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PRELIMINARY OFFERING MEMORANDUM — SUBJECT TO COMPLETION, DATED MAY 18, 2023

The information in this preliminary offering memorandum is not complete and may be changed. These securities may not be sold nor may offers to buy be accepted prior to the delivery of a final offering memorandum. This preliminary offering memorandum does not constitute an offer to sell or a solicitation of an offer to buy these securities in any jurisdiction where such offer or solicitation is not permitted.

OPTIWAVE SEMICONDUCTOR CORP.

$250,000,000

[●]% Convertible Senior Notes due 2028

Optiwave Semiconductor Corp., a Delaware corporation ("OWS," the "Company," "we," "us," or "our"), is offering $250,000,000 aggregate principal amount of its [●]% Convertible Senior Notes due 2028 (the "Notes"). The Notes will bear interest at a rate of [●]% per annum (expected to be in the range of 2.50% to 3.00%), payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2023. The Notes will mature on June 1, 2028, unless earlier repurchased, redeemed, or converted.

The Notes will be convertible into cash, shares of our common stock, par value $0.001 per share, or a combination of cash and shares of our common stock, at our election, at an initial conversion rate of [●] shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $[●] per share), representing a conversion premium of approximately [●]% over the reference price. The last reported sale price of our common stock on the Nasdaq Global Select Market on [●], 2023 (the "Pricing Date") was $[●] per share. Holders may convert their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.

The Notes will not be redeemable by the Company prior to [June 6, 2026]. On or after [June 6, 2026], we may redeem the Notes, in whole or in part, for cash at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if the last reported sale price of our common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption.

If a "Fundamental Change" (as defined herein) occurs, holders may require us to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The Notes will be our senior unsecured obligations and will rank: (i) senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the Notes; (ii) equal in right of payment with all of our existing and future senior unsecured indebtedness; (iii) effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our revolving credit facility with Crestline National Bank, N.A., to the extent of the value of the collateral securing such indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of our subsidiaries.

We have granted the initial purchasers an option, exercisable within 13 days from the date of the Purchase Agreement, to purchase up to an additional $37,500,000 aggregate principal amount of Notes on the same terms and conditions, solely to cover over-allotments, if any.

In connection with the pricing of the Notes, we expect to enter into privately negotiated capped call transactions with certain financial institutions. The capped call transactions are expected to offset potential dilution to our common stock upon conversion of the Notes and/or offset any cash payments we may be required to make in excess of the principal amount of the Notes upon conversion. See "Description of the Capped Call Transactions."

The Notes and the shares of common stock issuable upon conversion of the Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws and may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Notes are being offered and sold only to qualified institutional buyers within the meaning of Rule 144A under the Securities Act. We do not intend to file a registration statement (shelf or otherwise) for the resale of the Notes or the underlying common stock. See "Transfer Restrictions."

The Notes will not be listed on any securities exchange or included in any automated quotation system. Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol "OWS."

Investing in the Notes involves a high degree of risk. See "Risk Factors" beginning on page [●] to read about factors you should consider before purchasing the Notes.

Neither the Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved of these securities or determined whether this offering memorandum is truthful or complete. Any representation to the contrary is a criminal offense.

(1) See "Plan of Distribution" for a description of the compensation payable to the initial purchasers. The Company has also agreed to pay a structuring fee of 0.25% of the base offering principal amount to Ridgepoint Capital Markets LLC.

Initial Purchasers

The date of this Offering Memorandum is May 18, 2023

SUMMARY

This summary highlights selected information contained elsewhere or incorporated by reference in this offering memorandum. This summary is not complete and does not contain all the information you should consider before investing in the Notes. You should read this entire offering memorandum carefully, including the "Risk Factors" section and the financial statements and the related notes thereto incorporated by reference herein. In this offering memorandum, unless the context otherwise requires, references to "OWS," the "Company," "we," "us," and "our" refer to Optiwave Semiconductor Corp. and, where applicable, its consolidated subsidiaries.

