from these suppliers. We have
established second source manufacturing and material suppliers to provide parts
and components within weeks of losing these suppliers. However, the loss of any
of our suppliers could prevent us from meeting our scheduled product deliveries
to our customers and could materially harm our business, results of operations
and financial condition.
STRATEGIC RELATIONSHIP WITH TRW
We entered into a Purchase and License Agreement with TRW on January 14,
2000. Under the agreement, we purchased and obtained exclusive license rights in
point-to-multipoint wireless networking technology, generally referred to as the
STARPORT technology. Any products we develop based on such technology may only
be sold by us with base stations configured for outdoor use. Sales of products
containing the STARPORT technology with base stations configured for indoor use
or to the U.S. Government--including organizations in which the U.S. is a
member, such as NATO--must be made through TRW or its licensees. TRW also has a
license in any improvements made by us upon the STARPORT technology. If we do
not offer a commercial version of a product containing the STARPORT technology
for sale by July 14, 2001, we will lose our exclusive license with TRW. The
STARPORT technology was originally developed by TRW Systems and Information
Technology Group for military communications. TRW is an international company
that provides advanced technology products and services. The principal
businesses of TRW and its subsidiaries are the design, manufacture and sale of
products and the performance of systems engineering, research and technical
services for industry and the U.S. Government in the automotive, aerospace and
information systems markets. In connection with this agreement, TRW acquired
approximately 18% of our capital stock outstanding prior to this offering.
COMPETITION
The broadband wireless access market is rapidly evolving and highly
competitive. We believe that our business is affected by the following
competitive factors:
o cost;
o ease of installation;
o technical support and service;
o sales and distribution capability;
o breadth of product line;
o conformity to industry standards; and
o implementation of additional product features and enhancements.
We expect that competition in the broadband wireless access market will
increase in the future. We currently compete against wireless broadband access
equipment manufacturers including Adaptive Broadband Corporation, BreezeCom,
Ltd., Gigabit Wireless, Inc., Lucent Technologies, Inc., Netro Corporation, and
Wavtrace, Inc. in the
42
point-to-multipoint market and BreezeCom, Digital Microwave Corporation, Lucent
and P-Com, Inc. in the point-to-point market. In addition, well capitalized
wireless equipment manufacturers including Ericsson, Inc., Motorola, Inc., Nokia
Corporation, QUALCOMM Incorporated and Siemens AG are potential entrants into
either market. Our broadband wireless access technology also competes with wired
solutions such as cable, DSL, fiber optic systems and high-speed lines leased
from communication service providers, such as T-1 lines.
Increased competition is likely to result in price reductions, shorter
product life cycles, reduced gross margins, longer sales cycles and loss of
market share, any of which would seriously harm our business. We cannot assure
you that we will be able to compete successfully against current or future
competitors or that competitive pressures we face will not seriously harm our
business and results of operations. Many of our competitors have longer
operating histories, larger installed customer bases, substantially greater name
recognition, and greater financial, sales and marketing, technical,
manufacturing, and distribution resources than us.
FACILITIES
Our principal operations are located in Santa Clara, California. We lease
approximately 55,000 square feet for our corporate headquarters that includes
manufacturing, sales and marketing, research and development, customer service
and support, and finance and administration. This lease expires on July 31,
2006. In addition, we have short-term leases for our various sales offices. We
believe our current facilities will be adequate to meet production needs for the
foreseeable future.
EMPLOYEES
As of December 31, 1999 we had a total of 91 employees, of which 31 were in
operations and manufacturing, 25 were in sales and marketing, 18 were in
research and development, 5 were in customer service and support, and 12 were in
finance and administration. None of our employees is represented by a labor
union. We have not experienced any work stoppages and consider relations with
our employees to be good.
LEGAL PROCEEDINGS
We are not currently a party to any material litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our
executive officers and directors as of April 15, 2000:
NAME AGE POSITION
William E. Gibson................. 60 Chairman of the Board of Directors
William J. Palumbo................ 57 President, Chief Executive Officer and Director
Mark A. Byington.................. 48 Executive Vice President
Antonio Canova.................... 38 Executive Vice President, Chief Financial Officer and Secretary
William E. Kunz................... 42 Senior Vice President, Engineering and Chief Technology Officer
Charles C. Pai.................... 58 Senior Vice President, Finance
Donald H. MacLeod................. 49 Senior Vice President, International
James D. Bletas................... 55 Vice President, Sales--Americas
Ralph M. Gushiken................. 56 Vice President, Manufacturing
Thomas L.F. Ohlsson............... 43 Vice President, Marketing
Andrew I. Fillat.................. 51 Director
Denny R.S. Ko..................... 60 Director
David F. Millet................... 55 Director
Patrick A. Rivelli................ 63 Director
Mark S. Silverman................. 41 Director
WILLIAM E. GIBSON, a co-founder of our company, has served as Chairman of
the Board of Directors since our inception. Prior to October 1999, Mr. Gibson
also served as our President and Chief Executive Officer. Mr. Gibson was a
founder of Digital Microwave Corporation, a manufacturer of high-frequency
digital microwave radios, and served as its President and Chief Executive
Officer from 1984 through 1991 and as President of DMC Telecom International
from August 1991 until June 1995. Previously, Mr. Gibson held various management
positions at the Farinon division of Harris Corporation, a manufacturer of
digital microwave radios, including Vice President and General Manager. Mr.
Gibson is the founder and has served as Managing Partner of Crossroads Venture
Capital LLC, a private equity fund, from its inception in October 1996. He also
serves on the boards of directors of Mobicom Corporation, a designer of GSM
cellular telephone handsets, Momentum Laser, Inc., a manufacturer of laser-based
construction tools, Oncologic, Inc., a biotechnology company focusing on the
development of a cancer detection and therapy process, and Pu'u'ala Corporation,
a certified organic farm and ranch located in Hawaii. Mr. Gibson holds a M.B.A.
and a B.S. in Engineering from the College of Notre Dame.
WILLIAM J. PALUMBO has served as our President, Chief Executive Officer
and as a member of our board of directors since October 1999. Mr. Palumbo served
as President and CEO of 2 Dot3.com, a research company focusing on the operation
of broadband services, from April 1998 to October 1999. Mr. Palumbo served as
Vice President of Sales and Marketing of SpectraLink Corp., a manufacturer of
indoor wireless products, from July 1990 to March 1998. From 1987 to 1990, Mr.
Palumbo was the Vice President, Sales and Marketing at Digital Microwave
Corporation. He founded Communication Office Machines, Inc., a virtual network
equipment manufacturer, and served as its President and Chief Executive Officer
from 1983 to 1987. Previously, from 1976 to 1983, Mr. Palumbo held the position
of Vice President of Sales for Honeywell Action Communication. Mr. Palumbo holds
a B.S. in Marketing from Southern Illinois University.
MARK A. BYINGTON has served as our Executive Vice President since
December 1999. From May 1997 to December 1999, Mr. Byington held the positions
of Senior Vice President, Engineering and Chief Technology Officer of Wavespan
Corporation, a wireless networking equipment manufacturer. From March 1996 to
May 1997, he was the Vice President, Marketing, Wireless Products of Netro
Corporation, a wireless equipment manufacturer. Previously, from February 1984
to March 1996, he held various managerial and technical positions at Digital
Microwave Corporation including Vice President, Engineering. From March 1976 to
February 1984, Mr. Byington held the positions of Development Engineer and
Senior Development Engineer for the Farinon division of Harris Corporation. From
June 1974 to November 1975, Mr. Byington worked for Computer Curriculum
Corporation as a Development Engineer. Mr. Byington holds a B.S. in Electrical
Engineering from Stanford University.
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ANTONIO CANOVA has served as our Executive Vice President, Chief
Financial Officer and Secretary since April 2000. From July 1995 to April 2000,
Mr. Canova was an audit partner in the Information, Communication and
Entertainment practice group of KPMG LLP where he focused principally on
telecommunications-related companies. Previously, from July 1990 to July 1995,
Mr. Canova was a Senior Manager with KPMG specializing in technology companies.
Mr. Canova is a certified public accountant and holds a B.S. in Business from
Santa Clara University.
WILLIAM E. KUNZ has served as our Senior Vice President, Engineering and
Chief Technology Officer since January 1999. From May 1998 to January 1999, Mr.
Kunz served as our Vice President, Engineering. From July 1979 to May 1998, Mr.
Kunz held various management and technical positions at Hewlett Packard, Inc.,
including LMDS Base Station Program Manager of Video Division-Wireless Systems,
Engineer Scientist at HP Laboratories and Development Engineer in the Network
Measurements Division. Mr. Kunz holds a B.S.E.E. from the University of
California, Davis and a M.S.E.E. from the University of California, Berkeley.
CHARLES C. PAI, a co-founder of our company, has served as our Senior
Vice President, Finance since our inception. Prior to April 2000, Mr. Pai also
served as our Chief Financial Officer and Secretary. From May 1996 to June 1997,
Mr. Pai was the Vice President, Finance of SSE Telecom Products, a manufacturer
of satellite transceivers and data modems. He was a co-founder of Spatial
Systems, a software mapping company, and served as its Chief Executive Officer
from September 1993 to May 1996. He served as the Vice President, Finance of
Digital Microwave Corporation from January 1985 to September 1993. Previously,
from 1972 to 1984, Mr. Pai held various financial management positions at
Plantronics, Inc., a telephone headset manufacturer, Fairchild Camera and
Instrument, a semiconductor technology developer and fabricator and Xerox
Corporation. Mr. Pai serves as a director of Mobicom Corporation. Mr. Pai holds
a M.B.A. from Columbia University and a B.S. in Electrical Engineering from
Cornell University.
DONALD H. MACLEOD, a co-founder of our company, has served as our Senior
Vice President, International since December 1999. Mr. MacLeod also served as
our Senior Vice President, Sales and Marketing from July 1998 to December 1999
and as our Vice President, Asia from September 1997 to July 1998. From September
1996 to September 1997, Mr. MacLeod was employed as General Manager, Asia by MAS
Technology, Ltd., a manufacturer of digital microwave products. From 1993 to
September 1996, he was employed by Digital Microwave Corporation as Vice
President, Asia. Mr. MacLeod holds an M.B.A. from Concordia University of Canada
and a B. Eng from McMaster University of Canada.
JAMES D. BLETAS has served as our Vice President, Sales--Americas since
June 1999. From September 1998 to May 1999, Mr. Bletas was a consultant to
Comtier Corporation, a satellite network communication system company. From
March 1997 to August 1998, he served as Executive Vice President, Sales and
Marketing, Systems and Customer Services at SSE Telecom Products. From June 1996
to February 1997, Mr. Bletas was the Executive Vice President, Sales, Marketing
and Systems for First Pacific Networks, a service provider in the broadband
cable modem market. From May 1993 to June 1996, Mr. Bletas served as President
of the Telecommunication Transmission System division of California Microwave.
From October 1975 to March 1993, he served in various positions with the Farinon
division of Harris Corporation, including Vice President, International. Mr.
Bletas holds B.S. in Electrical Engineering from Concordia University of Canada.
RALPH M. GUSHIKEN has served as our Vice President, Manufacturing since
August 1997. From February 1989 to August 1997, Mr. Gushiken held various
manufacturing positions at Digital Microwave Corporation including Director of
Manufacturing, Spectrum Division, Director of Technology Transfer and Director
of Production. Previously, from January 1971 to February 1989, Mr. Gushiken
served in various manufacturing positions at the Farinon division of Harris
Corporation. Mr. Gushiken holds a B.S. in Industrial Technology from California
State University, San Jose.
THOMAS L.F. OHLSSON has served as our Vice President, Marketing since
November 1999. From March 1991 to November 1999, he served in various roles with
SpectraLink Corporation, including Director of Marketing. From November 1990 to
March 1991, Mr. Ohlsson served as Senior Product Marketing Manager with Cylink
Corp., a manufacturer of data communication products which is now part of P-Com,
Inc. From November 1987 to November 1990, Mr. Ohlsson served in various roles
with Digital Microwave Corporation, including Director of Product Marketing.
Previously, from 1978 to 1987, Mr. Ohlsson held various product management and
engineering positions at the Lenkurt division of GTE Corporation, DSC
Communication and DCA/Cohesive Networks, all manufacturers of telecommunications
products. Mr. Ohlsson holds a M.B.A. and a B.S. in Electrical Engineering from
Santa Clara University.
45
ANDREW I. FILLAT has served as a member of our board of directors since
August 1998 and served as a member of Multipoint's board of directors from
September 1994 until the acquisition of Multipoint in August 1998. Since 1989,
he has been a Managing Director of Advent International Corporation, a private
equity fund focusing on high growth sectors, including cable media, information
technology, specialty chemicals, health care, consumer products and retailing.
He also serves on the board of Advanced Radio Telecom, a public company that
provides broadband Internet Protocol service, as well as on the boards of
several private companies. Mr. Fillat holds a M.B.A. from Harvard University, a
M.S. in Computer Science from the Massachusetts Institute of Technology and a
B.S. in Computer Science from the Massachusetts Institute of Technology.
DENNY R.S. KO has served as a member of our board of directors since
August 1998. Dr. Ko is the Managing General Partner of DynaFund Ventures, a
private equity fund that focuses on internet, software, communications,
electronics, photonics and related fields. He serves on the boards of several
technology companies, including Gadzoox Networks, Inc., a developer of hardware
and software equipment in the SAN (storage area network) market. Dr. Ko holds a
Ph.D. in Aeronautics & Applied Math from the California Institute of Technology,
a M.S. in Aeronautical Sciences from the University of California, Berkeley and
a B.S. in Mechanical Engineering from National Taiwan University.
DAVID F. MILLET has served as a member of our board of directors since
September 1999. Since June 1997, he has been a Managing Director of Gemini
Investors, a private equity fund that focuses on middle market companies in
technology and business services. Since August 1993, he has served as the
President of Thomas Emery & Sons. Since 1998, he has also served as President of
Chatham Venture Corporation. Mr. Millet serves on the boards of View Tech, Inc.,
National Telemanagement Corporation, Eloquent, Inc. and Holographix, Inc. Mr.
Millet holds a BA in Physical Sciences from Harvard College.
PATRICK A. RIVELLI has served as a member of our board of directors since
September 1999. Since 1987, Mr. Rivelli has been a general partner of Sunwestern
Investment Group, a private equity fund that focuses on data,
telecommunications, and computer related ventures. Mr. Rivelli serves on the
boards of Vista Information Solutions, an Internet-based provider of real estate
information, and several privately-held companies. He holds a M.S. in Electrical
Engineering from the University of Pennsylvania and a B.S. in Electrical
Engineering from Northeastern University.
MARK S. SILVERMAN has served as a member of our board of directors since
January 2000. Since October 1999, Mr. Silverman has served as Vice President,
Strategic Development for the Aerospace and Information Systems Sector of TRW,
Inc. From 1995 to October 1999, Mr. Silverman served as Vice President, Planning
and Development for the Systems and Information Technology Group of TRW, Inc.
From 1993 to 1995, Mr. Silverman became director of planning and business
development for the TRW Engine Components Group, becoming Vice President in
1994. Previously, from 1983 to 1993, Mr. Silverman held various management and
technical positions with TRW. Mr. Silverman holds a M.B.A. from Case Western
Reserve University's Weatherhead School of Management and a B.S. in Management
Information Systems from Case Western Reserve University.
COMPOSITION OF THE BOARD
Immediately prior to the completion of this offering, we will amend and
restate our certificate of incorporation to adopt certain public company-style
provisions. Under our amended and restated certificate of incorporation, our
board of directors will be divided into three classes, with each class serving
for a term of three years. At each annual meeting of stockholders, directors
will be elected by the holders of common stock to succeed the directors whose
terms are expiring. Our Board has resolved that Messrs. Millet and Filat will be
Class I directors whose term will expire in 2001, Mr. Rivelli and Dr. Ko will be
Class II directors whose terms will expire in 2002 and Messrs. Gibson, Palumbo
and Silverman will be Class III directors whose terms will expire in 2003. With
respect to each class, a director's term will be subject to the election and
qualification of their successor, or their earlier death, resignation or
removal.
BOARD COMMITTEES
We have established an audit committee composed of independent directors,
which reviews and supervises our financial controls, including the selection of
our auditors, reviews our books and accounts, meets with our officers regarding
our financial controls, acts upon recommendations of our auditors and takes
further actions as the audit committee deems necessary to complete an audit of
our books and accounts, as well as other matters which
46
may come before it or as directed by the board. The audit committee currently
consists of three directors, Messrs. Millet and Silverman and Dr. Ko.
We have established a compensation committee, which reviews and approves
the compensation and benefits for our executive officers, administers our stock
plans and performs other duties as may from time to time be determined by the
board. The compensation committee currently consists of two directors, Messrs.
Fillat and Rivelli. None of our compensation committee members is, or ever was,
an employee of ours. None of our executive officers serve on the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of our board or compensation committee.
DIRECTOR COMPENSATION
Directors who are also employees do not receive additional compensation
for serving as directors. Non-employee directors receive $10,000 for each year
of board service following each annual meeting. Non-employee directors also
receive $1,000 for attending each regular and special meeting of the full Board
of Directors and $500 for attending each regular or special meeting of a board
committee, plus, in each case, reimbursement for reasonable expenses.
Non-employee directors are also eligible to receive discretionary option grants
and stock issuances under the 2000 Stock Incentive Plan. In addition, under the
2000 Stock Incentive Plan, non-employee directors receive automatic option
grants to purchase 30,000 shares of common stock upon becoming directors and
automatic option grants to purchase 5,000 shares of common stock on the date of
each annual meeting of stockholders. The 2000 Stock Incentive Plan also contains
a director fee option grant program. Should this program be activated in the
future, each non-employee board member will have the opportunity to apply all or
a portion of any annual retainer fee otherwise payable in cash to the
acquisition of an option with an exercise price below the then fair market
value. See "Executive Compensation and Other Information--Employee Benefit
Plans."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
o any breach of their duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper
personal benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as a
director or executive officer of Wireless, any subsidiary of Wireless or any
other entity to which the person provides services at our request. In addition,
we maintain directors' and officers' insurance. We believe that these provisions
and agreements are necessary to attract and retain qualified persons as
directors and executive officers.
EXECUTIVE OFFICERS
Our executive officers are appointed by and serve at the discretion of
our board of directors. There are no family relationships among any of our
directors, officers or key employees.
47
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth the compensation paid or awarded by us in
1999 to our Chief Executive Officer, our former Chief Executive Officer and each
of our four other most highly compensated executive officers for the year ended
December 31, 1999. These individuals are referred to in this prospectus as the
named executive officers. The compensation table below excludes other
compensation in the form of perquisites and other personal benefits that
constitutes the lesser of $50,000 or ten percent of the total annual salary and
bonus of each of the named executive officers in 1999.
No individual who would otherwise have been includable in the
compensation table on the basis of salary and bonus earned during 1999 has
resigned or otherwise terminated his or her employment during 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------------
SECURITIES
YEAR UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) (#) COMPENSATION0 ($)
- ------------------------------------ ------ ----------- ---------- ------------------ -----------------
William J. Palumbo (1)..................... 1999 $ 34,597 $ 25,000 1,250,000 (2) $ 5,170
President and Chief Executive Officer
William E. Gibson (3)...................... 1999 180,000 -- 850,961 --
Chairman of the Board of Directors and
former Chief Executive Officer
William E. Kunz............................ 1999 143,058 -- 93,055 $ 1,897
Senior Vice President, Engineering and
Chief Technology Officer
Charles C. Pai............................. 1999 125,112 -- 63,697 (4) --
Senior Vice President, Finance
Donald H. MacLeod.......................... 1999 108,750 -- 59,380 $ 38,621 (5)
Senior Vice President, International
- -------------------
(1) Mr. Palumbo has served as our President and Chief Executive Officer since
October 1999 and, therefore, these amounts are for less than a full year.
(2) 250,000 of these shares are conditional upon the company undertaking
a successful initial public offering prior to December 31, 2000 or
meeting certain revenue and profit targets in 2000 and are subject to
repurchase by the company at the original exercise price if such
conditions are not met on or before December 31, 2000.
(3) Mr. Gibson served as our President and Chief Executive Officer from May
1997 until October 1999.
(4) In January 1999 our board of directors resolved to accelerate all of Mr.
Pai's unvested options as of the date 180 days following the date this
registration statement is declared effective.
(5) Consists of rent payments for corporate housing of $35,550 and lease
payments for a company car of $10,138.
48
STOCK OPTION GRANTS AND STOCK APPRECIATION RIGHTS
The following table sets forth summary information with respect to stock
options granted to each of our named executive officers in 1999, including the
potential realizable value over the term of the options, based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. Each option represents
the right to purchase one share of our common stock. No stock appreciation
rights were granted during 1999.
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
PERCENT OF TOTAL APPRECIATION
NUMBER OF OPTIONS FOR OPTION TERM
SECURITIES GRANTED TO EXERCISE AT PUBLIC OFFERING PRICE ($)
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION ----------------------------
NAME OPTIONS GRANTED 1999 SHARE DATE 5% 10%
- ---------------------------- --------------- ------------ --------- ---------- ------------- -------------
William J. Palumbo.......... 1,250,000 (1) 30.1% $0.27 9/15/09
William E. Gibson........... 48,961 1.2% 0.27 3/13/09
802,000 19.3% 0.27 9/15/09
William E. Kunz............. 43,055 1.0% 0.27 3/19/09
50,000 1.2% 0.27 9/15/09
Charles C. Pai.............. 13,697 (2) 0.3% 0.27 3/19/09
50,000 (2) 1.2% 0.27 9/15/09
Donald H. MacLeod........... 9,380 0.2% 0.27 3/19/09
50,000 1.2% 0.27 9/15/09
- -------------------
(1) 250,000 of such shares are conditional upon the company undertaking
a successful initial public offering prior to December 31, 2000 or
meeting certain revenue and profit targets in 2000 and are subject to
repurchase by the company at the original exercise price if such
conditions are not met on or before December 31, 2000.
(2) In January 1999 our board of directors resolved to accelerate all of
Mr. Pai's unvested options as of the date 180 days following the date
this registration statement is declared effective.
In 1999, we granted options to purchase up to an aggregate of 4,124,209
shares of our common stock to employees, directors and consultants under our
1997 Stock Plan. Under our 1997 Stock Plan, options were granted to employees,
officers, directors and consultants. Only employees, officers and directors were
eligible to receive "non-statutory stock options," which are intended to qualify
for certain tax treatment, and consultants may receive "nonstanding stock
options," which do not qualify for such treatment. The exercise price of
incentive stock options under the 1997 Stock Plan must be at least equal to the
fair market value of our common stock on the date of grant, as determined in
good faith by our board of directors, while the exercise price of nonstatutory
options must be at least equal to 85% of the fair market value. Holders of more
than 10% of the outstanding voting shares were only granted options with an
exercise price of at least 110% of the fair market value of the underlying stock
on the date of grant, and if such holder has incentive stock options, the term
of the options must not exceed five years. Options granted under the 1997 Stock
Plan generally vest over a four-year period and must be exercised within ten
years.
The potential realizable value is calculated assuming the aggregate
exercise price on the date of grant appreciates at the indicated rate for the
entire term of the option and that the option is exercised and sold on the last
day of its term at the appreciated price. Stock price appreciation of 5% and 10%
is assumed pursuant to the rules of the Commission. We can give no assurance
that the actual stock price will appreciate over the term of the options at the
assumed 5% and 10% levels or at any other defined level. Actual gains, if any,
on stock option exercises will be dependent on the future performance of our
common stock. Unless the market price of the common stock appreciates over the
option term, no value will be realized from the option grants made to the named
executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION
VALUES
The following table sets forth information with respect to the named
executive officers concerning their exercise of stock options during the year
ended December 31, 1999 and the number and value of shares of common
49
stock underlying the unexercised options held by them at the close of such year.
No stock appreciation rights were exercised during 1999 and no stock
appreciation rights were outstanding as of December 31, 1999. The value realized
is calculated as the difference between the fair value of the shares at the time
of exercise less the exercise price paid for the shares. The value of
unexercised in-the-money options at December 31, 1999 is calculated on the basis
of the assumed initial public offering price of $ , less the aggregate
exercise price of the options.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($)
------------------------------- ----------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ---------------- ------------- -------------- --------------- ------------ ---------------
William J. Palumbo.... 1,250,000(1) $ -- -- --
William E. Gibson..... 1,400,961 -- -- --
William E. Kunz....... 173,055 3,500 -- --
Charles C. Pai........ 135,447(2) 5,303 -- --
Donald H. MacLeod..... -- -- 162,430 --
- ---------------
(1) 250,000 of such shares are conditional upon the company undertaking
a successful initial public offering prior to December 31, 2000 or
meeting certain revenue and profit targets in 2000 and are subject to
repurchase by the company at the original exercise price if such
conditions are not met on or before December 31, 2000.
(2) In January 1999 our board of directors resolved to accelerate all of
Mr. Pai's unvested options as of the date 180 days following the date
this registration statement is declared effective.
EMPLOYEE BENEFIT PLANS
2000 STOCK INCENTIVE PLAN.
INTRODUCTION. The 2000 Stock Incentive Plan is intended to serve as the
successor program to our 1997 Stock Option/Stock Issuance Plan. The 2000 plan
was adopted by the board on January 18, 2000 and is expected to be approved by
our stockholders in May 2000. The 2000 plan will become effective when the
underwriting agreement for this offering is signed. At that time, all
outstanding options under our existing 1997 plan will be transferred to the 2000
plan, and no further option grants will be made under the 1997 plan. The
transferred options will continue to be governed by their existing terms, unless
our compensation committee decides to extend one or more features of the 2000
plan to those options. Except as otherwise noted below, the transferred options
have substantially the same terms as will be in effect for grants made under the
discretionary option grant program of our 2000 plan.
SHARE RESERVE. 8,750,000 shares of our common stock have been authorized
for issuance under the 2000 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1997 plan plus an additional
increase of approximately 1,300,000 shares. The share reserve under our 2000
plan will automatically increase on the first trading day in January each
calendar year, beginning with calendar year 2001, by an amount equal to three
percent of the total number of shares of our common stock outstanding on the
last trading day of December in the prior calendar year, but in no event will
this annual increase exceed 2,000,000 shares. In addition, no participant in the
2000 plan may be granted stock options or direct stock issuances for more than
875,000 shares of common stock in total in any calendar year.
PROGRAMS. Our 2000 plan has five separate programs:
o the discretionary option grant program, under which eligible
individuals in our employ may be granted options to purchase shares of
our common stock at an exercise price not less than the fair market
value of those shares on the grant date;
o the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or the completion of a specified period of
service or as a bonus for past services;
o the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants;
50
o the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
o the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
ELIGIBILITY. The individuals eligible to participate in our 2000 plan
include our officers and other employees, our board members and any consultants
we hire.
ADMINISTRATION. The discretionary option grant and stock issuance
programs will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
PLAN FEATURES. Our 2000 plan will include the following features:
o the exercise price for any options granted under the 2000 plan may be
paid in cash or in shares of our common stock valued at fair market
value on the exercise date. The option may also be exercised through a
same-day sale program without any cash outlay by the optionee;
o the compensation committee will have the authority to cancel
outstanding options under the discretionary option grant program,
including any transferred options from our 1997 plan, in return for the
grant of new options for the same or different number of option shares
with an exercise price per share based upon the fair market value of
our common stock on the new grant date; and
o stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from us equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the
payment in cash or in shares of our common stock. None of the options
under our 1997 plan have any stock appreciation rights.
CHANGE IN CONTROL. The 2000 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
o in the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which
is not to be assumed by the successor corporation will immediately
become exercisable for all the option shares, and all outstanding
unvested shares will immediately vest, except to the extent our
repurchase rights with respect to those shares are to be assigned to
the successor corporation;
o the compensation committee will have complete discretion to grant one
or more options which will become exercisable for all the option shares
in the event those options are assumed in the acquisition but the
optionee's service with us or the acquiring entity is subsequently
terminated. The vesting of any outstanding shares under our 2000 plan
may be accelerated upon similar terms and conditions; and
o the compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than fifty percent of our outstanding voting stock or a change in
the majority of our board through one or more contested elections. Such
accelerated vesting may occur either at the time of such transaction or
upon the subsequent termination of the individual's service.
SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $10,000 nor more than $50,000. Each selected individual who makes such
an election will automatically be granted, on the first trading day in January
of the calendar year for which his or her salary reduction is to be in effect,
an option to
51
purchase that number of shares of common stock determined by dividing the salary
reduction amount by two-thirds of the fair market value per share of our common
stock on the grant date. The option will have exercise price per share equal to
one-third of the fair market value of the option shares on the grant date. As a
result, the option will be structured so that the fair market value of the
option shares on the grant date less the exercise price payable for those shares
will be equal to the amount of the salary reduction. The option will become
exercisable in a series of twelve equal monthly installments over the calendar
year for which the salary reduction is to be in effect.
AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive an option grant to purchase 30,000 shares of common stock on the
date such individual joins the board. In addition, on the date of each annual
stockholders meeting held after the effective date of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 5,000 shares of common stock,
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. One-third of the shares subject to
the initial 30,000 share grant will be fully vested at the time of the grant.
The remaining two-thirds of such shares will vest in a series of two successive
annual installments upon the optionee's completion of each year of board service
over the two-year period measured from the grant date. However, the shares will
immediately vest in full upon certain changes in control or ownership or upon
the optionee's death or disability while a board member. The shares subject to
each annual 5,000-share automatic grant will vest upon the optionee's completion
of the one year period measured from the grant date.
DIRECTOR FEE OPTION GRANT PROGRAM. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
serving as a board member.
ADDITIONAL PROGRAM FEATURES. Our 2000 plan will also have the following
features:
o outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50%
of our outstanding voting stock or a change in the majority of our
board through one or more contested elections;
o limited stock appreciation rights will automatically be included as
part of each grant made under the salary investment option grant
program and the automatic and director fee option grant programs, and
these rights may also be granted to one or more officers as part of
their option grants under the discretionary option grant program.
Options with this feature may be surrendered to us upon the successful
completion of a hostile tender offer for more than 50% of our
outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount
per surrendered option share based upon the highest price per share of
our common stock paid in that tender offer;
o the board may amend or modify the 2000 plan at any time, subject to any
required stockholder approval; and
o the 2000 plan will terminate no later than January 18, 2010.
52
2000 EMPLOYEE STOCK PURCHASE PLAN.
INTRODUCTION. Our 2000 Employee Stock Purchase Plan was adopted by the
Board on January 18, 2000 and is expected to be approved by our stockholders in
May 2000. The plan will become effective when the underwriting agreement for
this offering is signed. The plan is designed to allow our eligible employees
and the eligible employees our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
SHARE RESERVE. 250,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to two percent of the total number of outstanding shares of our
common stock on the last trading day in December in the prior calendar year. In
no event will any such annual increase exceed 1,300,000 shares.
OFFERING PERIODS. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for the offering covered is
signed and will end on the last business day in April 2002. The next offering
period will start on the first business day in May 2002, and subsequent offering
periods will set by our compensation committee.
ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period. Semi-annual
entry dates will occur on the first business day of May and November each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.
PAYROLL DEDUCTIONS. A participant may contribute up to 10% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of January and July each
year. However, a participant may not purchase more than 800 shares on any
purchase date, and not more than 150,000 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
CHANGE IN CONTROL. Should we be acquired by merger or sale of
substantially all of our assets or more than fifty percent of our voting
securities, then all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of the acquisition. The purchase price
will be equal to 85% of the market value per share on the participant's entry
date into the offering period in which an acquisition occurs or, if lower, 85%
of the fair market value per share immediately prior to the acquisition.
PLAN PROVISIONS. The following provisions will also be in effect under
the plan:
o the plan will terminate no later than the last business day of
April 2010; and
o the board may at any time amend, suspend or discontinue the plan,
subject to any required stockholder approval.
MULTIPOINT 1996 STOCK OPTION PLAN.
The Multipoint 1996 Stock Option Plan was assumed in connection with our
acquisition of Multipoint. The 1996 Stock Option Plan was terminated following
the acquisition and no further option grants will be made under the plan,
however, 85,545 options are outstanding under the plan which continue to be
governed by their existing terms. The outstanding options are either incentive
stock options or non-statutory stock options which were granted at an exercise
price of not less than 100% of the fair market value of the Multipoint common
stock on the grant date. In accordance with the terms of the individual stock
option agreements, in the event that we are acquired by merger or asset sale,
the options under the 1996 Stock Option Plan will become fully vested and
exercisable unless they are
53
either (i) assumed or continued by the successor corporation, (ii) replaced with
a comparable option to purchase capital stock of the successor corporation,
(iii) replaced with a cash incentive program which preserves the spreadexisting
on the option shares at the time of the acquisition and provides for subsequent
payout in accordance with the same vesting schedule applicable to such option or
(iv) the acceleration of such options was subject to additional limitations
imposed by the Multipoint board of directors at the time of the option grant.
All repurchase rights shall lapse except to the extent assigned to the successor
corporation in such acquisition.
54
CERTAIN TRANSACTIONS
SALES OF SECURITIES
The following table describes the equity issuances that have funded our
operations from inception through March 31, 2000:
PREFERRED COMMON
STOCK STOCK WARRANT
WARRANTS WARRANTS EXERCISE
DATE CLOSED SERIES CONSIDERATION PRICE/SHARE SHARES ISSUED ISSUED ISSUED PRICE/SHARE
- -------------------------------------------- ------------ -------------- -------------- ----------- -----------
May, 1997.......... A $2,150,000 $0.50 4,300,000
October, 1997...... B $1,500,000 $2.00 750,000
August, 1998....... C $2,855,334 $1.33 2,146,868
March, 1999........ D $8,176,266 $1.25 6,541,013 48,000 $ 1.25
September, 1999.... E $9,003,620 $2.50 3,600,000 20,000 362,000 $ 0.75
January, 2000...... F $15,000,000 $5.00 3,000,000
January, 2000...... Common $17,146,760 $5.00 3,429,352
SERIES A PREFERRED STOCK. In May 1997, we issued 6,000,000 shares of our
Series A Preferred Stock, of which 3,000,000 shares were issued to Crossroads
Venture Investors II, L.P. at a price of $0.50 per share, resulting in aggregate
proceeds of $1,500,000 and 3,000,000 shares valued at $0.50 per share were
issued to Wi-LAN, Inc. pursuant to a Technology License and Manufacturing
Agreement. As a result of a subsequent restructuring of the license agreement,
1,700,000 of the shares held by Wi-LAN were returned to us, of which 1,400,000
shares were related to the Technology License and Manufacturing Agreement and
300,000 shares were related to the cancellation of a note payable from Wi-LAN to
us.
SERIES B PREFERRED STOCK. In October 1997, we issued 750,000 shares of our
Series B Preferred Stock at a price of $2.00 per share to Crossroads Venture
Investors III, L.P., resulting in aggregate proceeds of $1.5 million.
SERIES C PREFERRED STOCK. In August 1998, in connection with the
acquisition of Multipoint Networks, Inc., or Multipoint, all outstanding shares
of the former Series 1 Preferred Stock of Multipoint were exchanged for an
aggregate of 2,146,838 shares of our Series C Preferred Stock. The major holders
of Series 1 Preferred of Multipoint and the major recipients of Series C
Preferred Stock were HMS Capital Partners, Global Private Equity II, L.P., Alta
V, L.P. and John Rodgers. In November 1999, we repurchased 59,983 shares of our
Series C Preferred Stock from Late Stage Fund 1991 L.P. for a price of $1.33 per
share.
SERIES D PREFERRED STOCK. In March 1999, we issued 6,541,013 shares of our
Series D Preferred Stock at a price of $1.25 per share, resulting in aggregate
proceeds of $8.2 million. Major investors were Crossroads Venture Investors VI,
L.P., DynaFund International, L.P., Dynamics Technology, Inc. and HMS Hawaii
Management Partners. In connection with a loan agreement we also issued warrants
to purchase an additional 48,000 shares of our Series D Preferred Stock to
Silicon Valley Bank at an exercise price of $1.25 per share.
SERIES E PREFERRED STOCK. In September 1999, we issued 3,600,000 shares of
our Series E Preferred Stock at a price of $2.50 per share, resulting in
aggregate proceeds of $9.0 million and issued warrants at a price of $0.01 per
warrant to purchase an additional 360,000 shares of common stock at an exercise
price of $0.75 per share. GMN Investors II, L.P. and Stratford Equity Partners,
L.P. were the major investors. The conversion price was subsequently reduced to
$2.42 per share pursuant to a resolution by the board of directors on December
21, 1999. In connection with a loan agreement we also issued warrants to
purchase an additional 20,000 shares of our Series E Preferred Stock to Silicon
Valley Bank at an exercise price of $2.50 per share.
SERIES F PREFERRED STOCK. In January 2000, we issued 3,000,000 shares of
our Series F Preferred Stock at a price of $5.00 per share, resulting in
aggregate proceeds of $15.0 million. TRW Inc. and CECAP Wireless Group, LLC were
the only investors.
The securities described above were sold pursuant to preferred stock
purchase agreements and an investors' rights agreement on substantially similar
terms, except for terms relating to date and price, under which we made standard
representations, warranties, and covenants, and pursuant to which we provided
the purchasers thereunder with registration rights, information rights, and
rights of first refusal, among other provisions standard in venture capital
financings. Each share of our Series A, Series D and Series F Preferred Stock
will automatically convert into one share of our common stock upon the
completion of the offering. Each share of our Series B Preferred Stock will
55
automatically convert into 1.1078 shares of our common stock and each share of
our Series C Preferred Stock will automatically convert into 1.0153 shares of
our common stock, in each case after giving effect to an anti-dilution
adjustment resulting from the sales of the Series C and Series D Preferred
Stocks, respectively. Each share of our Series E Preferred Stock will
automatically convert into 1.0331 shares of our common stock after giving effect
to a price adjustment approved by our board of directors in December 1999, as
discussed above.
In addition to the foregoing, we have issued 7,765,538 shares of our common
stock to various investors at prices ranging from $0.27 per share to $4.00 per
share in connection with the exercise of warrants and options we granted. In
January 2000, in connection with a Purchase and License Agreement with TRW,
Inc., we issued 3,429,352 shares of our common stock to TRW for a price of $5.00
per share. The shares of common stock issued or issuable pursuant to the
exercise of common stock purchase warrants enjoy certain registration rights
different from those enjoyed by holders of our Preferred Stock. See "Description
of Capital Stock--Registration Rights."
The purchasers of the securities described above included, among others,
the following holders of 5% or more of our capital stock, named executive
officers, directors, and persons associated with them:
TOTAL SHARES
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F COMMON ON AN
COMMON PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCK AS-CONVERTED
INVESTOR STOCK STOCK STOCK STOCK STOCK STOCK STOCK WARRANTS BASIS
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------------
Advent Entities(1) 1,310,426 -- -- 349,344 259,310 61,984 -- 6,000 1,987,064
Crossroads
Entities (2)..... -- 3,000,000 835,875 -- 1,534,767 475,226 -- 46,000 5,891,868
CECAP Wireless
Group, LLC....... -- -- -- -- -- -- 700,000 -- 700,000
DynaFund
Entities (3)..... 50,000 -- -- -- 1,671,562 -- -- -- 1,721,562
GMN
Investors II, L.P.. -- -- -- -- -- 1,652,960 -- 160,000 1,812,960
William E.