The Issuer. Optiwave Semiconductor Corp. is a Delaware corporation (Delaware file no. 5738291; EIN: 82-4917263; SEC CIK: 0001823467) headquartered at 4800 Great America Parkway, Suite 1200, San Jose, California 95054. Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol "OWS." We are a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and file annual, quarterly, and current reports with the SEC.

We are a fabless semiconductor company specializing in the design, development, and sale of radio-frequency ("RF") and photonic integrated circuits ("ICs") for data-center interconnect and 5G infrastructure applications. Our products serve the rapidly expanding markets for hyperscale data-center optical transceivers and 5G base-station communications equipment.

Key Financial Data and Market Information:

• Fiscal year 2022 revenue: $812.4 million

• Fiscal year 2022 adjusted EBITDA: $198.7 million

• Market capitalization as of March 3, 2023: approximately $4.3 billion (approximately 58.6 million diluted shares at $73.38 per share)

Senior Management:

Business Overview. OWS occupies a leading position in the RF and photonic IC market, serving tier-1 cloud computing companies, telecommunications equipment manufacturers, and data-center operators worldwide. Our product portfolio includes high-speed transimpedance amplifiers, silicon photonics driver ICs, RF front-end modules for massive MIMO 5G base stations, and high-bandwidth analog-to-digital converters optimized for coherent optical systems.

Competitive Advantages. Our fabless business model enables us to focus our capital and intellectual resources on advanced circuit design and system-level architecture while leveraging the manufacturing capabilities of world-class semiconductor foundries. We maintain a robust portfolio of proprietary design intellectual property, including over 340 issued U.S. patents and more than 120 pending patent applications as of December 31, 2022. Our customer base is diversified across multiple tier-1 cloud and telecom equipment makers, and we benefit from long-term supply agreements with key customers that provide revenue visibility and design-win predictability.

Growth Drivers. We believe several secular trends will continue to drive demand for our products in the coming years:

• Expanding data-center bandwidth requirements. The proliferation of artificial intelligence, machine learning workloads, and cloud-native applications is driving demand for higher-speed optical interconnect solutions within and between hyperscale data centers. The ongoing transition from 400G to 800G and 1.6T data rates creates a significant opportunity for our photonic IC product lines.

• 5G infrastructure rollout. The global deployment of 5G wireless networks, including the build-out of massive MIMO antenna arrays and small-cell densification, is driving demand for our high-performance RF integrated circuits. We believe the upgrade cycle from sub-6 GHz to millimeter-wave 5G frequencies will further expand our addressable market.

• Automotive and industrial applications. While data-center and 5G applications represent our primary end markets today, we are investing in the development of photonic sensing and high-frequency radar ICs for emerging automotive and industrial applications, which we believe will become a meaningful revenue contributor over time.

The Offering — Summary of Terms

The following summary contains basic information about the Notes and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the Notes, please refer to the section of this offering memorandum entitled "Description of the Notes."

Concurrent Capped Call Transactions

In connection with the pricing of the Notes, we expect to enter into privately negotiated capped call transactions (the "Capped Call Transactions") with Ridgepoint Capital Markets LLC and Northvane Financial Products LP (collectively, the "Capped Call Counterparties"). The Capped Call Transactions are designed to offset potential dilution to our common stock (or offset cash payments we would otherwise be required to make in excess of the principal amount) upon conversion of the Notes, with such offset subject to a cap.

The key economic terms of the Capped Call Transactions are summarized below:

• Lower strike price: Equal to the initial conversion price of the Notes (approximately $[●] per share).

• Cap price (upper strike): Approximately $[●] per share, representing a premium of approximately [●]% over the reference price (expected to be approximately 50.0% above the reference price). The cap price is subject to certain adjustments.

• Effective conversion price: After giving effect to the Capped Call Transactions, the effective conversion price to us is approximately $[●] per share (equal to the cap price). Above the cap price, the Capped Call Transactions do not offset dilution.