Gibson (4)....... 1,400,961 -- -- 92,113 244,537 -- -- -- 1,737,611
William J. Palumbo. 1,250,000 -- -- -- -- -- -- -- 1,250,000
William E. Kunz.. 173,055 -- -- -- -- -- -- -- 173,055
Charles C. Pai... 210,447 -- -- 7,612 -- -- -- -- 218,059
Donald H. MacLeod. -- -- -- 19,031 -- -- -- -- 19,031
TRW.............. 3,429,352 -- -- -- -- -- 2,300,000 -- 5,729,352
- -------------------
(1) Consists of 141,531 shares held by Adtel, L.P., 191,527 shares held by
Advent Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V.,
480,490 shares held by Advent International Investors II, L.P., 1,001,742
shares held by Global Private Equity II, L.P., 156,603 shares held by
Golden Gate Development and Investment, L.P., a warrant exercisable for
4,488 shares of common stock held by Global Private Equity II, L.P., a
warrant exercisable for 624 shares held by Adtel, L.P. and a warrant
exercisable for 888 shares held by Advent Crown Fund II, C.V.
(2) Consists of 1,534,767 shares held by Crossroads Venture Capital LLC,
3,000,000 shares held by Crossroads Venture Investors II, L.P., 835,875
shares held by Crossroads Venture Investors III, L.P., 475,226 shares held
by Crossroads Venture Investors VII, L.P. and a warrant to purchase 46,000
shares held by Crossroads Venture Investors VII, L.P.
(3) Consists of 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P. and 914,658 shares held by Dynamics
Technology, Inc.
(4) Consists of 1,405,498 shares held by Mr. Gibson, 92,113 shares held
jointly by Mr. Gibson and his wife, Kahala-Ann Trask Gibson and 240,000
shares held by the William E. and Kahala-Ann Trask Gibson Charitable
Remainder Trust. Excludes 334,767 shares held by Crossroads Venture Capital
LLC, 3,000,000 shares held by Crossroads Venture Investors II, L.P.,
750,000 shares held by Crossroads Venture Investors III, L.P., 1,200,000
shares held by Crossroads Venture Investors VI, L.P. and 460,000 shares
held by Crossroads Venture Investors VII, L.P. Mr. Gibson, Managing Partner
of each of the Crossroads Entities, disclaims
56
beneficial ownership of the shares held by the Crossroads Entities except
to the extent of his pecuniary interest therein.
LICENSE AND MANUFACTURING AGREEMENT WITH WI-LAN
We entered into a License and Technology Transfer and Manufacturing
Agreement with Wi-LAN, Inc. on May 14, 1997. Under the license agreement, Wi-LAN
agreed to license and transfer technology to us for 3,000,000 shares of Series A
Preferred Stock valued at $0.50 per share. In 1997, we determined that the
licensed and transferred technology was no longer applicable to our needs. On
June 3, 1998, the license agreement was replaced by a new license agreement and
a new manufacturing agreement. Under the terms of the new agreement, we obtained
a non-exclusive license to certain of Wi-LAN's spread spectrum data
communications technology. Any improvements we make upon the licensed technology
belong to Wi-LAN. We also entered into a manufacturing agreement with Wi-LAN on
June 3, 1998, pursuant to which we obtained sole right to manufacture or have a
third party manufacture products based on the licensed technology. Pursuant to
the new agreement, 1,700,000 of the shares held by Wi-LAN were returned to the
Company, of which 1,400,000 shares were related to the manufacturing agreement
and 300,000 shares were related to the cancellation of a note payable from
Wi-LAN to us. In February 2000, we terminated the manufacturing agreement and,
as a result, the license agreement terminated automatically.
LEASE AGREEMENT
In May 1997, we leased 12,800 square feet of office space at 3285 Scott
Boulevard, Santa Clara, California. Pursuant to an informal arrangement we
subleased the facility to Momentum Laser, Inc., a company in which Mr. Gibson
and the Crossroads Entities have an ownership interest. Momentum Laser pays all
costs related to the facility. The Company remains obligated under the lease for
monthly lease payments of $18,560 plus maintenance, property tax and insurance
charges. The lease expires in April 2002. We believe that the arrangement is no
less favorable to us than that which would otherwise be entered into with
unaffiliated third parties.
MULTIPOINT NETWORKS, INC. ACQUISITION
In August 1998, we acquired Multipoint Networks, Inc., or Multipoint. In
connection with this acquisition, the former common stockholders of Multipoint
exchanged all outstanding shares of common stock of Multipoint for an aggregate
of 2,746,053 shares of our common stock. The former Multipoint Series 1
preferred stockholders exchanged all outstanding shares of their Multipoint
Series 1 preferred stock for an aggregate of 2,146,838 shares of our Series C
Preferred Stock. In November 1999, we repurchased 59,983 shares of Series C
Preferred Stock from one investor. Certain holders of 5% or more of our capital
stock, executive officers, directors and persons associated with them acquired
our Series C Preferred Stock as a result of the Multipoint acquisition. See
"--Sales of Securities."
STRATEGIC RELATIONSHIP WITH TRW
We entered into a Purchase and License Agreement with TRW on January 14,
2000. Under the agreement, we purchased and obtained an exclusive, including as
to TRW, royalty-free worldwide license in point-to-multipoint wireless
networking technology, generally referred to in this prospectus as the STARPORT
technology. Any products we develop based on such technology may only be sold
with base stations configured for outdoor use. Sales of products containing the
STARPORT technology with base stations configured for indoor use or to the U.S.
Government--including organizations in which the U.S. is a member, such as
NATO--must be made through TRW or its licensees. The agreement provides TRW with
a royalty-free worldwide non-exclusive license in any improvements made by us
upon the STARPORT technology for the manufacture and sale of products to the
U.S. Government. If we do not offer a commercial version of a product containing
the STARPORT technology for sale by July 14, 2001, unless the delay is the fault
of TRW or attributable to certain specified reasons, we will lose our exclusive
license with TRW.
The STARPORT technology was originally developed by TRW Systems and
Information Group for military communications. TRW is an international company
that provides advanced technology products and services. The principal
businesses of TRW and its subsidiaries are the design, manufacture and sale of
products and the performance of systems engineering, research and technical
services for industry and the United States Government in the automotive,
aerospace and information systems markets. In connection with this agreement,
TRW acquired approximately 18% of our capital stock outstanding prior to the
offering, including 2,300,000 shares of our Series F Preferred Stock and
3,429,352 shares of common stock.
57
Under the terms of the Purchase and License Agreement, TRW has agreed to
establish an office for the continued development of STARPORT products to be
staffed by employees of both us and TRW and managed by us. TRW has agreed to
provide substantially all of the supplies, infrastructure and services for this
office. TRW will charge us for services performed by its employees at negotiated
rates, including expenses for overhead, facilities, equipment and general and
administrative expenses. TRW will also provide, at no additional charge, 24
person-months of consultation advice and 12 person-months of assistance in
responding to actual and potential claims regarding infringements of third-party
intellectual property rights in connection with the STARPORT technology. TRW is
required to pay for certain field trials of the STARPORT technology and all
products purchased or manufactured for use in these trials.
The Purchase and License Agreement also provides that, until January 14,
2003, at our option, TRW will purchase from L3 Communications, Inc. products and
components needed for use in, as well as services to develop and manufacture,
our STARPORT system at a negotiated markup. TRW will also pass through to us any
rights of exclusivity granted to TRW by L3 and any representations and
warranties granted in favor of TRW by L3.
In consideration of the right and licenses provided under the Purchase and
License Agreement and the technical assistance to be provided by TRW, we have
agreed to pay TRW 10% of the net proceeds of this offering or any private
placement of equity occurring on or before October 14, 2000, until we have paid
TRW an aggregate of $2.5 million. The balance of this amount is due on January
1, 2001, if it has not been paid prior to that date.
The Purchase and License Agreement terminates upon the expiration of the
last patent licensed under the agreement unless terminated earlier by either
party 30 days following a default by the other party. Liability for breaches
under the agreement by either party to the other is limited to $17.0 million
with the exception of, in our case, additional money to be paid by us to TRW
under the agreement or a related time and materials agreement.
COMMITMENTS TO PROVIDE CAPITAL
In February 2000, we received capital commitments of $2.5 million each from
Dynamics Technology, Inc., Advent International Corp., Gemini Investors LLC,
Stratford Equity Partners, L.P., Crossroads Venture Capital, LLC and TRW in the
event that we do not complete an initial public offering with gross proceeds of
$25 million by May 31, 2000. The $15.0 million in commitments, if required, will
be documented in the form of convertible promissory notes bearing interest at a
fixed rate of 10% per annum. If not prepaid, the notes will convert into shares
issued in our next round of equity financing of at least $15.0 million. In
connection with obtaining these commitments, we issued warrants to purchase
10,000 shares of our common stock to each of these six investors at a price of
$4.00 per share and agreed to issue additional warrants for 30,000 shares of our
common stock to each of these six investors at the then fair market value per
share if the loan commitments are exercised, for each $2,500,000 borrowed. These
warrants expire upon the earlier of 5 years or 30 days after the consummation of
an initial public offering.
AGREEMENTS WITH OFFICERS AND DIRECTORS
On December 10, 1999, Wireless made a full recourse loan to William J.
Palumbo in the amount of $168,750 to fund the exercise of his option to purchase
625,000 shares of common stock. Principal and interest due under this loan is
secured by a lien on the option shares.
We have an unwritten agreement with William E. Gibson which has been
approved by our board of directors pursuant to which Mr. Gibson is paid $15,000
per month for his services as Chairman of the Board of Directors.
OTHER RELATED PARTY TRANSACTIONS
We have granted options and issued common stock to our executive officers
and directors. See "Management--Director Compensation" and "Principal
Stockholders."
Holders of shares of preferred stock and certain holders of warrants for
the issuance of common stock are entitled to registration rights in respect of
the common stock issued or issuable upon conversion or exercise thereof. See
"Description of Capital Stock--Registration Rights."
We have entered into an indemnification agreement with each of our
executive officers and directors containing provisions that may require us,
among other things, to indemnify our officers and directors against liabilities
that may arise by reason of their status or service as officers or directors
(other than liabilities arising from
58
willful misconduct of a culpable nature) and to advance expenses incurred as a
result of any proceeding against them as to which they could be indemnified. See
"Management--Limitation of Liability and Indemnification."
We have entered into non-competition and confidentiality agreements with
some of our officers.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between us and our officers, directors and principal stockholders and their
affiliates and any transactions between us and any entity with which our
officers, directors or five percent stockholders are affiliated will be approved
by a majority of the board of directors, including a majority of the independent
and disinterested outside directors of the board of directors and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
59
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of December 31, 1999, by the following individuals or
groups:
o each person or entity who is known by us to own beneficially more than
5% of our outstanding stock;
o each of the named executive officers;
o each of our directors; and
o all directors and executive officers as a group.
Each stockholder's percentage ownership in the following table is based
on 31,933,389 shares of common stock outstanding as of December 31, 1999,
assuming the conversion of all outstanding shares of preferred stock upon the
closing of this offering, the exercise of all outstanding warrants to purchase
preferred stock and the exercise of all outstanding warrants to purchase common
stock which, by their terms, expire or convert within 30 days of the completion
of this offering, plus any outstanding options and any other warrants to
purchase common stock exercisable within 60 days of December 31, 1999 held by
the particular stockholder that are included in the first column. The numbers
shown in the table below assume no exercise by the underwriters of their
over-allotment option.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Wireless, Inc., 5452 Betsy Ross Drive, Santa Clara, CA
95054. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock held by them.
NUMBER OF SHARES PERCENTAGE OF SHARES BENEFICIALLY OWNED
---------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO OFFERING AFTER THE OFFERING
- --------------------------------------------------- ------------------ ----------------- ------------------
Crossroads Entities (1)............................ 5,901,868 18.5%
TRW (2)............................................ 5,739,352 18.0%
DynaFund Entities (3).............................. 1,731,562 5.4%
GMN Investors II, L.P. (4)......................... 1,822,960 5.7%
Advent Entities (5)................................ 1,997,066 6.3%
William E. Gibson (6).............................. 7,639,479 23.9%
William J. Palumbo................................. 1,250,000 3.9%
Charles C. Pai..................................... 218,059 *
William E. Kunz.................................... 173,055 *
Donald H. MacLeod (7).............................. 181,461 *
Patrick A. Rivelli (8)............................. 315,000 *
Dr. Denny R.S. Ko (9).............................. 1,801,562 5.6%
David F. Millet (10)............................... 1,892,960 5.9%
Andrew I. Fillat (11).............................. 2,067,066 6.5%
Mark S. Silverman ................................. -- *
All directors and executive officers as a group
(14 persons) (12)............................. 16,186,844 48.6%
- -------------------
* Less than one percent.
(1) Consists of 334,767 shares held by Crossroads Venture Capital LLC,
3,000,000 shares held by Crossroads Venture Investors II, L.P., 835,875
shares held by Crossroads Venture Investors III, L.P., 1,200,000 shares
held by Crossroads Venture Investors VI, L.P., 475,226 shares held by
Crossroads Venture Investors VII, L.P., a warrant exercisable for 46,000
shares of common stock held by Crossroads Venture Capital LLC and a
warrant exercisable for 10,000 shares of common stock held by Crossroads
Venture Capital LLC (collectively, the "Crossroads Entities"). The
address for the Crossroads Entities is 155 Montgomery Street, Suite 603,
San Francisco, California 94104.
(2) Includes a warrant exercisable for 10,000 shares of common stock. The
address for TRW is 12011 Sunset Hills Road, Reston, Virginia 20190.
60
(3) Consists of 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P. and 914,658 shares held by Dynamics
Technology, Inc. and a warrant exercisable for 10,000 shares of common
stock held by Dynamics Technology, Inc. (collectively, the "DynaFund
Entities"). The address for the DynaFund Entities is 21311 Hawthorne
Blvd, Suite 300, Torrance, California 90503.
(4) Includes warrants exercisable for an aggregate of 170,000 shares of
common stock. The address for GMN Investors II, L.P. is 20 William
Street, Wellesley, Massachusetts 12481.
(5) Consists of 141,531 shares held by Adtel, L.P., 191,527 shares held by
Advent Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V.,
480,490 shares held by Advent International Investors II, L.P., 1,001,742
shares held by Global Private Equity II, L.P., 156,603 shares held by
Golden Gate Development and Investment, L.P., a warrant exercisable for
4,488 shares of common stock held by Global Private Equity II, L.P., a
warrant exercisable for 624 shares of common stock held by Adtel, L.P. a
warrant exercisable for 10,000 shares of common stock held by Advent
International, L.P. and a warrant exercisable for 888 shares of common
stock held by Advent Crown Fund II, C.V. (collectively, the "Advent
Entities").
(6) Consists of 1,497,611 shares held jointly by Mr. Gibson and his wife,
Kahala-Ann Trask Gibson, 240,000 shares held by the William E. and
Kahala-Ann Trask Gibson Charitable Remainder Trust, 334,767 shares held
by Crossroads Venture Capital LLC, 3,000,000 shares held by Crossroads
Venture Investors II, L.P., 835,875 shares held by Crossroads Venture
Investors III, L.P., 1,200,000 shares held by Crossroads Venture
Investors VI, L.P., 475,226 shares held by Crossroads Venture Investors
VII, L.P. a warrant exercisable for 46,000 shares of common stock held by
Crossroads Venture Capital, LLC and a warrant exercisable for 10,000
shares of common stock held by Crossroads Venture Capital LLC. Crossroads
Venture Capital LLC is owned by William E. and Kahala-Ann Trask Gibson.
Mr. Gibson, Managing Partner of each of the Crossroads Entities,
disclaims beneficial ownership of the shares held by the Crossroads
Entities except to the extent of his pecuniary interest therein. Further,
Mr. Gibson disclaims beneficial ownership in 96,900 shares held by
Crossroads Venture Investors II in which he holds a pecuniary interest,
such shares being held in the Gibson Family Trust, an educational trust
for Ho'okele O Kamakani Trask Gibson Granroos, Kalae Ola'a
Ku'upoki'ialoha Kamaka'alohi o Pu'ulena Trask Sharpe, Mililani
Kaleionaona Trask-Batti, Kawehi Lakea Imaikalani Trask-Batti, Hulali
Kaikei I Mahealani Trask, Kaiana Kaukaohu Trask, Mahi Lee William Cooper
and Kauakea Ian Bucken Cooper. See Footnote 1.
(7) Includes options exercisable for 162,430 shares of common stock within 60
days of December 31, 1999.
(8) Consists of 315,000 shares held by the Patrick A. Rivelli Senior and
Yvonne D. Rivelli Trust. The address for Mr. Rivelli is 12221 Merit
Drive, #935, Dallas, Texas 75251.
(9) Consists of 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P., 914,658 shares held by Dynamics
Technology, Inc. a warrant exercisable for 10,000 shares of common stock
held by Dynamics Technology, Inc. and an option exercisable for 70,000
shares of common stock held by Dr. Ko. Dr. Ko, chairman of the board of
directors of Dynamics Technology, Inc. and a General Partner of DynaFund
International and DynaFund, L.P., disclaims beneficial ownership of the
shares held by the DynaFund Entities except to the extent of his
pecuniary interest therein. See Footnote 3.
(10) Consists of 1,652,960 shares held by GMN Investors II, L.P., a warrant
exercisable for 170,000 shares held by GMN Investors II, L.P. and an
option exercisable for 70,000 shares of common stock held by Mr. Millet.
Mr. Millet, General Partner of GMN Investors II, L.P., disclaims
beneficial ownership of the shares held by GMN Investors II, L.P. except
to the extent of his pecuniary interest therein. See Footnote 4.
(11) Consists of 141,531 shares held by Adtel, L.P., 191,527 shares held by
Advent Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V.,
480,490 shares held by Advent International Investors II, L.P., 1,001,742
shares held by Global Private Equity II, L.P., 156,603 shares held by
Golden Gate Development and Investment, L.P., a warrant exercisable for
4,488 shares of common stock held by Global Private Equity II, L.P., a
warrant exercisable for 624 shares of common stock held by Adtel, L.P., a
warrant exercisable for 10,000 shares of common stock held by Advent
International, L.P. a warrant exercisable for 888 shares of common stock
held by Advent Crown Fund II, C.V. and an option exercisable for 70,000
shares of common stock held by Mr. Fillat. Mr. Fillat, Managing Director
of the Advent Entities, disclaims beneficial ownership of shares held by
the Advent Entities except to the extent of his pecuniary interest
therein. See Footnote 5.
(12) Includes options exercisable for 1,155,632 shares of common stock within
60 days of December 31, 1999 under the 1997 stock option/stock issuance
plan and warrants exercisable for 252,000 shares of common stock within
60 days of December 31, 1999. See Footnotes 6-11.
61
DESCRIPTION OF CAPITAL STOCK
GENERAL
At the closing of this offering, we will be authorized to issue 100,000,000
shares of common stock, $0.001 par value per share, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value per share, after giving effect to
the amendment of our certificate of incorporation to delete references to the
existing preferred stock following conversion of that stock. The following
description of capital stock gives effect to the certificate of incorporation to
be filed upon closing of this offering. Immediately following the completion of
this offering, and assuming no exercise of the underwriters' over-allotment
option, an aggregate of __________________ shares of common stock will be issued
and outstanding, and no shares of preferred stock will be issued and
outstanding.
The following description of our capital stock is subject to and qualified
by our certificate of incorporation and bylaws, which are included as exhibits
to the registration statement of which this prospectus forms a part, and by the
provisions of the applicable Delaware law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock that may come into existence, the
holders of common stock are entitled to receive ratably those dividends, if any,
as may be declared from time to time by the board of directors out of funds
legally available for dividends. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. Our common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable, and the shares of common stock to be outstanding upon
completion of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Our board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, any or all of our
authorized but unissued shares of preferred stock with any dividend, redemption,
conversion and exchange provisions as may be provided in the particular series.
Any series of preferred stock may possess voting, dividend, liquidation and
redemption rights superior to those of the common stock. The rights of the
holders of our common stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. Issuance of a new series of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of entrenching our board of directors and making
it more difficult for a third-party to acquire, or discourage a third-party from
acquiring, a majority of our outstanding voting stock. We have no present plans
to issue any shares of or designate any series of preferred stock.
WARRANTS
As of December 31, 1999, we had outstanding warrants to purchase an
aggregate of 621,122 shares of our common stock on an as-converted basis,
including:
o Warrants to purchase 362,000 shares of common stock at $0.75 per share
which will expire on March 31, 2005;
o Warrants to purchase 30,460 shares of common stock at $1.22 per share
which will expire on May 5, 2002;
o Warrants to purchase 48,000 shares of common stock at $1.25 per share,
which will expire on October 16, 2003;
o Warrants to purchase 20,662 and 100,000 shares of common stock at $2.50
per share, which will expire on September 13, 2004 and upon the closing
of this offering, respectively; and
o Warrants to purchase 60,000 shares of common stock at $4.00 per share,
which will expire 30 days after the closing of this offering.
62
CONVERTIBLE PROMISSORY NOTE
AMT Capital, Ltd. holds a promissory note, dated as of August 17, 1999 in
the principal amount of $1,000,000 which note is convertible into 320,000 shares
of Series E Preferred Stock and upon conversion the holder will receive a
warrant to purchase 32,000 shares of common stock at an exercise price of $0.75
per share.
REGISTRATION RIGHTS
After this offering, pursuant to the terms of an Investors' Rights
Agreement, holders of 20,509,837 shares of our common stock and 552,500 shares
of our common stock issuable upon the exercise of outstanding warrants will be
entitled to certain registration rights with respect to their capital stock of
Wireless. Under the Investors' Rights Agreement, at any time after the earlier
of (i) January 31, 2001 or (ii) three months after this offering, holders of
more than 30% of these shares may require us to effect registration under the
Securities Act, subject to the board of directors' right, if such registration
would harm us, to defer such registration for up to 60 days. In addition, if we
propose to issue equity securities under the Securities Act for our own account
in an underwritten public offering, then any of the investors has a right
(subject to quantity limitations determined by the underwriters) to request that
we register such investor's registrable securities. Once we qualify to register
the sale of securities on Form S-3, investors proposing to sell an aggregate of
at least $2,000,000 of registrable securities may require us to effect one S-3
registration per year. All registration expenses incurred in connection with any
of the registrations described above will be borne by us. The participating
investors will pay for underwriting discounts and commissions incurred in
connection with any such registrations. We have agreed to indemnify the
investors against certain liabilities including Securities Act liabilities in
connection with any registration effected by us in which their shares are
included pursuant to the Investors' Rights Agreement. Registration of any of the
shares of common stock held by security holders with registration rights would
result in such shares becoming freely tradeable without restriction under the
Securities Act immediately upon effectiveness of such registration. These
registration rights terminate once all shares of our stock may be sold under
Rule 144 during any 90 day period. In addition, holders of 68,662 shares of our
common stock issuable upon the exercise of outstanding warrants will be entitled
to registration rights different from those described above. In particular,
these holders are entitled to include their shares in any registration initiated
by us or by other holders on Forms S-1 or S-3 (excluding registrations relating
to stock plans) without being subject to underwriters' quantity limitations.
COMPLIANCE WITH CALIFORNIA LAW
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of our outstanding voting securities are held of record
by persons having addresses in California and the majority of the company's
operations occur in California. For example, while we are subject to Section
2115, stockholders may cumulate votes in electing directors. This means that
each stockholder may vote the number of votes equal to the number of candidates
multiplied by the number of votes to which the stockholder's shares are normally
entitled in favor of one candidate. This potentially allows minority
stockholders to elect some members of the board of directors. When we are no
longer subject to Section 2115, cumulative voting will not be allowed and a
holder of 50% or more of our voting stock will be able to control the election
of all directors. In addition to this difference, Section 2115 has the following
additional effects:
o enables removal of directors with or without cause with majority
stockholder approval;
o places limitations on the distribution of dividends;
o extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and
o provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2000 annual meeting of
stockholders.
63
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Our certificate of incorporation authorizes our board to issue up to
5,000,000 shares of undesignated preferred stock after the offering. Further,
without any further vote or action on the part of our stockholders, our board of
directors will have the authority to determine the rights, preferences,
privileges and restrictions of the undesignated preferred stock. See
"--Preferred Stock." Our certificate of incorporation also provides that all
stockholder action must be effected at a duly called meeting of stockholders and
not by written consent. In addition, our certificate of incorporation and bylaws
do not permit our stockholders to call a special meeting of stockholders. Only
our Chief Executive Officer, President, Chairman of the Board or a majority of
the board of directors are permitted to call a special meeting of stockholders.
Our certificate of incorporation also provides that the board of directors is
divided into three classes, with each director assigned to a class with a term
of three years, and that the number of directors may only be determined by the
board of directors. Our bylaws require that stockholders give advance notice to
our secretary of any nominations for director or other business to be brought by
stockholders at any stockholders' meeting, and that the chairman of the board
has the authority to adjourn any meeting called by the stockholders. Our bylaws
also require a supermajority vote of members of the board of directors and/or
stockholders to amend certain bylaw provisions. These provisions of our restated
certificate of incorporation and our bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
company. These provisions also may have the effect of preventing changes in the
management of the company. See "Risk Factors--Our certificate of incorporation
and bylaws may discourage potential acquisitions of our business by third
parties that stockholders may consider favorable."
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
o prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by:
o persons who are directors and also officers; and
o employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
o on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 662/3% of the outstanding voting stock
that is not owned by the interested stockholder.
Section 203 defines "business combination" to include the following:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
o subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
o any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
or
o the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
64
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common stock is________________ .
Its address is , and its telephone number at this location is
( )_______ .
65
MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS
The following is a general discussion of the material U.S. federal
income and estate tax consequences of the ownership and disposition of the
common stock applicable to holders who are not U.S. persons within the
meaning of the Internal Revenue Code. A U.S. person is any person who is:
o a citizen or resident of the U.S.;
o a corporation, partnership, unless otherwise provided by Treasury
regulations, or other entity created or organized in the U.S. or under
the laws of the U.S. or any political subdivision thereof;
o an estate whose income is included in gross income for U.S. federal
income tax purposes regardless of its source; or
o a trust whose administration is subject to the primary supervision of
a U.S. court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust.
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant in light of a holder's particular facts and
circumstances, such as being a U.S. expatriate, and does not address any tax
consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect. We have
not and will not seek a ruling from the Internal Revenue Service with respect to
the U.S. federal income and estate tax consequences described below, and as a
result, there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions set forth in this discussion.
In addition, the Internal Revenue Service is not precluded from adopting a
contrary position.
DIVIDENDS
Any dividend paid to a holder of common stock who is not a U.S. person
generally will be subject to U.S. withholding tax either at a rate of 30% of the
gross amount of the dividend or such lower rate as may be specified by an
applicable tax treaty. Dividends received by a holder that are effectively
connected with a U.S. trade or business conducted by the holder are exempt from
such withholding tax. However, those effectively connected dividends, net of
certain deductions and credits, are taxed at the same graduated rates applicable
to U.S. persons.
In addition to the graduated rates described above, dividends received by a
corporate holder that are effectively connected with its U.S. trade or business
may also be subject to a branch profits tax at a rate of 30% or such lower rate
as may be specified by an applicable tax treaty.
A holder of common stock that is eligible for a reduced rate of withholding
tax pursuant to a tax treaty may obtain a refund of any excess amounts currently
withheld by filing an appropriate claim for refund with the Internal Revenue
Service.
GAIN ON DISPOSITION OF COMMON STOCK
A holder of common stock who is not a U.S. person generally will not be
subject to U.S. federal income tax on any gain realized upon the sale or
other disposition of his common stock unless:
o the gain is effectively connected with a U.S. trade or business of the
holder (which gain, in the case of a corporate holder, must also be
taken into account for branch profits tax purposes)
o the holder is an individual who holds his or her common stock as a
capital asset and who is present in the U.S. for a period or periods
aggregating 183 days or more during the calendar year in which the
sale or disposition occurs and certain other conditions are met; or
o we are or have been a United States real property holding corporation
within the meaning of the Internal Revenue Code at any time within the
shorter of the five-year period preceding the disposition or the
holder's holding period for its common stock. We have determined that
we are not and do not believe that we will become a United States real
property holding corporation.
66
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder of the common
stock. Pursuant to tax treaties or other agreements, the Internal Revenue
Service may make its reports available to tax authorities in the recipient's
country of residence.
Dividends paid to a holder who is not a U.S. Person at an address within
the U.S. may be subject to backup withholding at a rate of 31% if the holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payer. Backup
withholding will generally not apply to dividends paid to holders who are not
U.S. persons at an address outside the U.S. on or prior to December 31, 2000,
unless the payer has knowledge that the payee is a U.S. person. Final Treasury
Regulations regarding withholding and information reporting provide that
payments of dividends to a holder who is not a U.S. person at an address outside
the U.S. after December 31, 2000, may be subject to backup withholding at a rate
of 31% unless such holder satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the U.S. office of a broker is subject
to information reporting and backup withholding at a rate of 31% unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a holder of common stock who is not a U.S. person outside the
U.S. to or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is a U.S. person, a controlled foreign corporation as defined in the
Internal Revenue Code, or a foreign person 50% or more of whose gross income for
certain periods is from the conduct of a U.S. trade of business, unless the
broker has documentary evidence in its files of the holders' non-U.S. status and
certain other conditions are met, or the holder otherwise establishes an
exemption. Neither backup withholding nor information reporting generally will
apply to a payment of the proceeds of a disposition of common stock by or
through a foreign office of a foreign broker not subject to the preceding
sentence.
In general, the final Treasury Regulations applicable to payments made
after December 31, 2000, described above, do not significantly alter the
substantive withholding and information reporting requirements but do alter the
procedures for claiming benefits of an income tax treaty and change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of the beneficial owner of shares of common stock. Holders should
consult their tax advisors regarding the effect, if any, of those final Treasury
Regulations on an investment in the common stock.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment, a refund may be obtained,
provided that the required information is furnished to the Internal Revenue
Service.
ESTATE TAX
An individual holder who owns common stock at the time of his death or had
made one or more of certain lifetime transfers of an interest in common stock
will be required to include the value of that common stock in such holder's
gross estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
THE FOREGOING IS A DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF COMMON
STOCK BY HOLDERS WHO ARE NOT U.S. PERSONS WITHIN THE MEANING OF THE INTERNAL
REVENUE CODE. ACCORDINGLY, INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE,
LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.
67
SHARES AVAILABLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
our common stock or the availability of shares of our common stock for sale will
have on the market price of common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the completion of this offering we will have ________________ shares
of common stock outstanding assuming no exercise of the underwriters
over-allotment option. The number of shares of common stock to be outstanding
after this offering is based on the number of shares outstanding as of December
31, 1999, and excludes:
o 1,706,047 shares of common stock issuable upon the exercise of stock
options outstanding as of December 31, 1999 at a weighted average
exercise price of $0.53 per share;
o 392,460 shares of common stock issuable upon the exercise of
outstanding warrants as of December 31, 1999 at a weighted average
exercise price of $0.79 per share;
o 330,592 shares of common stock issuable upon conversion of an
outstanding convertible promissory note, as of December 31, 1999;
o 8,750,000 shares of common stock reserved for issuance under our 2000
Stock Incentive Plan that incorporates our 1998 Stock Plan; and
o 250,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan.
Of the outstanding shares, all of the shares sold in this offering will be
freely tradable, except that any shares held by our "affiliates," as that term
is defined in Rule 144 promulgated under the Securities Act, may only be sold in
compliance with the limitations described below. The remaining shares
of common stock will be deemed "restricted securities" as defined under Rule
144. Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the lock-up agreements described below and the provisions of Rules 144,
144(k) and 701, additional shares will be available for sale in the public
market as follows:
NUMBER OF
SHARES DATE
- -------------- ----------------------------------------------------------------
After the date of this prospectus, freely tradable shares sold
in this offering and shares saleable under Rule 144(k) that are
not subject to the 180-day lock-up
After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
144 (subject, in some cases, to volume limitations) or Rule
144(k)
After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
701 (subject to repurchase by the Company)
After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not yet
saleable under Rule 144
RULE 144
In general, under Rule 144 as currently in effect, a person, or group of
persons whose shares are required to be aggregated, including any of our
affiliates, who has beneficially owned shares for at least one year, including
the holding period of any prior owner who is not an affiliate, is entitled to
sell within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of one percent
of the then-outstanding shares of our common stock, which will be approximately
__________________ shares immediately after this offering, or the average weekly
trading volume in our common stock during the four calendar weeks preceding the
date on which notice of such sale is filed, subject to certain restrictions. In
addition, a person who is not deemed to have been an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner who is not an affiliate, would be entitled to sell these shares
under Rule 144(k) without regard to the requirements described
68
above, unless otherwise contractually restricted. To the extent that shares were
acquired from one of our affiliates, a person's holding period for the purpose
of effecting a sale under Rule 144 would commence on the date of transfer from
the affiliate.
STOCK OPTIONS
As of December 31, 1999, options to purchase a total of 1,706,047 shares of
common stock were outstanding, all of which were currently exercisable. 664,190
of the shares issuable upon exercise of these options were vested. We intend to
file a Form S-8 registration statement under the Securities Act to register all
shares of common stock issuable under our 2000 Stock Incentive Plan and our 2000
Employee Stock Purchase Plan. Accordingly, shares of common stock underlying
these options will be eligible for sale in the public markets, subject to
vesting restrictions or the lock-up agreements described below. See "Executive
Compensation and other information--Employee Benefit Plans."
In general, under Rule 701 of the Securities Act of 1933 as currently in
effect, each of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the date of this prospectus in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
LOCK-UP AGREEMENTS
We have agreed, and each of our officers and directors and substantially
all of our securityholders have agreed, subject to specified exceptions, not to,
without the prior written consent of Salomon Smith Barney Inc., sell, otherwise
dispose of any shares of our common stock or options to acquire shares of our
common stock or take any action to do any of the foregoing during the 180-day
period following the date of this prospectus. Salomon Smith Barney Inc. may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. See "Underwriting."
REGISTRATION RIGHTS
Following this offering, under specified circumstances and subject to
customary conditions, holders of approximately 20,509,837 shares of our
outstanding common stock and warrants to purchase up to 552,500 shares of our
common stock will have demand registration rights with respect to their shares
of common stock, subject to the 180-day lock-up arrangement described above, to
require us to register their shares of common stock under the Securities Act,
and rights to participate in any future registrations of our securities. Holders
of an additional 68,662 shares of our common stock issuable upon exercise of
outstanding warrants will be entitled to participate in any future registrations
of our securities without being subject to underwriters' quantity limitations,
but will not possess demand registration rights. If the holders of these
registrable securities request that we register their shares, and if the
registration is effected, these shares will become freely tradable without
restriction under the Securities Act. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our
common stock. See "Description of Capital Stock--Registration Rights."
69
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
each underwriter named below has severally agreed to purchase, and we have
agreed to sell to such underwriter, the number of shares set forth opposite the
name of such underwriter.
NAME NUMBER OF SHARES
---- --------------------
Salomon Smith Barney Inc............................
CIBC World Markets Corp. ...........................
Prudential Securities Incorporated..................
--------------------
Total..........................................
====================
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and other conditions. The underwriters are
obligated to purchase all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc., CIBC World Markets
Corp. and Prudential Securities Incorporated are acting as representatives,
propose to offer some of the shares directly to the public at the public
offering price set forth on the cover page of this prospectus and some of the
shares to certain dealers at the public offering price less a concession not in
excess of $ __________ per share. The underwriters may allow, and such dealers
may reallow, a concession not in excess of $ __________ per share on sales to
other dealers. If all of the shares are not sold at the initial offering price,
the representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
We have granted the underwriters a 30-day option to purchase up to an
additional shares to cover over-allotments, if any. The underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, in connection with this offering. To the extent such option is exercised,
each underwriter will be obligated, subject to the conditions stated above, to
purchase a number of additional shares approximately proportionate to such
underwriter's initial purchase commitment.
Our officers, directors and some stockholders have agreed that, for a
period of 180 days from the date of this prospectus, they will not, without the
prior written consent of Salomon Smith Barney Inc., dispose of or hedge any
shares of our common stock or any securities convertible into or exchangeable
for common stock. Salomon Smith Barney Inc. in its sole discretion may release
any of the securities subject to these lock-up agreements at any time without
notice.
The underwriters have reserved for sale, at the initial public offering
price, up to common shares for customers, directors, employees and
other persons associated with us who have expressed an interest in purchasing
common shares in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase these reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our shares was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future prospects for the industry in which we
compete, our management, and currently prevailing general conditions in the
equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. There can be no
70
assurance, however, that the prices at which our shares will sell in the public
market after this offering will not be lower than the price at which they are
sold by the underwriters or that an active trading market in our common stock
will develop and continue after this offering.
We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "WLSS."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
PAID BY WIRELESS
-------------------------
NO FULL
EXERCISE EXERCISE
------------ -----------
Per share............................................. $ $
Total................................................. $ $
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market of price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
We estimate that the total expenses, excluding underwriting discounts and
commissions, of this offering will be approximately $ .
We have agreed to indemnify the underwriters against liabilities to which
they may become subject, including liabilities that may arise under the
Securities Act of 1933, the Securities Exchange Act of 1934 or other federal or
state statutory law or regulation, at common law or otherwise or to contribute
to payments the underwriters may be required to make in respect of any of those
liabilities.
71
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, Palo Alto, California. Attorneys associated
with Brobeck, Phleger & Harrison LLP beneficially own 200,000 shares of our
common stock. Pillsbury Madison & Sutro LLP, Palo Alto, California is acting as
counsel for the underwriters in connection with selected legal matters relating
to the shares of common stock offered by this prospectus.
EXPERTS
The financial statements and the related financial statement schedule of
Wireless, Inc. as of December 31, 1998 and 1999 and for the period May 7, 1997
to December 31, 1997 and the years ended December 31, 1998 and 1999 have been
included in this prospectus and registration statement in reliance upon the
reports of KPMG LLP, independent auditors, appearing elsewhere in the prospectus
and registration statement, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Multipoint Networks, Inc. for the period
January 1, 1998 to August 25, 1998 have been included in this prospectus and
registration statement in reliance upon the report of KPMG LLP, independent
auditors, appearing elsewhere in the prospectus, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act a registration statement on Form S-1 relating to
the common stock offered. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information with respect to us and the shares we are
offering pursuant to this prospectus, you should refer to the registration
statement and its exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and you should refer to the copy of
that contract or other document filed as an exhibit to the registration
statement. You may read or obtain a copy of the registration statement at the
commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the commission at 1-800-SEC-0330. The commission maintains a web site
that contains reports, proxy information statements and other information
regarding registrants that file electronically with the commission. The address
of this web site is http://www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish other reports as we may determine or as may be
required by law.
72
INDEX TO FINANCIAL STATEMENTS
WIRELESS, INC.