• Aggregate cost: Approximately $[●] million, to be funded from the gross proceeds of this offering.

If the initial purchasers exercise their over-allotment option to purchase additional Notes, we expect to enter into additional Capped Call Transactions with the same counterparties on substantially similar terms.

The Capped Call Transactions are separate transactions, entered into by us with the Capped Call Counterparties, and are not part of the terms of the Notes and will not affect the rights of holders of the Notes. See "Description of the Capped Call Transactions" and "Risk Factors — Risks Related to the Capped Call Transactions."

RISK FACTORS

An investment in the Notes involves a high degree of risk. You should carefully consider the risks described below, as well as the other information contained in this offering memorandum and the documents incorporated by reference herein, before making an investment decision. The occurrence of any of the following risks could materially adversely affect our business, financial condition, results of operations, cash flows, or the value of the Notes and our common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business and operations.

Risks Related to the Notes

The Notes are unsecured and effectively subordinated to our secured indebtedness. The Notes are our senior unsecured obligations. As a result, the Notes are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our $300,000,000 revolving credit facility with Crestline National Bank, N.A., as administrative agent, to the extent of the value of the assets securing such indebtedness. As of the Pricing Date, we expect to have approximately $75,000,000 outstanding under the revolving credit facility, which we intend to repay from the net proceeds of this offering. However, we may re-borrow under the revolving credit facility at any time, subject to the terms thereof. In the event of our bankruptcy, insolvency, liquidation, reorganization, dissolution, or other winding up, or upon an acceleration of the Notes, our assets that serve as collateral for our secured indebtedness would be available to satisfy obligations under such secured indebtedness before any payments are made on the Notes. If there are not sufficient assets remaining to pay amounts due on any or all of the Notes after satisfaction of those secured claims, then the Notes would be unsatisfied in whole or in part. As of March 31, 2023, we had approximately $75,000,000 of secured indebtedness outstanding, and the full $300,000,000 commitment under the revolving credit facility was available (subject to repayment of the then-outstanding balance and satisfaction of certain borrowing conditions).

The Notes are structurally subordinated to all existing and future indebtedness of our subsidiaries. The Notes are obligations exclusively of Optiwave Semiconductor Corp. and are not guaranteed by any of our subsidiaries. Our subsidiaries are separate legal entities that have no obligation, contingent or otherwise, to pay any amounts due under the Notes or to make any funds available to pay any amounts due under the Notes. In the event of a bankruptcy, insolvency, liquidation, reorganization, dissolution, or other winding up of any of our subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any of those assets are made available to us.

No public trading market exists for the Notes. The Notes are a new issue of securities with no established trading market. We do not intend to apply for listing of the Notes on any securities exchange or for inclusion of the Notes in any automated quotation system. The initial purchasers have informed us that they intend to make a market in the Notes after the completion of this offering. However, the initial purchasers are not obligated to make a market in the Notes, and they may cease their market-making activities at any time without notice. There can be no assurance that an active trading market for the Notes will develop or, if one develops, that it will be maintained. If an active trading market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. In that case, holders may not be able to sell their Notes at a particular time or at a favorable price.

The conditional conversion feature of the Notes may adversely affect their value. The Notes are convertible at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. However, the value to a holder of the conversion right is dependent upon the market price of our common stock relative to the conversion price. If the market price of our common stock does not exceed the conversion price, the conversion feature of the Notes will have no economic value, and holders who wish to realize value from the Notes may be limited to selling their Notes at a price that may be below their principal amount.

Our election of net share settlement means that holders will receive no more than the principal amount of the Notes in cash upon conversion. We intend to elect net share settlement with respect to conversions of the Notes. Under net share settlement, for each $1,000 principal amount of Notes converted, we would pay cash for the principal amount and deliver shares of our common stock (or, at our election, cash) only for the conversion value in excess of such principal amount, if any. As a result, holders will not receive more than $1,000 in cash per $1,000 principal amount of Notes surrendered for conversion, and the value of any additional amounts received in the form of shares of our common stock will depend on the market price of our common stock at the time of conversion.