--------------
PAGE
--------
Form of Independent Auditors' Report.................................................................. F-2
Balance Sheets as of December 31, 1998 and 1999....................................................... F-3
Statements of Operations for the period from May 7, 1997 (inception) to December 31, 1997
and the years ended December 31, 1998 and 1999........................................................ F-4
Statements of Stockholders' Equity for the period from May 7, 1997 (inception) to
December 31, 1997 and the years ended December 31, 1998 and 1999..................................... F-5
Statements of Cash Flows for the period from May 7, 1997 (inception) to December 31, 1997
and the years ended December 31, 1998 and 1999........................................................ F-6
Notes to Financial Statements......................................................................... F-7
MULTIPOINT NETWORKS, INC.
-------------------------
PAGE
--------
Independent Auditors'Report........................................................................... F-23
Statement of Operations for the period from January 1, 1998 to August 25, 1998........................ F-24
Statement of Stockholders' Equity for the period from January 1, 1998
to August 25, 1998.................................................................................... F-25
Statement of Cash Flows for the period from January 1, 1998 to August 25, 1998........................ F-26
Notes to the Statement of Operations.................................................................. F-27
F-1
FORM OF INDEPENDENT AUDITORS' REPORT
When the event referred to in Note 11(e) of the Wireless, Inc. financial
statements has been consummated, we will be in a position to render the
following report.
/s/ KPMG LLP
The Board of Directors
Wireless, Inc.:
We have audited the accompanying balance sheets of Wireless, Inc. as of December
31, 1998 and 1999, and the related statements of operations, stockholders'
equity, and cash flows for the period from May 7, 1997 (inception) to December
31, 1997 and the years ended December 31, 1998 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wireless, Inc. as of December
31, 1998 and 1999, and the results of their operations and their cash flows for
the period from May 7, 1997 (inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999 in conformity with generally accepted accounting
principles.
Mountain View, California
February 23, 2000, except for Note 11
which is as of May ______ , 2000
F-2
WIRELESS, INC.
BALANCE SHEETS
DECEMBER 31,
1999
------------
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------------- EQUITY
1998 1999 (NOTE 1)
------------ ------------ ------------
(UNAUDITED)
------------
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $80,000 at
December 31, 1998 and 1999................................................... $ 357,580 $ 1,140,409
Accounts receivable, net of allowance of $299,223 and $1,193,635 at
December 31, 1998 and 1999, respectively..................................... 3,732,846 5,851,440
Inventory...................................................................... 3,787,376 4,367,797
Prepaid expenses and other current assets...................................... 416,840 1,148,724
------------ ------------
Total current assets................................................... 8,294,642 12,508,370
------------ ------------
Lease receivable, long-term....................................................... -- 184,077
Property and equipment, net....................................................... 692,640 1,219,124
Goodwill and intangible assets net of amortization................................ 4,228,103 3,125,939
------------ ------------
Total assets........................................................... $13,215,385 $ 17,037,510
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 5,129,710 $ 3,420,662
Line of credit................................................................. 1,500,000 --
Accrued liabilities............................................................ 832,790 1,281,653
Sales commission payable....................................................... 804,086 1,512,882
Current portion of capital lease obligations................................... 41,128 171,254
Convertible notes payable...................................................... 4,161,064 1,000,000
------------ ------------
Total current liabilities.............................................. 12,468,778 7,386,451
Capital lease obligations, less current portion .................................. 84,193 239,306
------------ ------------
Total liabilities...................................................... 12,552,971 7,625,757
------------ ------------
Commitments
Stockholders' equity:
Series A convertible preferred stock; 6,000,000 shares authorized;
4,300,000 shares issued and outstanding in 1998 and 1999; aggregate
liquidation preference of $2,150,000 at December 31, 1999 ($0.50 per
share) ...................................................................... 2,150,000 2,150,000 $ --
Series B convertible preferred stock; 750,000 shares authorized; 750,000
shares issued and outstanding in 1998 and 1999; aggregate liquidation
preference of $1,500,000 at December 31, 1999 ($2.00 per share).............. 1,500,000 1,500,000 --
Series C convertible preferred stock, 2,400,000 shares authorized;
2,146,868 and 2,086,885 shares issued and outstanding in 1998 and
1999; aggregate liquidation preference of $2,775,556 at December 31,
1999 ($1.33 per share)....................................................... 2,855,333 2,775,556 --
Series D convertible preferred stock, 6,600,000 shares authorized;
6,541,013 issued and outstanding in 1999; aggregate liquidation
preference of $8,176,266 at December 31, 1999 ($1.25 per share).............. -- 8,161,966 --
Series E convertible preferred stock, 4,000,000 shares authorized;
3,600,000 issued and outstanding in 1999; aggregate liquidation
preference of $9,000,000 at December 31, 1999 ($2.50 per share).............. -- 8,173,442 --
Common stock, $0.001 par value; 30,000,000 shares authorized at
December 31, 1998, and 50,000,000 shares authorized at December 31, 1999;
3,496,692 and 7,765,538 shares issued and outstanding at December 31, 1998
and 1999, actual; 100,000,000 shares authorized, 31,933,389 shares issued
and outstanding, pro forma................................................... 3,497 7,766 31,933
Additional paid-in capital..................................................... 5,985,726 17,046,663 72,531,274
Note receivable from stockholder............................................... -- (168,750) (168,750)
Deferred stock-based compensation.............................................. (711,867) (5,415,465) (5,415,465)
Accumulated deficit............................................................ 11,120,275) (24,819,425) (24,819,425)
------------ ------------ ------------
Total stockholders' equity............................................. 662,414 9,411,753 $42,159,567
------------ ------------ ------------
Total liabilities and stockholders' equity ............................ $13,215,385 17,037,510
============ ============
See accompanying notes to financial statements
F-3
WIRELESS, INC.
STATEMENTS OF OPERATIONS
PERIOD FROM
MAY 7, 1997
(INCEPTION)
TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------------
1997 1998 1999
------------- -------------- ---------------
Revenue......................................................... $ 200,736 $ 11,172,235 $ 21,296,010
Cost of revenue (excludes amortization of deferred stock-based
compensation of $12,972, $47,878 and $275,437,
respectively)............................................. 420,906 9,091,133 15,793,910
------------- -------------- ---------------
Gross profit (loss)...................................... (220,170) 2,081,102 5,502,100
------------- -------------- ---------------
Operating expenses:
Research and development (excludes amortization of
deferred stock-based compensation of $13,672, $119,838
and $1,657,028, respectively)............................. 708,278 2,323,589 3,220,850
Sales and marketing (excludes amortization of deferred
stock-based compensation of $19,266 and $81,341 and
$560,177, respectively)................................... 902,004 3,811,338 7,443,454
General and administrative (excludes amortization of
deferred stock-based compensation of $23,090, $391,136
and $1,826,423, respectively)............................. 258,412 1,316,072 2,688,924
In-process research and development costs
acquired................................................. -- 817,058 --
Amortization of intangibles.................................. -- 359,097 1,102,164
Impairment of an intangible asset............................ 1,500,000 -- --
Amortization of deferred stock compensation................. 69,000 640,193 4,319,065
------------- -------------- ---------------
Total operating expenses................................. 3,437,694 9,267,347 18,774,457
------------- -------------- ---------------
Operating loss................................................... (3,657,864) (7,186,245) (13,272,357)
Interest expense (income), net................................... (13,953) 290,119 426,793
------------- -------------- ---------------
Net loss................................................. $(3,643,911) $ (7,476,364) $ (13,699,150)
============= ============== ===============
Net loss per share:
Basic and diluted............................................ $ -- $ (6.18) $ (4.30)
============= ============== ===============
Weighted average number of shares used in computation........ -- 1,210,364 3,187,334
============= ============== ===============
F-4
WIRELESS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM MAY 7, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND THE
YEARS ENDED DECEMBER 31, 1998 AND 1999
SERIES A SERIES B SERIES C SERIES D
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ------- ---------- --------- ---------- --------- ----------
Issuance of Series A convertible
preferred stock.................. 6,000,000 $3,000,000 -- $ -- -- $ -- -- $ --
Issuance of Series B convertible
preferred stock.................. -- -- 750,000 1,500,000 -- -- -- --
Unearned compensation for options
granted to employees.............
Amortization of unearned
compensation
Exercise of stock options............ -- -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- -- --
---------- ---------- ------- ---------- --------- ---------- --------- ----------
Balance as of December 31, 1997....... 6,000,000 3,000,000 750,000 1,500,000 -- -- -- --
Redemption of Series A convertible
preferred stock.................. (1,700,000) (850,000) -- -- -- -- --
Exercise of stock options............. -- -- -- -- -- -- -- --
Issuance of common stock
for interest on financing and
consulting services.............. -- -- -- -- -- -- -- --
Issuance of Series C convertible
preferred stock, common stock,
warrants and stock options as
consideration for the
acquisition of Multipoint........ -- -- -- -- 2,146,868 2,855,333 -- --
Unearned compensation for
options granted to
employees........................ -- -- -- -- -- -- -- --
Amortization of unearned
compensation..................... -- -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- -- --
---------- ---------- ------- ---------- --------- ---------- --------- ----------
Balance as of December 31, 1998....... 4,300,000 2,150,000 750,000 1,500,000 2,146,868 2,855,333 -- --
Issuance of Series D convertible
preferred stock.................. -- -- -- -- -- -- 6,541,013 8,161,966
Issuance of Series E convertible
preferred stock.................. -- -- -- -- -- -- -- --
Repurchase of Series C
convertible preferred and
common shares.................... -- -- -- -- (59,983) (79,777) -- --
Exercise of stock options............. -- -- -- -- -- -- -- --
Exercise of stock options for
note receivable.................. -- -- -- -- -- -- -- --
Unearned compensation for
options granted to
employees........................ -- -- -- -- -- -- -- --
Amortization of unearned
compensation..................... -- -- -- -- -- -- -- --
Warrants issued for services..........
Net loss.............................. -- -- -- -- -- -- -- --
---------- ---------- ------- ---------- --------- ---------- ---------------------
Balance as of December 31, 1999....... 4,300,000 $2,150,000 750,000 $1,500,000 2,086,885 $2,775,556 6,541,013 $8,161,966
========== ========== ======= ========== ========= ========== ========= ==========
SERIES E
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
--------------------- ------------------ PAID-IN STOCK-BASED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDER
--------- ---------- --------- ------- ----------- ------------ -----------
Issuance of Series A convertible
preferred stock.................. -- $ -- -- $ -- $ -- $ -- $ --
Issuance of Series B convertible
preferred stock.................. -- -- -- -- -- -- --
Unearned compensation for options
granted to employees............. 152,000 (152,000) --
Amortization of unearned
compensation 69,000 --
Exercise of stock options............ -- -- 599,500 600 29,375 -- --
Net loss.............................. -- -- -- -- -- -- --
---------------------- --------- ------- ----------- ------------ -----------
Balance as of December 31, 1997....... -- -- 599,500 600 181,375 (83,000) --
Redemption of Series A convertible
preferred stock.................. -- -- -- -- 630,210 -- --
Exercise of stock options............. -- -- 229,750 230 24,487 -- --
Issuance of common stock
for interest on financing and --
consulting services.............. -- -- 50,000 50 37,698 --
Issuance of Series C convertible
preferred stock, common stock,
warrants and stock options as
consideration for the
acquisition of Multipoint........ -- -- 2,617,442 2,617 3,842,896 -- --
Unearned compensation for
options granted to
employees........................ -- -- -- -- 1,269,060 (1,269,060) --
Amortization of unearned
compensation..................... -- -- -- -- -- 640,193 --
Net loss.............................. -- -- -- -- -- -- --
--------------------- --------- ------- ----------- ------------ -----------
Balance as of December 31, 1998....... -- -- 3,496,692 3,497 5,985,726 (711,867) --
Issuance of Series D convertible
preferred stock.................. -- -- -- -- -- -- --
Issuance of Series E convertible
preferred stock.................. 3,600,000 8,173,442 -- -- 691,200 -- --
Repurchase of Series C
convertible preferred and
common shares.................... -- -- (118,239) (118) (88,562) -- --
Exercise of stock options............. -- -- 4,387,085 4,387 899,686 --
Exercise of stock options for
note receivable.................. -- -- -- -- 168,750 -- (168,750)
Unearned compensation for
options granted to
employees........................ -- -- -- -- 9,022,663 (9,022,663) --
Amortization of unearned
compensation..................... -- -- -- -- -- 4,319,065 --
Warrants issued for services.......... 367,200
Net loss.............................. -- -- -- -- -- -- --
--------- ---------- --------- --- --- ----------- ------------ -----------
Balance as of December 31, 1999....... 3,600,000 $8,173,442 7,765,538 $7,766 $17,046,663 $(5,415,465) $ (168,750)
========= ========== ========= ======= =========== ============ ===========
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ ------------
Issuance of Series A convertible
preferred stock.................. $ -- $ 3,000,000
Issuance of Series B convertible
preferred stock.................. -- 1,500,000
Unearned compensation for options
granted to employees.............
Amortization of unearned
compensation -- 69,000
Exercise of stock options............ -- 29,975
Net loss.............................. (3,643,911) 3,643,911)
------------ ------------
Balance as of December 31, 1997....... (3,643,911) 955,064
Redemption of Series A convertible
preferred stock.................. -- (219,790)
Exercise of stock options............. -- 24,717
Issuance of common stock
for interest on financing and
consulting services.............. -- 37,748
Issuance of Series C convertible
preferred stock, common stock,
warrants and stock options as
consideration for the
acquisition of Multipoint........ -- 6,700,846
Unearned compensation for
options granted to
employees........................ -- --
Amortization of unearned
compensation..................... -- 640,193
Net loss.............................. (7,476,364) (7,476,364)
-------------- -----------
Balance as of December 31, 1998....... (11,120,275) 662,414
Issuance of Series D convertible
preferred stock.................. -- 8,161,966
Issuance of Series E convertible
preferred stock.................. -- 8,864,642
Repurchase of Series C
convertible preferred and
common shares.................... -- (168,457)
Exercise of stock options............. -- 904,073
Exercise of stock options for
note receivable.................. -- --
Unearned compensation for
options granted to
employees........................ -- --
Amortization of unearned
compensation..................... -- 4,319,065
Warrants issued for services.......... 367,200
Net loss.............................. (13,699,150) (13,699,150)
------------ ------------
Balance as of December 31, 1999....... $(24,819,425) $ 9,411,753
============ ============
See accompanying notes to financial statements.
F-5
WIRELESS, INC.
STATEMENTS OF CASH FLOWS
PERIOD
FROM
MAY 7, 1997
(INCEPTION) YEARS ENDED DECEMBER 31,
TO DECEMBER -------------------------
31, 1997 1998 1999
---------- ---------- ------------
Cash flows from operating activities:
Net loss.................................. $(3,643,911) $(7,476,364) $(13,699,150)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 29,746 238,188 335,248
Amortization of deferred stock-based
compensation....................... 69,000 640,193 4,319,064
In-process research and development
costs acquired..................... -- 817,058 --
Amortization of intangibles.......... -- 359,097 1,102,164
Impairment of an intangible asset.... 1,500,000 -- --
Allowance for doubtful accounts...... -- 299,223 894,412
Noncash interest expense............. -- 25,348 283,248
Changes in operating assets and
liabilities (net of effect of
non-cash investing and financing
activities):
Accounts receivable............ (145,805) (1,766,384) (3,013,006)
Inventory...................... (244,382) (507,796) (580,421)
Prepaids and other current
assets....................... (424,195) 147,982 (423,652)
Long-term lease receivable..... -- -- (184,077)
Accounts payable............... 273,642 3,719,729 (1,709,048)
Accrued liabilities............ 350,201 709,255 1,157,659
---------- ---------- ------------
Net cash used in operating
activities............ (2,235,704) (2,794,471) (11,517,559)
---------- ---------- ------------
Cash flows from investing activities:
Purchase of property and equipment........ (173,453) (178,539) (455,657)
Acquisition of cash from Multipoint....... -- 237,781 --
Advance to Multipoint..................... (300,000) -- --
---------- ---------- ------------
Net cash (used in)
provided by investing
activities............... (473,453) 59,242 (455,657)
---------- ---------- ------------
Cash flows from financing activities:
Proceeds from (payments of)
lines of credit......................... -- 415,897 (1,500,000)
Proceeds from (payments of) bridge
financing and convertible notes......... -- 2,411,064 1,820,461
Proceeds from issuance of common stock.... 29,975 24,717 904,074
Proceeds from issuance of preferred stock. 3,000,000 -- 11,820,803
Repurchase of common and preferred stock -- -- (168,457)
Payments for capital lease obligations.... (24,071) (55,616) (120,836)
---------- ---------- ----------
Net cash provided by
financing activities............ 3,005,904 2,796,062 12,756,045
---------- ---------- ----------
Net increase in cash and cash equivalents... 296,747 60,833 782,829
Cash and cash equivalents, beginning of
period.................................... -- 296,747 357,580
---------- ---------- ----------
Cash and cash equivalents, end of period.... $ 296,747 $ 357,580 $1,140,409
========== ========== ==========
Supplementary cash flow information:
Cash paid for interest.................... $ 2,423 $ 81,762 $ 63,020
Supplementary disclosure of non-cash
investing and financing activities:
The Company acquired Multipoint
Networks, Inc. during 1998. Note 4
outlines details of the purchase price
and the allocation of the purchase
price to the net assets acquired.
Property and equipment acquired under
capital lease obligations.............. $ 36,255 168,753 406,075
Redemption of Series A preferred stock... -- 219,790 --
Unearned compensation for options
granted to employees................... 152,000 1,269,060 9,022,663
Licensed technology acquired for
issuance of preferred stock............ 1,500,000 -- --
Issuance of Series D preferred stock for
convertible notes and accrued interest. -- -- 5,205,805
Warrants issued for services............. -- -- 367,200
Options exercised for note receivable.... -- -- 168,750
See accompanying notes to financial statements.
F-6
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
Wireless, Inc. (the Company) was incorporated in California on May
7, 1997 to develop broadband wireless access solutions that enable
Internet and communication service providers, telephone operating
companies and private network operators to deliver voice and
high-speed data services to their customers. The operations of the
Company include the design, manufacture and marketing of
high-speed, wireless, point-to-point and point-to-multipoint
telecommunications access equipment. The Company's products are
distributed through a network of worldwide independent
distributors, system integrators, local resellers and a direct
sales force.
(b) REVENUE RECOGNITION
Revenue on products is recognized when all of the following have
occurred: the product has been shipped; title and risk of loss have
passed to the customer; the Company has the right to invoice the
customer and collection of the receivable is probable; and all
obligations have been fulfilled. The only post-sale obligation is a
12 month warranty. Revenue from services is recognized when the
service is completed. Trial sales made directly to the end users
are not recognized as revenue until the trial has been completed
and the product has been accepted.
Estimated warranty costs are accrued at the time of the sale based
upon the Company's historical experience.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period. Actual
results could differ from these estimates.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments at
the inception of the lease. Depreciation and amortization of
property and equipment is provided using the straight-line method
over the estimated useful lives of the respective assets, which
range from three to five years. Equipment held under capital leases
is amortized using the straight-line method over the shorter of the
lease term or the estimated useful life of the asset.
(e) INTANGIBLE ASSETS
Intangible assets include developed technology, assembled
workforce, core technology and goodwill all related to the
acquisition of Multipoint Networks, Inc. as discussed in notes 3
and 4. Intangibles are amortized on a straight line basis over
their estimated useful lives which range from two to five years.
(f) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with remaining
maturities of three months or less at the date of acquisition to be
cash equivalents.
Restricted cash consists of amounts held as security for an
outstanding letter of credit.
F-7
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) CONCENTRATION OF RISK
Financial instruments, which potentially subject the Company to a
concentration of credit risk, principally consist of accounts
receivable. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral on accounts
receivable.
The following table summarizes information relating to the
Company's significant customers with revenues comprising greater
than 10% of total revenue for the period and/or balances greater
than 10% of accounts receivable at year end:
REVENUE FOR
PERIODS ENDED DECEMBER 31, ACCOUNTS RECEIVABLE
------------------------------------ DECEMBER 31,
CUSTOMER 1997 1998 1999 1999
- ---------- ---------- ------------ ------------- -------------------
A........................... $ * $ * $2,955,072 *
B........................... * * * 903,900
C........................... 21,158 2,563,290 * *
D........................... 108,609 2,354,907 * *
E........................... * 1,881,258 * *
- -----------------
* Revenue and/or accounts receivable accounted for less than 10% in these years.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable, accounts
payable, and borrowings approximate their carrying values due to
their short maturity or variable-rate structure. The interest rates
on the capital lease obligations are deemed to be at market rates
and the carrying amounts approximate fair value.
(i) RESEARCH AND DEVELOPMENT
Costs incurred in the research and development of new products and
enhancements to existing products are expensed as incurred until
the technological feasibility of the product or enhancement has
been established. Technological feasibility is established when a
product design and a working model have been completed and the
completeness of the working model, and its consistency with the
product design, have been confirmed by testing. After establishing
technological feasibility, material development costs are
capitalized. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or is
amortized based on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period between
completion of a working model and the general release of the
product has been short and development costs qualifying for
capitalization have been insignificant. Accordingly, the Company
has not capitalized any development costs.
(j) INVENTORY
Inventory is stated at the lower of cost, determined on a first-in
first-out basis or net realizable value.
(k) INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be recovered.
F-8
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(l) STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION. This
statement establishes financial accounting and reporting standards
for stock based compensation, including employee stock option
plans. As allowed by SFAS 123, the Company measures compensation
expense under the provisions of Accounting Principles Board (APB)
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25),
and related interpretations. The Company follows Financial
Accounting Standards Board Interpretation No. 28, ACCOUNTING FOR
STOCK APPRECIATION RIGHTS AND OTHER VARIABLE STOCK OPTION OR AWARD
PLANS in amortizing unearned compensation during the service
period.
(m) COMPREHENSIVE INCOME
The Company does not have any components of comprehensive income,
consequently comprehensive loss consists entirely of net loss for
all periods presented.
(n) LONG-LIVED ASSETS, INCLUDING INTANGIBLE ASSETS
The Company accounts for long-lived assets under SFAS No. 121,
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment loss to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. The Company estimates fair value based on the best
information available, making judgments and projections as
considered necessary.
(o) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. For
a derivative not designated as a hedging instrument, changes in the
fair value of the derivative are recognized in earnings in the
period of change. This statement will be effective for all annual
and interim periods beginning after January 1, 2001. Management
does not believe the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated financial position or results
of operations.
(p) NET LOSS PER SHARE
Net loss per share is computed based on SFAS No. 128, EARNINGS PER
SHARE. The basic net loss per share is computed by dividing the net
loss attributable to common stockholders by the weighted average
number of common shares outstanding. Potential weighted average
common shares relating to stock options of 63,000, 214,000 and
845,000 in 1997, 1998 and 1999, respectively, potential weighted
average common shares relating to convertible preferred stock of
6,243,000, 5,858,000 and 13,115,000 shares in 1997, 1998 and 1999,
respectively, and weighted average unvested restricted shares of
405,000, 531,000 and 735,000 shares in 1997, 1998 and 1999
respectively, have also been excluded from the calculations of net
loss per share as their impact would be anti-dilutive. Thus, the
diluted net loss per share in these years is the same as the basic
net loss per share. Net loss per share is not presented in the
period from May 7, 1997 (inception) to December 31, 1997 as all
common share as of December 31, 1997 were unvested and subject to
repurchase and accordingly are not considered outstanding for the
computations of net loss per share.
F-9
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(q) PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Unaudited pro forma basic and diluted net loss per share was $0.84
for the year ended December 31, 1999 based on pro forma
weighted-average shares outstanding of 16,302,544 for the year.
This information reflects per share data assuming the conversion of
all outstanding shares of convertible preferred stock at the
respective conversion rate for each preferred share of Series A, B,
C, D and E as if the conversion of the preferred stock had taken
place at January 1, 1999 or at the date of issuance, if later. Pro
forma common equivalent shares, comprised of incremental common
shares issuable upon exercise of stock options and warrants are not
included in pro forma diluted net loss per share because they would
be antidilutive.
(r) PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
The unaudited pro forma stockholders' equity gives effect to (1)
the issuance of 3,000,000 shares of Series F convertible preferred
stock and 3,429,352 common shares, at $5 per share, in January
2000, (2) the exercise of warrants to purchase 48,000 shares of
Series D convertible preferred stock at $1.25 per share and 20,000
shares of Series E convertible preferred stock at $2.50 per share
and (3) the exercise of warrants to purchase 160,000 shares of
common stock at an average exercise price of $3.06, prior to the
consummation of the Company's initial public offering. It also
gives effect to the conversion of Series A, B, C, D, E, and F
convertible preferred stock expected to be outstanding at the
consummation of the Company's initial public offering, into
20,578,499 shares of common stock, upon the closing of the
Company's initial public offering.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
-------------------------
1998 1999
----------- -------------
Office furniture and equipment...................... $ 74,941 $ 185,623
Machinery equipment and fixtures.................... 574,139 803,626
Computer equipment and software..................... 207,750 363,303
Leasehold improvements.............................. 79,147 425,454
----------- -------------
935,977 1,778,006
Less: accumulated depreciation and amortization..... (243,337) (558,882)
----------- -------------
Property and equipment, net......................... $ 692,640 $1,219,124
=========== =============
(3) INTANGIBLE ASSETS
All intangible assets relate to the acquisition of Multipoint. A summary
of intangibles is as follows:
DECEMBER 31,
--------------------------- ESTIMATED
1998 1999 USEFUL LIVES
------------ -------------- ------------
Developed technology................... $3,175,590 $ 3,175,590 5 years
Assembled workforce.................... 610,208 610,208 2 years
Core technology........................ 463,169 463,169 5 years
Goodwill............................... 338,233 338,233 5 years
------------ -------------
4,587,200 4,587,200
Less: accumulated amortization......... (359,097) (1,461,261)
------------ -------------
$4,228,103 $ 3,125,939
============ =============
In May 1997, the Company acquired licensed technology for the issuance of
3,000,000 shares of Series A Convertible Preferred Stock valued at $0.50
per share. An intangible asset of $1,500,000 was recorded for the
acquired technology. Subsequent to its acquisition, it was determined
that the licensed technology did not have value to the Company,
accordingly, the Company began negotiations to restructure the licensed
F-10
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
technology agreement. For the year ended December 31, 1997, the Company
recorded an impairment charge of $1,500,000 related to the acquired
technology.
(4) MULTIPOINT NETWORKS, INC. ACQUISITION
On August 26, 1998 Wireless, Inc. acquired the net assets of Multipoint
Networks, Inc. (Multipoint). Multipoint was incorporated in California in
1987 and designed, manufactured and marketed wireless metropolitan-area
data network products based on unique patented digital transceiver
technology. The acquisition has been accounted for by the purchase method
and accordingly, the operating results of Multipoint form part of the
operating results of the Company from August 26, 1998.
The $7,253,312 purchase price for the acquisition was comprised as
follows:
Issuance of Series C preferred stock............... $2,855,333
Issuance of common stock........................... 3,481,198
Receivable forgiven................................ 300,000
Issuance of stock options.......................... 326,754
Issuance of stock warrants......................... 37,561
Acquisition costs.................................. 252,466
------------
$7,253,312
============
There were no contingent payments or other commitments specified in the
acquisition agreement.
The purchase price was more than the fair value of the net assets
acquired of $6,915,079 resulting in goodwill of $338,233. This goodwill
is included as a component of intangibles and is being amortized over its
useful life of five years.
The purchase price was allocated as follows:
Cash and cash equivalents........................ $ 237,781
Inventory........................................ 3,035,198
Accounts receivable.............................. 2,082,035
Prepaid expenses and other current assets........ 398,260
Property and equipment........................... 395,287
Developed technology............................. 3,175,590
In-process research and development.............. 817,058
Assembled workforce.............................. 610,208
Core technology.................................. 463,169
Goodwill......................................... 338,233
Liabilities...................................... (4,299,507)
-------------
$ 7,253,312
=============
In-process research and development was fully expensed upon acquisition
as the Company determined that the acquired technology had not yet
achieved technological feasibility and that the technology did not have
an alternative future use. The in-process research and development
related to Multipoint's WaveNet IP technology. The valuation of the
in-process research and development was based upon present value of
forecasted operating cash flows expected to be generated from the
technology and considered that the technology was approximately 85%
complete as of the acquisition date. Developed and core technology are
being amortized on a straight-line basis over five years. Assembled
workforce is being amortized on a straight line basis over two years.
F-11
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table shows unaudited pro forma results of operations for
the Company, assuming the acquisition of Multipoint had been consummated
as of January 1, 1998 and excludes the write-off of in-process research
and development costs because of the non-recurring nature of this charge.
The unaudited pro forma information is not necessarily indicative of the
combined results that would have occurred had the acquisition taken place
as of the beginning of the period presented, nor is it necessarily
indicative of results that may occur in the future:
YEAR ENDED
DECEMBER 31,
1998
--------------
(UNAUDITED)
Pro forma basis:
Total revenue................................ $17,044,735
Net loss..................................... 8,809,019
Net loss per share:
Basic and diluted.......................... $ 3.02
Weighted-average shares outstanding:
Basic and diluted.......................... 2,917,000
(5) BORROWINGS
(a) LINE OF CREDIT
The Company had available a line of credit which allowed for
borrowings up to 80% of eligible accounts receivable with a maximum
borrowing of $2,000,000. The line is renewable annually at the
option of the bank and the Company. In consideration for the
renewal in 1999, the Company issued the bank a warrant to purchase
48,000 shares of the Series D Convertible Stock at $1.25 per share.
The warrant value of $37,400 is being amortized as interest expense
over the term of the line of credit. The amount of $37,400 ascribed
to the warrants was estimated using the Black-Scholes option
valuation model with the following assumptions: no expected
dividend yield; risk free interest rate of 5.5%; expected
volatility of 70%; and contractual term of 5 years. The line is
secured by substantially all of the Company's assets. Borrowings
under the line of credit bear interest at 2.5% above the bank's
prime rate. At December 31, 1999, no borrowings were outstanding on
the line of credit.
The line of credit was renewed on February 23, 2000 with the credit
limit increased to $5 million in the event that the Company
receives at least $15 million in net cash proceeds from the issue
of equity or subordinated debt, or in the event that the Company
raises at least $50 million in net cash proceeds from the
consummation of the initial public offering before May 31, 2000.
The terms of the line of credit remain unchanged with exception of
an additional requirement for the Company to maintain tangible net
worth of $15 million. The Company is committed to issue a five year
warrant to purchase 37,500 shares of common stock at $4.00 per
share in the event that the initial public offering is not
consummated by May 31, 2000 or in the event that the offering does
not raise net cash proceeds of at least $50 million.
(b) CONVERTIBLE NOTES PAYABLE
During 1998, the Company assumed $1,950,000 of short-term financing
as part of the acquisition of Multipoint and obtained $2,004,400
from existing Wireless shareholders in exchange for convertible
notes payable. The bridge loans carried an interest rate of 10%.
The convertible notes stated that the outstanding principal and
interest would be convertible at the option of the holder into
shares of the Company's equity at the closing of the Company's next
equity financing. The conversion price was to be determined at the
time of the next equity financing and was to be consistent with the
price and terms of that financing.
F-12
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On May 21, 1999, the notes and related accrued interest were
converted to Series D preferred stock at a price of $1.25 per
share.
In August 1999, the Company borrowed $1,000,000 under a convertible
promissory note. The principal amount, together with interest
accrued at 10% per annum, will become due and payable on September
1, 2004. At the option of the holder, the note may be converted
into shares of the next series of the Company's preferred stock at
a conversion price based on the underlying terms of that financing.
In September 1999, the Company issued Series E Convertible
Preferred stock at $2.50 per share with an attached 10% warrant to
purchase common stock at $0.75 per share. This financing qualified
as the next financing in accordance with the terms of the
promissory note. Based on this financing, the promissory note is
convertible into 320,000 shares of Series E Convertible Preferred
Stock at $3.125 per share and, if converted, the holder will
receive a warrant to purchase 32,000 shares of common stock at
$0.75 per share. These Series E preferred shares will be
convertible at any time into common shares at a rate of 1.0331
common shares for each preferred share.
(c) BANK LOAN
In 1999, the Company borrowed $1,000,000 at an interest rate of
prime plus 3%. As additional consideration, the Company issued the
bank a warrant to purchase 20,000 shares of Series E Convertible
Preferred Stock at $2.50 per share. The warrant is valued at
$27,800 and has been recorded as interest expense. The amount of
$27,800 ascribed to the warrants was estimated using the
Black-Scholes option pricing model with the following assumptions:
no expected dividend yield; risk free interest rate of 5.5%;
expected volatility of 70%; and contractual term of 5 years. All
principal and interest was repaid from proceeds of the Series E
financing.
(d) LETTERS OF CREDIT
The Company has letters of credit outstanding in lieu of security
deposits on leased facilities. Letters of credit outstanding were
$80,000 and $302,000 at December 31, 1998 and 1999, respectively.
(6) STOCKHOLDERS' EQUITY
(a) CONVERTIBLE PREFERRED STOCK
The Company designated and issued convertible preferred stock as
follows:
In May 1997, the Company issued 6,000,000 shares of Series A
Preferred at $0.50 per share of which 3,000,000 shares were issued
for cash and 3,000,000 shares were issued in exchange for a
technology license agreement. In 1998, as a result of a subsequent
restructuring of the license agreement and cancellation of a note
receivable, 1,700,000 shares were returned to the Company.
In October 1997, the Company issued 750,000 shares of Series B
Preferred Stock for $2.00 per share.
In August 1998, the Company issued 2,146,868 shares of Series C
Preferred Stock at $1.33 per share in connection with the
acquisition of Multipoint.
In March 1999, the Company issued 6,541,013 shares of Series D
Preferred Stock for $1.25 per share.
In September 1999, the Company issued 3,600,000 shares of Series E
Preferred Stock for $2.50 per share and warrants to purchase
360,000 shares of common stock at $0.75 per share. The conversion
price was subsequently reduced to $2.42 per share pursuant to a
resolution by the board of directors on December 21, 1999. The net
proceeds were allocated to the preferred shares and the warrants
based on their respective fair values. The warrants were valued at
$691,200 which is recorded as additional paid in capital. The
warrants expire 5.5 years from the date of issue. The amount of
$691,200 ascribed to the warrants was estimated using the
Black-Scholes option pricing model with the following assumptions:
no expected dividend yield; risk free interest rate of 6.0%;
expected volatility of 70%; and contractual term of 5.5 years.
F-13
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The rights, preferences, and privileges of the holders of Series A,
B, C, D, and E preferred stock are as follows:
The holders of Series A and B preferred stock are entitled to
receive dividends in an amount equivalent to that which they
would receive if their shares were converted to common stock.
The holders of Series C, D and E preferred stock are entitled
to receive preferential dividends at a rate of $0.12, $0.11
and $0.23 per share, respectively. All dividends require board
of director approval and are noncumulative. The conversion
price is the original issue price subject to adjustments for
dilution in the event that there is a stock split, subdivision
or combination of the outstanding shares of common stock. In
addition the conversion price is subject to adjustment in the
event that securities are subsequently sold at a lower price,
subject to certain exceptions. No dividends are paid or set
aside for holders of common stock until all dividends have
been paid or set aside for holders of Series A, B, C, D and E
preferred stock. No dividends have been declared to date.
Shares of Series A, B, C, D, and E preferred stock have a
liquidation preference of $0.50, $2.00, $1.33, $1.25 and $2.50
per share, respectively, plus any declared but unpaid
dividends.
Each holder of preferred stock has voting rights equal to
common stock on an "as if converted" basis.
Each share of preferred stock is convertible at any time into
one share of common stock at the option of the holder with the
exception of Series B, C and which each share converts into
1.1078, 1.0153 and 1.0331 shares of common stock. All shares
of preferred stock automatically convert upon the closing of
the sale of the Company's common stock in a public offering in
which gross proceeds exceed $25,000,000 and the offering price
equals or exceeds $7.50 per share. Each series of preferred
stock also converts upon the written consent of a specified
majority of the holders of such series into common stock.
(b) WARRANTS
As of December 31, 1999, there were warrants outstanding to
purchase 492,460 shares of common stock at a weighted average
exercise price of $2.34 per share, 48,000 shares of Series D
preferred stock at $1.25 per share, and 20,000 shares of Series E
preferred stock at $2.50 per share. The warrants contain provisions
for the adjustment of the exercise price and the aggregate number
of shares issuable upon the exercise of the warrant under certain
circumstances, including stock dividends, stock splits,
reorganizations, consolidations and certain dilutive issuances of
securities at prices below the then existing warrant exercise
price.
In November 1999, the Company issued warrants to purchase 100,000
common shares for $2.50 per share for fees related to the Series F
Convertible Preferred Stock financing that is discussed in note 11.
The warrants are valued at $302,000 which is recorded as a deferred
financing fee at December 31, 1999. The amount of $302,000 ascribed
to the warrants was estimated using the Black-Scholes option
pricing model with the following assumptions: no expected dividend
yield; risk free interest rate of 5.5%; expected volatility of 70%;
and contractual term of 3 years.
(c) COMMON STOCK
The Company is authorized to issue 50,000,000 shares of common
stock.
During 1997, 1998 and 1999 the Company issued 599,500, 229,750 and
4,387,085 shares of common stock upon the exercise of stock options
granted under the Company's 1997 Incentive Stock Option Plan.
Shares issued under the Plan are subject to repurchase until they
are fully vested.
Of the 1999 stock option exercises, 625,000 shares were issued to
an officer of the Company in exchange for a promissory note that is
secured by the shares. The recourse promissory note bears interest
at 6.39% per year and is due on December 10, 2009.
F-14
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(d) 1997 STOCK PLAN
Pursuant to approval by the Board of Directors (the Board),
effective June 11, 1997 the Company adopted the 1997 Stock Plan
(the 1997 Plan) which allowed for the issuance of up to 1,500,000
shares of common stock. The 1997 plan has subsequently been
amended, increasing the authorized number of shares to 3,650,000
and 7,450,000 at December 31, 1998 and 1999. The 1997 Plan will
terminate on June 11, 2007, or an earlier date when all of the
shares of common stock set aside for issuance under the 1997 Plan
have been issued, or when there has been a merger, sale, transfer,
or other disposition of all or substantially all of the Company's
assets in a liquidation or dissolution of the Company.
At the Board's discretion, employees, directors, and consultants
may be granted options that allow for the purchase of shares of the
Company's common stock, or they may be issued common stock
directly, either through the immediate purchase of such shares, or
as a bonus for services rendered to the Company.
Both non-statutory and incentive options may be granted under the
1997 Plan. Incentive options are options which satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986,
as amended. Non-statutory options do not satisfy these
requirements. Non-statutory options may be granted to employees,
directors, and consultants at a price not less than 85% of the fair
market value of common stock on the date the option is granted, or
110% of the fair market value of common stock where the options are
granted to those individuals owning more than 10% of the total
combined voting power of all classes of stock of the Company (a 10%
shareholder). Incentive options may only be granted to employees at
a price not less than 100% of the fair market value of common stock
on the date the option is granted.
Direct issues of shares of the Company's common stock may be
granted to employees, directors, and consultants at a price not
less than 85% of the fair market value of common stock on the date
of grant, or 110% of the fair market value of common stock where
the shares are granted to a 10% shareholder.