Our redemption of the Notes after [June 6, 2026] may force holders to convert at a disadvantageous time. On or after [June 6, 2026], we may redeem the Notes for cash at 100% of their principal amount plus accrued and unpaid interest, subject to the stock price condition described elsewhere in this offering memorandum. If we call the Notes for redemption, holders will be entitled to convert their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date. If holders elect not to convert, they will receive only the redemption price. A holder who elects to convert after receiving a notice of redemption may not be able to realize the full value of the conversion option, particularly if the market price of our common stock declines between the date of the redemption notice and the conversion date.

The Notes have not been rated by any rating agency. We have not sought and do not intend to seek a credit rating for the Notes from any nationally recognized statistical rating organization. The absence of a rating may reduce the number of potential investors willing to purchase the Notes and may adversely affect the market price and liquidity of the Notes.

Holders of the Notes will not be entitled to any rights with respect to our common stock until they convert their Notes. Prior to conversion, holders of the Notes will not be entitled to any rights with respect to our common stock (including voting rights, rights to receive dividends, and rights to exercise any preemptive rights), but will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our certificate of incorporation or bylaws that requires stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date a holder converts its Notes, such holder will not be entitled to vote on the amendment, even though such holder will be subject to any changes to our capital structure effected by the amendment.

Anti-dilution adjustments may not compensate holders for all dilutive events. The conversion rate of the Notes is subject to adjustment for certain specified events, including, but not limited to, the issuance of certain stock dividends, the occurrence of stock splits and combinations, the issuance of certain rights or warrants, and the distribution of assets, debt securities, or capital stock to our stockholders. However, the conversion rate will not be adjusted for other events, such as a third-party tender offer or exchange offer, an issuance of common stock for cash, or an issuance of common stock in connection with acquisitions, that may adversely affect the trading price of the Notes or our common stock. An event that adversely affects the value of the Notes may occur, and that event may not result in an adjustment to the conversion rate.

Regulatory changes affecting the convertible note market could adversely affect the value of the Notes. The convertible note market is subject to various regulatory requirements and accounting standards that may change from time to time. For example, the adoption of new accounting standards or changes to existing accounting standards relating to the accounting treatment of convertible instruments could affect the manner in which we account for the Notes and could affect the reported financial results of our operations. In addition, changes to securities laws, tax laws, or regulations governing financial institutions that invest in convertible instruments could reduce demand for the Notes and adversely affect their market value.

Risks Related to the Capped Call Transactions

The Capped Call Transactions may affect the market price of our common stock. In connection with establishing their initial hedges of the Capped Call Transactions, the Capped Call Counterparties and/or their respective affiliates expect to purchase shares of our common stock and/or enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Notes. This activity could increase (or reduce the size of any decrease in) the market price of our common stock or the Notes concurrently with or shortly after the pricing of the Notes. The resulting effect on the market price of our common stock could make it more expensive for holders who wish to convert their Notes by increasing the conversion price that must be exceeded for conversion to have economic value, or could result in holders receiving fewer shares upon conversion.

Modification of hedging positions by the Capped Call Counterparties could affect the market price of our common stock. In addition, the Capped Call Counterparties and/or their respective affiliates may modify their hedge positions from time to time by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of the Notes or following any repurchase of Notes by us). This activity could cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could affect holders' ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of the Notes, could affect the number of shares and the value of the consideration that holders will receive upon conversion of the Notes.

The Company is exposed to counterparty credit risk with respect to the Capped Call Counterparties. The Capped Call Transactions expose us to the credit risk of Ridgepoint Capital Markets LLC and Northvane Financial Products LP. If either Capped Call Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the applicable Capped Call Transaction. Our exposure will not be secured by any collateral. We can provide no assurance as to the financial stability or viability of the Capped Call Counterparties. If either Capped Call Counterparty defaults under its obligations, we may not receive the benefit of the Capped Call Transactions, and the potential dilution to our common stock and/or the cash payments we would be required to make upon conversion of the Notes would not be offset.