Vesting schedules may vary at the Board's discretion however, no
option shall have a term in excess of ten years from the date of
grant, except where incentive options are granted to a 10%
shareholder, then the option term shall not exceed five years.
Shares of common stock issued to employees must vest at a rate of
at least 20% per year from the date of issuance. Stock options are
immediately exercisable for all of the option shares. The Company
has the right to repurchase, at the exercise price paid per share,
any shares purchased under the option which are not vested. Shares
subject to repurchase at December 31, 1999 are 2,348,380.
The Company has reserved 7,450,000 common shares for issuance under
the 1997 Plan. A summary of the Company's share option plan
activity is as follows:
1997 1998 1999
---------------------------- ---------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE
----------- ---------------- ----------- --------------- ------------ --------------
Outstanding at beginning
of the year/period..... -- $ -- 902,000 $ 0.11 2,076,607 $ 0.16
Granted................... 1,501,500 0.08 1,681,620 0.26 4,124,209 0.42
Exercised................. (599,500) 0.05 (229,750) 0.11 (4,387,085) 0.26
Cancelled................. -- -- (277,263) 0.16 (107,684) 0.22
----------- ---------------- ----------- --------------- ------------ --------------
Outstanding at year-end... 902,000 0.09 2,076,607 0.16 1,706,047 0.53
=========== ================ =========== =============== ============ ==============
Options outstanding for
which vested shares
are issuable at period/
year end............. -- $ -- 1,011,140 $ 0.24 664,190 $ 0.25
=========== ================ =========== =============== ============ ==============
The options assumed from the Multipoint acquisition are included in
the 1998 shares granted.
F-15
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At the time of grant, all stock options were granted at the then
determined fair value. In consideration of the Company's proposed
initial public offering, the Company re-evaluated all option grants
and determined that all stock options had been granted when the
fair value of the underlying common stock on the grant date had
exceeded the exercise price of the stock option. During fiscal
1997, 1998 and 1999, the Company granted options with a
weighted-average exercise price of $0.08, $0.26 and $0.42,
respectively, compared to the weighted-average fair value of
approximately $0.19, $1.07 and $2.31 for the same periods.
The following table summarizes information about stock options
outstanding and exercisable under the 1997 Plan as of December 31,
1999:
OUTSTANDING EXERCISABLE
--------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------- ------------- ------------ ---------- ------------ ----------
$0.05 191,042 7.54 $0.05 147,812 $0.05
0.16 84,840 7.92 0.16 47,472 0.16
0.20 32,854 8.06 0.20 23,697 0.20
0.27 946,304 9.29 0.27 440,313 0.27
1.00 163,500 9.88 1.00 -- 1.00
2.00 282,500 9.97 2.00 -- 2.00
4.10 1,840 6.50 4.10 1,840 4.10
5.74 3,167 6.50 5.74 3,056 5.74
- ---------- ------------- ------------ ---------- ------------ ----------
1,706,047 8.76 $0.53 664,190 $0.25
============= ============ ========== ============ ==========
At December 31, 1999, options available for grant under the 1997
Plan were 828,000.
A portion of the Company's shares of common stock was not qualified
or exempted under applicable state securities laws and so a portion
of the stock option grants may be in violation of those laws. If it
is determined that the issuance of the affected options constitutes
a violation of state securities laws, certain shareholders may have
the right to recover from the Company any consideration paid for
those shares which were not qualified or exempted under applicable
state securities laws. The outcome of this matter has not yet been
determined, however any potential liability is not expected to
exceed $275,000 in the aggregate.
(e) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for its
option plan. Deferred stock-based compensation cost has been
recognized for stock option grants to employees when the fair value
of the underlying common stock on the grant date, or other
measurement date, exceeds the exercise price of each stock option.
Deferred stock-based compensation is amortized using the
accelerated method set for in Financial Accounting Standards Board
Interpretation No. 28.
F-16
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company is required to disclose the pro forma effects on net loss
and net loss per share as if the Company had elected to use the
fair value approach to account for its employee stock-based
compensation plan. Had compensation cost for the Company's plans
been determined consistently with the fair value approach described
in SFAS 123, the Company's pro forma net loss and pro forma net
loss per share for the years ended December 31, 1997, 1998, and
1999, would have been changed as indicated below:
DECEMBER 31,
------------------------------------------------
1997 1998 1999
------------- ------------- --------------
Net loss:
As reported......................... $3,643,911 $7,476,364 $13,699,150
Pro forma........................... $3,647,677 $7,491,029 $13,778,332
Net loss per share:
As reported......................... $ -- $ 6.18 $ 4.30
Pro forma........................... $ -- $ 6.19 $ 4.32
The fair value of options granted was estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1997,
1998, and 1999.
1997 1998 1999
-------------- ------------- ------------
Weighted average risk-free rate......... 5.5% 5.5% 5.5%
Expected life (years)................... 5 5 5
Volatility.............................. -- -- --
Dividend yield.......................... -- -- --
(7) INVENTORIES
Inventories consist of the following:
DECEMBER 31,
-----------------------------
1998 1999
------------- ------------
Raw materials..................................... $2,709,906 $2,065,910
Work in process................................... 282,558 361,175
Finished goods.................................... 794,912 1,940,712
------------- ------------
Inventories, net............................. $3,787,376 $4,367,797
============= ============
(8) INCOME TAXES
The Company has incurred significant losses since inception and has not
incurred any income tax expense to date. The income tax benefit differed
from the amounts computed by applying the U.S. Federal income tax rate of
34% to pretax loss as a result of the following:
1997 1998 1999
--------------- --------------- --------------
Expected tax benefit at U.S. Federal statutory rate of
34%................................................... $(1,238,930) $(2,541,964) $(4,657,711)
Current year net operating losses and temporary
differences for which no tax benefit is recognized.... 719,126 1,912,937 3,161,174
Permanent differences.................................... 519,804 629,027 1,496,537
--------------- --------------- --------------
Total.............................................. $ -- $ -- $ --
=============== =============== ==============
F-17
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and liabilities are
presented below.
1998 1999
-------------- --------------
Deferred tax assets:
Net operating loss carryforwards............. $ 10,902,372 $ 12,101,596
Reserves and accrued expenses................ 1,167,453 2,417,444
Deferred stock-based compensation............ -- 360,496
Fixed assets and intangibles................. 50,633 143,290
-------------- --------------
Total gross deferred tax assets............ 12,120,458 15,022,826
Valuation allowance.......................... (12,120,458) (15,022,826)
-------------- --------------
Total deferred tax assets....................... $ -- $ --
============== ==============
Management has established a valuation allowance for the full amount of
the deferred tax assets. The net change in the total valuation allowance
for the periods ended December 31, 1997, 1998 and 1999 were net increases
of approximately $909,000, $11,211,000 and $2,902,000, respectively.
As of December 31, 1999, the Company has research and other credit
carryforwards available to reduce future income taxes for federal and
California income tax purposes of approximately $760,000 and $500,000,
respectively. The research credit carryforwards expire from 2003 to 2019
for Federal purposes and are available indefinitely for California.
At December 31, 1999, the Company had net operating loss
carryforwards for Federal and California income tax purposes of
approximately $30,000,000 and $17,000,000, respectively, available
to reduce future income subject to income taxes. The Federal net
operating loss carryforwards expire beginning 2003 through 2019.
The California net operating loss carryforwards expire in 2004.
(9) COMMITMENTS
(a) LEASE COMMITMENTS
The Company is obligated under operating leases for certain
equipment and its facility in Santa Clara, California, and capital
leases for certain equipment. The operating leases require the
Company to pay certain maintenance costs, property taxes, and
insurance.
Future minimum lease payments under capital and operating leases as
of December 31, 1999 are as follows (in thousands):
CAPITAL OPERATING
LEASES LEASES
----------- -------------
Year ending December 31:
2000.................................................................. $203,252 $1,150,240
2001.................................................................. 187,533 1,179,559
2002.................................................................. 81,003 1,211,176
2003.................................................................. -- 1,101,068
2004.................................................................. -- 1,044,612
----------- -------------
Total............................................................... 471,788 $5,686,655
=============
Less amount representing interest..................................... 61,228
-----------
Present value of minimum capital lease payments....................... 410,560
Less current portion of capital lease obligations..................... 171,254
-----------
Long-term portion of capital lease obligations........................ $239,306
===========
Total rent expense for all operating leases was approximately
$183,000, $441,000 and $1,207,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
Included in the future minimum lease payments is a lease obligation
for a facility subleased on an informal basis to a company owned by
an officer of the Company. This company pays all costs related
F-18
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
to this facility. The sublease arrangement has been conducted at
arms length such that the Company believes that the terms are the
same as would be offered to unrelated entities. The Company
remains obligated under the lease for monthly lease payments of
$18,560 plus certain maintenance, property tax and insurance
charges. The lease expires April 2002.
Equipment recorded under capital leases is included in property and
equipment as follows:
YEARS ENDED DECEMBER 31,
------------------------
1998 1999
---------- -----------
Manufacturing equipment............................... $168,753 $ 340,719
Computer and related equipment........................ -- 123,910
Furniture............................................. -- 92,225
---------- -----------
168,753 556,854
Accumulated depreciation......................... (31,515) (131,656)
---------- -----------
$137,238 $ 425,198
========== ===========
(b) CONTRACT MANUFACTURERS
The Company generally commits to purchase products from its
contract manufacturers to be delivered within the next 120 days
covered by forecasts. As of December 31, 1999, the Company has
committed to make purchases totaling $5 million from these
manufacturers. In some instances, the Company issues
blanket purchase orders for specific quantities and delivery
schedules over 12 to 18 months to obtain price discounts. If the
Company cancels the purchase order before its term, it would be
obligated for the difference between the regular price and the
discounted price plus the cost of components bought by the
manufacturer specifically for the Company's products. Based on
current sales projections, the Company does not believe that they
will incur any material obligations under these purchase orders.
(10) GEOGRAPHIC SEGMENT INFORMATION
The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards
for the manner in which public companies report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. The method for
determining what information to report is based on the way management
organizes the operating segments within the Company for making operating
decisions and assessing financial performance. The Company's chief
operating decision-maker is considered to be the chief executive officer
(CEO). The financial information that the CEO reviews is identical to the
information presented in the accompanying statements of operations.
Therefore, the Company has determined that it operates in a single
operating segment: manufacturing and sale of broadband wireless access
equipment.
F-19
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table presents information about the Company by geographic
area:
1997
--------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
----------- ---------- ------------ ----------- ----------- ----------- ------------
Total net revenues... $ 16,038 $ 129,767 $-- -- $-- $54,931 $ 200,736
Net loss............. (291,134) (2,355,628) -- -- -- (997,149) (3,643,911)
Property &
equipment, net....... 179,960 -- -- -- -- -- 179,960
Percentage of
reported net
revenue.................. 8% 65% -- -- -- 27% 100%
1998
--------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
----------- ---------- ------------ ----------- ----------- ----------- ------------
Total net revenues... $1,003,438 $6,082,476 $ 1,642,374 1,938,627 $172,768 $332,552 $11,172,235
Net loss............. (671,492) (4,070,341) (1,099,063) (1,299,320) (130,050) (206,098) (7,476,364)
Property &
equipment, net....... 692,640 -- -- -- -- -- 692,640
Percentage of
reported net
revenue.............. 9% 54% 15% 17% 2% 3% 100%
1999
--------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
----------- ---------- ------------ ----------- ----------- ----------- ------------
Total net revenues.... $3,605,421 $7,638,139 $3,892,572 2,953,235 $952,183 $2,254,460 $21,296,010
Net loss.............. (2,319,270) (4,913,409) (2,503,987) (1,899,737) (612,514) (1,450,233) (13,699,150)
Property &
equipment, net........ 1,219,124 -- -- -- -- -- 1,219,124
Percentage of
reported net
revenue............... 17% 36% 18% 14% 4% 11% 100%
(11) SUBSEQUENT EVENTS (UNAUDITED)
(a) SERIES F PREFERRED STOCK FINANCING--ISSUANCE OF COMMON SHARES AND
TECHNOLOGY LICENSE AGREEMENT
In January 2000, the Company completed an offering of 3,000,000
shares of Series F Preferred Stock for $5.00 per share, for
$15,000,000 in gross proceeds. TRW, Inc. (TRW) purchased 2,300,000
shares of the Series F preferred stock financing.
In January 2000, the Company issued 3,429,352 shares of common
stock valued at $5.00 per share to TRW in exchange for a
technology license agreement. Under the agreement, the Company
purchased and obtained an exclusive royalty-free worldwide
license in a point-to-multipoint wireless networking technology.
Any products developed by the Company based on such technology
may only be sold with base stations configured for outdoor use.
Sales of products containing the technology with base stations
configured for indoor use or sales to the U.S. government,
including organizations in which the U.S. is a member, must be
made through the owner of the technology (TRW) or its licensees.
The agreement provides TRW with a royalty-free worldwide
non-exclusive license in any improvements made by the Company
upon the technology for the manufacture and sale of products to
the U.S. Government. If the Company does not offer a commercial
version of a product containing the technology for sale by July
2001, unless the delay is the fault of TRW or attributable to
certain specified reasons, the Company will lose the exclusive
license.
Additionally, in consideration of the rights and licenses provided
under the agreement and the technical assistance to be provided by
TRW, the Company has agreed to pay TRW 10% of the net proceeds of
the initial public offering or any private placement of equity
occurring on or before October 14, 2000, until the Company has paid
TRW an aggregate of $2.5 million. The balance of this amount is due
on January 1, 2001, if it has not previously been paid.
F-20
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(b) 2000 STOCK INCENTIVE PLAN
On January 18, 2000, our board of directors adopted, subject to
shareholder approval, the 2000 Stock Incentive Plan (the 2000
Plan). The 2000 Plan is expected to become effective upon the
signing of the underwriting agreement for the Company's initial
public offering. At that time, all outstanding options under the
1997 Plan will be transferred to the 2000 Plan and no further
grants shall be made under the 1997 Plan. Transferred options shall
continue to be governed by their existing terms, unless the
compensation committee decides to extend one or more features of
the 2000 Plan to those options.
A total of 8,750,000 shares of the Company's common stock have been
reserved for issuance under the 2000 Plan. The initial share
reserve includes 7,450,000 shares which are expected to be
available under the 1997 Stock Plan upon the closing of the
Company's initial public offering. The share reserve will be
increased annually on the first trading day in January of each
calendar year, by an amount equal to 3% of the total number of
shares of common stock outstanding on the last trading day of
December in the prior calendar year. Annual increases shall not
exceed 2,000,000 shares. When a grant expires or is terminated
before it is exercised, the shares not acquired pursuant to the
grants shall again become available for issuance under the 2000
Plan.
(c) 2000 EMPLOYEE STOCK PURCHASE PLAN
On January 18, 2000, our board of directors adopted, subject to
shareholder approval, the 2000 Employee Stock Purchase Plan (the
Employee Plan). The Employee Plan is expected to become effective
upon the signing of the underwriting agreement for the Company's
initial public offering. A total of 250,000 shares of the Company's
common stock have been reserved for issuance under the Employee
Plan. The share reserve will be increased annually on the first
trading day in January of each calendar year, by an amount equal to
2% of the total number of shares of common stock outstanding on the
last trading day of December in the prior calendar year. Annual
increases shall not exceed 1,300,000 shares.
The Employee Plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial
offering period will commence upon the signing of the underwriting
agreement for the Company's initial public offering and will end on
the last business day in January 2002. Individual employees who are
scheduled to work more than 20 hours per week for more than five
calendar months per year are eligible to purchase shares during the
offering periods. Participants may contribute up to 10% of their
cash earnings through payroll deductions. The accumulated payroll
deductions will be applied to the purchase of shares at the
semi-annual entry date which occur on the first business day of
February and August each year. The purchase price will be equal to
the lower of 85% of the fair market value per share on the
participant's entry date into the offering period, or 85% of the
fair market value on the semi-annual entry date.
(d) FINANCING COMMITMENTS
In February 2000, the Company received financing commitments from
certain shareholders for $15.0 million in the event that the
Company does not complete an initial public offering with gross
proceeds of $25 million by May 31, 2000. The $15.0 million in
commitments, if required, will be in the form of convertible
promissory notes bearing interest at a fixed rate of 10% per annum.
If not prepaid, the notes will convert into shares of the Company's
next round of equity financing of at least $15.0 million. In
connection with obtaining these commitments, the Company issued
warrants to purchase 60,000 shares of common stock at a price of
$4.00 per share and agreed to issue additional warrants for 180,000
shares of common stock at the then fair market value per share if
the loan commitments are exercised. These warrants expire upon the
earlier of 5 years or 30 days after the consummation of an initial
public offering.
F-21
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(e) REINCORPORATION
On January 18, 2000, the Company's board of directors approved,
subject to shareholder approval which is expected in May 2000, the
reincorporation of the Company in Delaware. In conjunction with the
reincorporation, the authorized number of common shares will be
increased to 100,000,000, and preferred stock of 5,000,000 shares
will be authorized. The par value of the common shares will
decrease to $0.001 per share. The effects of the reincorporation
have been reflected in the accompanying financial statements.
F-22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Multipoint Networks, Inc.
We have audited the accompanying statement of operations of Multipoint Networks,
Inc., and the related statements of stockholders' equity and cash flows for the
period from January 1, 1998 to August 25, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Multipoint
Networks, Inc. for the period January 1, 1998 to August 25, 1998 in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
February 18, 2000
F-23
MULTIPOINT NETWORKS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
Revenue................................................................................$ 5,872,500
Cost of revenue........................................................................ 4,355,426
-------------
Gross profit.................................................................... 1,517,074
-------------
Operating expenses:
Research and development............................................................ 954,120
Sales and marketing................................................................. 1,740,433
General and administration.......................................................... 249,963
-------------
Total operating expenses........................................................ 2,944,516
-------------
Operating loss......................................................................... (1,427,442)
=============
Interest expense, net.................................................................. 46,003
Other income........................................................................... (66,799)
-------------
Net loss.......................................................................$(1,406,646)
=============
F-24
MULTIPOINT NETWORKS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
SERIES I NONREDEEMABLE
PREFERRED STOCK COMMON STOCK TOTAL
--------------------------- ------------------------- SUBSCRIPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT EQUITY
-------------- ------------ ----------- ------------ ------------ ------------- ------------
Balance as of January 1, 1998..... 19,534,200 $ 3,146,304 30,806,754 $18,914,000 $ (5,000) $(19,124,791) $ 2,930,513
Proceeds from issuance of common
stock.......................... -- -- -- 11,894 5,000 -- 16,894
Net loss ......................... -- -- -- -- -- (1,406,646) (1,406,646)
-------------- ------------ ----------- ------------ ------------ ------------- ------------
Balance as of August 25, 1998..... 19,534,200 $ 3,146,304 30,806,754 $18,925,894 $ -- $(20,531,437) $ 1,540,761
============== ============ =========== ============ ============ ============= ============
F-25
MULTIPOINT NETWORKS, INC.
STATEMENT OF CASH FLOW
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
Cash flows from operating activities:
Net loss.................................................................. $(1,406,646)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation............................................................. 164,969
Provision for excess and obsolete inventory.............................. (27,211)
Changes in operating assets and liabilities:
Accounts receivable.................................................... (1,158,035)
Inventory.............................................................. (1,010,985)
Prepaids and other current assets...................................... (136,781)
Accounts payable....................................................... (291,758)
Accrued liabilities.................................................... 269,487
-------------
Net cash used in operating activities.................................... (3,596,960)
-------------
Cash flows used in investing activities:
Purchase of property and equipment........................................ (163,256)
-------------
Cash flows from financing activities:
Proceeds from lines of credit............................................. 1,084,103
Proceeds from bridge financing............................................ 1,750,000
Proceeds from issuances of common stock................................... 16,894
-------------
Cash provided by financing activities................................ 2,850,997
-------------
Net decrease in cash and cash equivalents..................................... (909,219)
Cash and cash equivalents, beginning of period................................ 1,147,000
-------------
Cash and cash equivalents, end of period...................................... $ 237,781
=============
F-26
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
Multipoint Networks, Inc. (the "Company") was incorporated in
California in 1987 and designed, manufactured and marketed wireless
metropolitan-area data network products based on unique patented
digital transceiver technology. The Company's products were
distributed through a network of independent distributors and
value-added resellers located throughout Latin America, North
American and Asia-Pacific.
On August 26, 1998 the Company was acquired by Wireless, Inc.
(b) REVENUE RECOGNITION
Revenues are recognized upon product shipment, provided that
significant support obligations, if any, are satisfied and collection
of the resulting receivables is probable. Estimated warranty costs
are accrued at the time of sale based upon the Company's historical
experience.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(d) PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is provided
using the straight-line method over the estimated useful lives of the
respective assets, which range from three to five years. Equipment
held under capital leases is amortized using the straight-line method
over the shorter of the lease term or the estimated useful life of
the asset.
(e) CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and
cash equivalents are deposited with high credit quality financial
institutions.
(f) RESEARCH AND DEVELOPMENT
Costs incurred in the research and development of new products and
enhancements to existing products are expensed as incurred until the
technological feasibility of the product or enhancement has been
established. Technological feasibility is established when a product
design and a working model have been completed and the completeness
of the working model, and its consistency with the product design,
have been confirmed by testing. After establishing technological
feasibility, material development costs are capitalized. The
capitalized cost is then amortized on a straight-line basis over the
estimated product life, or is amortized based on the ratio of current
revenues to total projected product revenues, whichever is greater.
To date, the period between completion of a working model and the
general release of the product has been short and development costs
qualifying for capitalization have been insignificant. Accordingly,
the Company has not capitalized any development costs.
F-27
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998--(CONTINUED)
(g) INVENTORIES
Inventory is stated at the lower of cost, determined on a first-in
first-out basis or net realizable value.
(h) INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be
recovered.
(i) COMPREHENSIVE INCOME
The Company does not have any components of comprehensive income,
consequently comprehensive loss consists entirely of net loss for all
periods presented.
(2) STOCKHOLDERS' EQUITY
(a) SERIES 1 NONREDEEMABLE PREFERRED STOCK
At August 25, 1998, the Company had 19,534,200 shares of Series 1
Nonredeemable Convertible Preferred Stock issued and outstanding.
Holders of Series 1 Preferred Stock are entitled to a noncumulative
dividend, when and if declared by the Board of Directors, at the
minimum rate of $0.02 per share per annum, prior and in preference to
any distribution on the Common Stock. In the event of any
liquidation, dissolution or winding up of the Company, the holders of
Series 1 Preferred Stock shall be entitled to receive, prior and in
preference to any distribution on the Common Stock, the amount of
$0.4875 per share plus an amount equal to all declared but unpaid
dividends on such shares.
Each share of Series 1 Preferred Stock is convertible at the option
of the holder at any time in Common Stock at the initial conversion
rate of one share Common Stock for each share of Series 1 Preferred
Stock. The initial conversion rate of the Series 1 Preferred Stock is
subject to adjustment as provided in the Articles of Incorporation.
Each share of Series 1 Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective
conversion rate upon the closing of a firm commitment underwritten
initial public offering of the Company's Common Stock at a price per
share not less than $0.75 per share and an aggregate offering price
to the public of not less than $10,000,000, exclusive of underwriting
commissions and offering expenses.
Each share of Series 1 Preferred Stock is entitled to the number of
votes equal to the number of share of Common Stock into which the
shares of Series 1 Preferred Stock could be converted.
(b) COMMON STOCK
The Company is authorized to issue 60,000,000 shares of no par value
common stock. At January 1, 1998 and August 25, 1998, the number of
shares of common stock outstanding was 30,806,754.
F-28
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998--(CONTINUED)
(3) INCOME TAXES
The Company has incurred significant losses since inception and has not
incurred any income tax expense to date. The income tax benefit differed
from the amounts computed by applying the U.S. Federal income tax rate of
34% to pretax loss as a result of the following:
Expected tax benefit at U.S. Federal statutory rate of 34%................ (478,260)
Current year net operating losses and temporary differences for which no
tax benefit is recognized................................................. 344,347
Permanent differences..................................................... 133,913
-----------
Total................................................................... $ --
===========
F-29
INSIDE BACK COVER
The page consists of a map of the planet with clusters of yellow dots
appearing in various countries which are colored blue. Below the map are the
words "Wireless Inc. installations highlighted in yellow." Above the map are the
words "Wireless, Inc. delivers broadband wireless access to more than 200
customers in over 50 countries around the globe." In the top left corner of the
page on the purple background is the Wireless logo, which consists of the word
"Wireless" with the first four letters in black and the last four in blue,
multi-colored dots appearing above the "i", "r" and "e", the capital letters
"INC" in the top right corner, the letters "TM" in the lower right corner and a
semi-circular blue line underneath. Underneath the logo are the words "Broadband
without Boundaries."
================================================================================
SHARES
WIRELESS, INC.
COMMON STOCK
[Logo]
----------
P R O S P E C T U S
, 2000
----------
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts payable by us in connection with the sale of common stock
being registered. All amounts are estimates except the SEC registration fee, the
NASD filing fees and the Nasdaq National Market listing fee.
SEC Registration Fee.............................................. $22,770
NASD Filing Fee................................................... 12,000
Nasdaq National Market Listing Fee................................ *
Printing and Engraving Expenses................................... *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Blue Sky Fees and Expenses........................................ *
Transfer Agent Fees............................................... *
Miscellaneous..................................................... *
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Total........................................................... *
=============
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* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the indemnification
under certain circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 6 of our bylaws provides for mandatory
indemnification of our directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Our certificate of incorporation provides that, subject
to Delaware law, our directors will not be personally liable for monetary
damages for breach of the directors' fiduciary duty as directors to Wireless,
Inc. and its stockholders. This provision in the certificate of incorporation
does not eliminate the directors' fiduciary duty, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the company or our stockholders for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. We have entered into indemnification
agreements with our officers and directors, a form of which is attached as
Exhibit 10.3 hereto and incorporated herein by reference. The indemnification
agreements provide our officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. We
maintain directors and officers liabilities insurance. Reference is made to
Section 8 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities and Section 1.7 of the Sixth Amended and Restated Investors Rights
Agreement contained in Exhibit 4.1 hereto, indemnifying the parties thereto,
including certain controlling stockholders, against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(a) The Registrant issued and sold 5,027,547 shares of common stock to
employees and consultants for an aggregate purchase price of $1,283,527
pursuant to direct stock issuances and the exercise of options under its
1997 Stock Option/Stock Issuance Plan.
II-1
(b) In May 1997, the Registrant issued and sold an aggregate of
6,000,000 shares of Series A Preferred Stock to two investors for an
aggregate of purchase price of $3,000,000.
(c) In May 1997, the Registrant issued a warrant to Imperial Bank to
purchase up to 30,460 shares of its common stock at an exercise price of
$1.22 per share.
(d) In October 1997, the Registrant issued and sold an aggregate of
750,000 shares of Series B Preferred Stock to one investor for an aggregate
of purchase price of $1,500,000.
(e) In June 1998, the Registrant entered into an agreement to acquire
Multipoint Networks, Inc., or Multipoint, whereby the purchase price was
payable in shares of the Registrant's common stock and Series C Preferred
Stock. In August 1998, the Registrant completed the acquisition and paid an
aggregate of 2,746,053 shares of its common stock to the principals of
Multipoint and 2,146,838 shares of its Series C Preferred Stock to the
holders of Multipoint Series A-1 Preferred Stock. In November 1999, 59,983
shares of Series C Preferred Stock were repurchased by the Company from a
single investor for an aggregate purchase price of $79,777.
(f) In October 1998, the Registrant issued a warrant to Silicon Valley
Bank to purchase up to 48,000 shares of its Series D Preferred Stock at an
exercise price of $1.25 per share.
(g) In March 1999, the Registrant issued and sold an aggregate of
6,465,221 shares of Series D Preferred Stock to several investors for an
aggregate purchase price of $8,176,266.
(h) In August 1999, the Registrant issued to an investor a
subordinated debenture in a principal amount of $1,000,000 which is
convertible into shares of its Series E Preferred Stock at an exercise
price of $3.125 per share.
(i) In September 1999, the Registrant issued a warrant to Silicon
Valley Bank to purchase up to 20,000 shares of its Series E Preferred Stock
at an exercise price of $2.50 per share. In December 1999, the Registrant's
board of directors reduced the exercise price to $2.42 per share and
adjusted the number of shares issuable upon exercise of the warrant to
20,662.
(j) In September 1999, the Registrant issued and sold an aggregate of
3,600,000 shares of Series E Preferred Stock and warrants to purchase an
aggregate of 362,000 shares of common stock at an exercise price of $0.75
per share (subject to adjustment) to several investors for an aggregate
purchase price of $9,003,600. In December 1999, the Registrant's board of
directors reduced the exercise price of the warrants to $2.42 per share and
adjusted the number of shares issuable upon exercise of the warrants to
362,000.
(k) In January 2000, the Registrant issued and sold an aggregate of
3,000,000 shares of Series F Preferred Stock to two investors for an
aggregate purchase price of $15,000,000.
(l) In January 2000, the Registrant issued and sold an aggregate of
3,425,352 shares of common stock to TRW in connection with a Purchase and
License Agreement for an aggregate consideration of $17,146,760.
(m) In November 1999, the Registrant issued warrants to two
consultants to purchase up to an aggregate of 100,000 shares of its common
stock at an exercise price of $2.50 per share.
(n) In February 2000, the Registrant issued warrants to several
investors to purchase up to an aggregate of 60,000 shares of its common
stock at an exercise price of $4.00 per share.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in each transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits listed in the exhibit Index are filed as part of this
registration statement.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization dated as of June 4, 1998 by and
among Multipoint Networks, certain shareholders of Multipoint
Networks, Inc., Wireless, Inc. and certain shareholders of
Wireless, Inc.
3.1 Amended and Restated Certificate of Incorporation, to be
effective upon consummation of this Offering.
3.2 Amended and Restated Bylaws, to be effective upon consummation of
this offering.
4.1 Sixth Amended and Restated Investors' Rights Agreement.
4.2* Form of Registrant's Specimen Common Stock Certificate.
4.3 Reference is made to Exhibits 3.1 and 3.2.
4.4 Form of Warrant to Purchase Common Stock, dated as of October 10,
1999, by and among the Registrant and the purchasers of Series E
Preferred Stock.
4.5 Warrant to Purchase Common Stock, dated as of May 5, 1997, by
and between the Registrant and Imperial Bank.
4.6 Convertible Promissory Note, dated as of August 17, 1999, by and
between the Registrant and AMT Capital, Ltd., as amended.
4.7 Warrant to Purchase Series D Preferred Stock, dated as of
October 16, 1998, by and between the Registrant and Silicon Valley
Bank.
4.8 Warrant to Purchase Series E Preferred Stock, dated as of
September 13, 1999, by and between the Registrant and Silicon Valley
Bank.
4.9* Form of Warrant to Purchase Common Stock, dated as of November 18,
1999, by and between the Registrant and each of Peter Sutherland and
Jed Davis.
4.10* Form of Warrant to Purchase Common Stock, dated as of February 14,
2000, by and between the Registrant and each of Dynamics
Technology, Inc., Advent International Corp., Gemini Investors
LLC, Stratford Equity Partners, L.P., Crossroads Venture Capital,
LLC and TRW.
5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Registrant, with respect to the common stock being registered.
10.1 Registrant's 2000 Stock Incentive Plan.
10.2 Registrant's 2000 Employee Stock Purchase Plan.
10.3 Form of Registrant's Directors' and Officers' Indemnification
Agreement.
10.4 Lease Agreement, dated June 4, 1999, between the Registrant and W.F.
Batton & Co.
10.5 Loan and Security Agreement, dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.6 Amendment to Loan Documents dated as of September 13, 1999, to
the Loan and Security Agreement, dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.7 Amendment to Loan Documents dated as of February 23, 2000, to
the Loan and Security Agreement dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.8+ Purchase and License Agreement, dated as of January 14, 2000, between
the Registrant and TRW.
10.9+ Master Distributor Agreement, dated April 1, 1999, as amended, between
the Registrant and Digital Microwave Corporation.
10.10 Promissory Note, dated as of December 10, 1999, executed by William
J. Palumbo in favor of the Registrant.
10.11 Lease Agreement dated as of May 12, 1997, by and between the
Registrant and Spieker Properties, L.P.
23.1 Consent of KPMG LLP, Independent Auditors relative to Wireless, Inc.
23.2 Consent of KPMG LLP, Independent Auditors relative to Multipoint
Networks, Inc.
23.3* Consent of Brobeck, Phleger & Harrison LLP (contained in their
opinion filed as Exhibit 5.1).
24.1 Power of Attorney. Reference is made to Page II-5.
27.1 Financial Data Schedule.
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* To be filed by amendment
II-3
+ Confidential treatment has been requested for certain portions
thereof.
(b) Financial Statement Schedule
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the Delaware General Corporation Law, our certificate of incorporation or our
bylaws, indemnification agreements entered into between the company and our
officers and directors, the underwriting agreement, or otherwise, we have been
advised that in the opinion of the commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of Prospectus filed by us pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, State of California, on this 20th day of
April, 2000.
By: /s/ WILLIAM J. PALUMBO
-------------------------------------------
William J. Palumbo
CHIEF EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, William E.
Gibson, William J. Palumbo and Antonio Canova, and each one of them, his true
and lawful attorneys-in-fact and agents, each with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to sign any registration statement for the same offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that each of said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this power of
attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the persons whose signatures
appear below, which persons have signed such registration statement in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ WILLIAM J. PALUMBO Chief Executive Officer and President
- -------------------------------------------------- (Principal Executive Officer) April 20, 2000
William J. Palumbo
/s/ ANTONIO CANOVA Chief Financial Officer, Executive Vice
- -------------------------------------------------- President and Secretary (Principal
Antonio Canova Accounting Officer) April 20, 2000
/s/ WILLIAM E. GIBSON Chairman of the Board of Directors April 20, 2000
- --------------------------------------------------
William E. Gibson
/s/ ANDREW I. FILLAT Director April 20, 2000
- --------------------------------------------------
Andrew I. Fillat
/s/ DENNY R.S. KO
- -------------------------------------------------- Director April 20, 2000
Denny R.S. Ko
/s/ DAVID F. MILLET Director April 20, 2000
- --------------------------------------------------
David F. Millet
II-5
/s/ PATRICK A. RIVELLI Director April 20, 2000
- --------------------------------------------------
Patrick A. Rivelli
/s/ MARK S. SILVERMAN Director April 20, 2000
- --------------------------------------------------
Mark S. Silverman
II-6
FORM OF INDEPENDENT AUDITORS' REPORT
When the event referred to in Note 11(e) of the Wireless, Inc. financial
statements have been consummated, we will be in a position to render the
following report.
/s/ KPMG LLP
The Board of Directors
Wireless, Inc.:
Under date of February 23, 2000, except for Note 11 which is as of May ,
2000 we reported on the balance sheets of Wireless, Inc. as of December 31, 1998
and 1999, and the related statements ofoperations, stockhholders' equity, and
cash flows for the period from May 7, 1997 (inception) to December 31, 1997 and
the years ended December 31, 1998 and 1999, included in the prospectus. In
connection with our audits of the aforementioned financial statements, we also
audited the accompanying financial statement schedule. The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
Mountain View, California
February 23, 2000
S-1
SCHEDULE II
WIRELESS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD MAY 7, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND YEARS ENDED
DECEMBER 31, 1998 AND 1999
ALANCE AT HARGED TO BALANCE
BEGINNING COST AND OTHER AT END OF
BOF PERIOD CEXPENSES ADDITIONS DEDUCTIONS PERIOD
--------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- -------------------------------------
1997....................... $ -- $ -- $ -- $ -- $ --
1998....................... -- 200,136 145,351 (46,254) 299,233
1999....................... $ 299,233 $ 1,044,365 $ -- $ (149,963) $ 1,193,635
- -------------------
S-2
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization dated as of June 4, 1998 by and
among Multipoint Networks, certain shareholders of Multipoint
Networks, Inc., Wireless, Inc. and certain shareholders of
Wireless, Inc.
3.1 Amended and Restated Certificate of Incorporation, to be
effective upon consummation of this Offering.
3.2 Amended and Restated Bylaws, to be effective upon consummation of
this offering.
4.1 Sixth Amended and Restated Investors' Rights Agreement.
4.2* Form of Registrant's Specimen Common Stock Certificate.
4.3 Reference is made to Exhibits 3.1 and 3.2.
4.4 Form of Warrant to Purchase Common Stock, dated as of October 10,
1999, by and among the Registrant and the purchasers of Series E
Preferred Stock.
4.5 Warrant to Purchase Common Stock, dated as of May 5, 1997, by
and between the Registrant and Imperial Bank.
4.6 Convertible Promissory Note, dated as of August 17, 1999, by and
between the Registrant and AMT Capital, Ltd., as amended.
4.7 Warrant to Purchase Series D Preferred Stock, dated as of
October 16, 1998, by and between the Registrant and Silicon Valley
Bank.
4.8 Warrant to Purchase Series E Preferred Stock, dated as of
September 13, 1999, by and between the Registrant and Silicon Valley
Bank.
4.9* Form of Warrant to Purchase Common Stock, dated as of November 18,
1999, by and between the Registrant and each of Peter Sutherland and
Jed Davis.
4.10* Form of Warrant to Purchase Common Stock, dated as of February 14,
2000, by and between the Registrant and each of Dynamics
Technology, Inc., Advent International Corp., Gemini Investors
LLC, Stratford Equity Partners, L.P., Crossroads Venture Capital,
LLC and TRW.
5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Registrant, with respect to the common stock being registered.
10.1 Registrant's 2000 Stock Incentive Plan.
10.2 Registrant's 2000 Employee Stock Purchase Plan.
10.3 Form of Registrant's Directors' and Officers' Indemnification
Agreement.
10.4 Lease Agreement, dated June 4, 1999, between the Registrant and W.F.
Batton & Co.
10.5 Loan and Security Agreement, dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.6 Amendment to Loan Documents dated as of September 13, 1999, to
the Loan and Security Agreement, dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.7 Amendment to Loan Documents dated as of February 23, 2000, to
the Loan and Security Agreement dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.8+ Purchase and License Agreement, dated as of January 14, 2000, between
the Registrant and TRW.
10.9+ Master Distributor Agreement, dated April 1, 1999, as amended, between
the Registrant and Digital Microwave Corporation.
10.10 Promissory Note, dated as of December 10, 1999, executed by William
J. Palumbo in favor of the Registrant.
10.11 Lease Agreement dated as of May 12, 1997, by and between the
Registrant and Spieker Properties, L.P.
23.1 Consent of KPMG LLP, Independent Auditors relative to Wireless, Inc.
23.2 Consent of KPMG LLP, Independent Auditors relative to Multipoint
Networks, Inc.
23.3* Consent of Brobeck, Phleger & Harrison LLP (contained in their
opinion filed as Exhibit 5.1).
24.1 Power of Attorney. Reference is made to Page II-5.
27.1 Financial Data Schedule.
- -------------
* To be filed by amendment
+ Confidential treatment has been requested for certain portions
thereof.