The Capped Call Transactions are separate from the Notes. The Capped Call Transactions are separate transactions, entered into by us with the Capped Call Counterparties, and are not part of the terms of the Notes and will not affect the rights of holders of the Notes. Holders of the Notes will not have any rights with respect to the Capped Call Transactions.

Risks Related to Our Common Stock

Conversion of the Notes could dilute existing stockholders. The conversion of the Notes into shares of our common stock could dilute the ownership interests of existing stockholders. If the initial purchasers' over-allotment option is exercised in full, the maximum number of shares of our common stock issuable upon conversion of the Notes (before giving effect to the Capped Call Transactions) would be approximately [●] shares based on an initial conversion rate of [●] shares per $1,000 principal amount, representing approximately [●]% of our currently outstanding shares. Even with the Capped Call Transactions in place, dilution may occur if the market price of our common stock exceeds the cap price of approximately $[●] per share (representing a [●]% premium over the reference price), because the Capped Call Transactions do not offset dilution above the cap price.

The semiconductor industry is characterized by significant stock price volatility. The trading price of our common stock has experienced, and may continue to experience, significant volatility due to range factors, including fluctuations in our operating results, changes in the general conditions of the semiconductor industry, developments in our relationships with key customers and suppliers, changes in financial estimates by securities analysts, and general market conditions. This volatility could affect the conversion value of the Notes, the value of the common stock issuable upon conversion, and the market price of the Notes.

Future offerings or sales of our common stock could depress the stock price. We may issue additional shares of common stock or convertible securities in the future in connection with acquisitions, financings, or other corporate purposes. Sales of substantial amounts of our common stock or securities convertible into our common stock in the public market, or the perception that such sales could occur, could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

Risks Related to Our Business

The semiconductor industry is cyclical. The semiconductor industry is highly cyclical and periodically experiences significant downturns, often in connection with, or in anticipation of, declines in general economic conditions. These downturns have been characterized by diminished product demand, excess production capacity, high inventory levels, and accelerated erosion of average selling prices. We have experienced, and may in the future experience, periodic fluctuations in our operating results due to the cyclical nature of the semiconductor industry. A prolonged downturn in the semiconductor industry could have a material adverse effect on our business, financial condition, and results of operations.

We are dependent on third-party foundries and assembly/test subcontractors. As a fabless semiconductor company, we do not own or operate semiconductor fabrication facilities. We depend on third-party foundries, principally located in Taiwan and South Korea, to manufacture our products, and on third-party assembly and test subcontractors to package and test our products. Our reliance on third parties reduces our ability to control directly the manufacturing process, including delivery schedules, quality assurance, manufacturing yields, and costs. Any disruption in the operations of our foundry partners or assembly/test subcontractors, including disruptions resulting from natural disasters, geopolitical events, public health crises, or export control regulations, could materially adversely affect our business.

We face concentration of revenues in data-center and 5G end markets. A substantial majority of our revenue is derived from sales of RF and photonic ICs for data-center interconnect and 5G infrastructure applications. Any significant slowdown in data-center capital expenditures by hyperscale cloud operators or in the pace of 5G infrastructure deployment could materially adversely affect our revenue and operating results. While we are developing products for automotive and industrial applications, these markets currently represent a relatively small portion of our revenue, and there can be no assurance that they will become significant revenue contributors.

We face intense competition. The markets for RF and photonic ICs are intensely competitive. We compete with integrated device manufacturers that have their own fabrication facilities, as well as with other fabless semiconductor companies. Some of our competitors have substantially greater financial, technical, marketing, and manufacturing resources than we do. Competition in our industry is based on range factors, including product performance, features, reliability, price, time-to-market, customer support, and the ability to meet design specifications. Our failure to compete effectively in any of these areas could result in a loss of customers and a decline in revenue.

We are exposed to geopolitical risks related to the semiconductor supply chain. Our supply chain is global in nature, with foundry operations concentrated in East Asia. Geopolitical tensions, trade restrictions, export controls, and sanctions imposed by the United States, China, or other governments could disrupt our supply chain, increase our costs, or limit our ability to sell products in certain markets. The U.S. government has imposed export control restrictions affecting the semiconductor industry, and any expansion of such restrictions could adversely affect our operations and financial results.

We rely on the protection and enforcement of intellectual property. Our success depends, in part, on our ability to protect our proprietary technology and intellectual property through patents, trade secrets, copyrights, and other intellectual property rights. The loss, infringement, or misappropriation of our intellectual property could adversely affect our competitive position. We may be required to spend significant resources to monitor and protect our intellectual property rights, and we cannot assure you that our efforts will be successful.

We are dependent on key personnel. Our success depends to a significant degree on the continued services and contributions of our key employees, including our Chief Executive Officer, Marcus Harding, and our Chief Financial Officer, Priya Nandakumar. The loss of any of our key employees, or our inability to attract, retain, and motivate other highly qualified employees, could adversely affect our business.

Risks Related to Tax Treatment

The U.S. federal income tax treatment of the Notes involves uncertainties. The U.S. federal income tax treatment of the Notes is complex and involves certain uncertainties. We expect that the Notes will be treated as "variable rate debt instruments" for U.S. federal income tax purposes. However, no ruling has been sought from the Internal Revenue Service (the "IRS") with respect to the treatment of the Notes, and there can be no assurance that the IRS will agree with our expected treatment. If the IRS were to challenge successfully the treatment of the Notes, the tax consequences to holders could be materially different from those described herein.

The tax treatment of the Capped Call Transactions involves uncertainty. The U.S. federal income tax treatment of the Capped Call Transactions also involves uncertainties. The Capped Call Transactions may be treated as either integrated with the Notes (as part of a single debt instrument) or, alternatively, as separate prepaid forward contracts on our common stock. The characterization of the Capped Call Transactions for U.S. federal income tax purposes has not been definitively determined, and different characterizations could lead to different tax consequences for us and potentially for holders of the Notes. We urge holders to consult their own tax advisors regarding the tax implications of the Capped Call Transactions.

Changes in tax law could adversely affect holders. Changes in U.S. federal income tax law, including changes in the way such laws are interpreted or applied, could adversely affect the tax treatment of the Notes and the common stock issuable upon conversion of the Notes. Legislation, Treasury Regulations, or administrative or judicial interpretations may be introduced or changed at any time, and such changes could apply retroactively to transactions entered into or positions taken prior to the date of the change. We urge holders to consult their own tax advisors regarding the potential impact of any changes in tax law.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This offering memorandum contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based on our current expectations, estimates, forecasts, and projections about our industry, our business, and events and conditions that may affect our future results of operations, financial position, and cash flows. Forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "intends," "plans," "projects," "may," "will," "would," "could," "should," or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include, but are not limited to, statements regarding:

• our expectations regarding the use of the net proceeds from this offering;

• our expectations regarding future revenue, operating expenses, and profitability;

• our expectations regarding demand for our products in data-center and 5G infrastructure markets;

• our expectations regarding the development and commercial adoption of new technologies and products;

• our expectations regarding the Capped Call Transactions and their effect on potential dilution;

• our ability to maintain and expand relationships with key customers and suppliers;

• our ability to protect and enforce our intellectual property rights;

• our expectations regarding the semiconductor industry and general economic conditions; and

• other statements that are not historical facts.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the "Risk Factors" section of this offering memorandum and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The factors that could cause actual results to differ materially from those indicated in the forward-looking statements include, but are not limited to:

• the cyclical nature of the semiconductor industry;

• our dependence on third-party foundries and assembly/test subcontractors;

• the concentration of our revenues in data-center and 5G end markets;

• intense competition in our industry;

• geopolitical risks related to the semiconductor supply chain;

• our ability to protect our intellectual property;

• changes in tax laws, regulations, or interpretations;

• risks associated with our indebtedness, including the Notes; and

• general economic and market conditions.

In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this offering memorandum may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this offering memorandum. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $[●] million (or approximately $[●] million if the initial purchasers exercise their over-allotment option in full), after deducting the initial purchasers' discount, the structuring fee payable to Ridgepoint Capital Markets LLC, estimated offering expenses, and the aggregate cost of the Capped Call Transactions.

The following tables set forth the estimated sources and uses of proceeds from this offering:

Sources

Uses

(1) The initial purchasers' discount is 2.00% of the aggregate principal amount of Notes purchased.

(2) Offering expenses include legal fees and expenses, accounting fees and expenses, trustee fees, printing costs, and other miscellaneous expenses incurred in connection with the offering.

We intend to use approximately $75,000,000 of the net proceeds from this offering to repay the outstanding balance under our revolving credit facility with Crestline National Bank, N.A. Our revolving credit facility is a $300,000,000 senior secured revolving credit facility, with Crestline National Bank, N.A. serving as administrative agent. The revolving credit facility matures on August 15, 2026 and is secured by substantially all of our assets. The outstanding balance under the revolving credit facility bears interest at a rate per annum equal to, at our election, either an adjusted term SOFR rate plus an applicable margin ranging from 1.25% to 1.75% per annum, or a base rate plus an applicable margin ranging from 0.25% to 0.75% per annum, in each case based on our consolidated net leverage ratio as of the most recent fiscal quarter end. As of the Pricing Date, we expect the outstanding balance under the revolving credit facility to be approximately $75,000,000. See "Description of Certain Indebtedness — Revolving Credit Facility."

We intend to use approximately $[●] million of the net proceeds from this offering to pay the cost of the Capped Call Transactions described under "Description of the Capped Call Transactions." If the initial purchasers exercise their over-allotment option to purchase additional Notes, a portion of the additional net proceeds will be used to enter into additional Capped Call Transactions.

We intend to use the remaining net proceeds for general corporate purposes, which may include working capital, capital expenditures, and potential acquisitions of businesses, products, services, or technologies that we believe would be complementary to our existing business. We have no present commitments or agreements with respect to any material acquisition. Pending the use of the net proceeds, we may invest the net proceeds in short-term, investment-grade, interest-bearing securities.

If the initial purchasers do not exercise the over-allotment option, our total gross proceeds will be $250,000,000 and the net proceeds available for general corporate purposes will be correspondingly reduced. In addition, if the initial purchasers do not exercise the over-allotment option, we will fund the Capped Call Transactions (which will cover only the number of shares underlying the base offering amount of Notes) from a smaller gross proceeds base.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2023: (i) on an actual basis and (ii) on an as adjusted basis to give effect to the issuance and sale of $250,000,000 aggregate principal amount of Notes in this offering (assuming no exercise of the initial purchasers' over-allotment option), the application of the estimated net proceeds as described under "Use of Proceeds," including the repayment of $75,000,000 outstanding under our revolving credit facility with Crestline National Bank, N.A. and the payment of the cost of the Capped Call Transactions.

This table should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements and the related notes thereto incorporated by reference in this offering memorandum.

(1) Assumes no exercise of the initial purchasers' over-allotment option. If the over-allotment option is exercised in full, the aggregate principal amount of Notes would be $287,500,000, and the amounts shown above would be adjusted accordingly.

(2) Reflects the receipt of estimated net proceeds of approximately $[●] from the offering, after deducting the initial purchasers' discount, the structuring fee, and estimated offering expenses, and after application of a portion of the net proceeds to repay $75,000,000 under the revolving credit facility and to pay the cost of the Capped Call Transactions of approximately $[●] million.

(3) In accordance with ASC 470-20, as amended by ASU 2020-06, the Notes are recorded entirely as a liability on the balance sheet (i.e., no bifurcation of debt and equity components). The carrying value of the Notes on the balance sheet will initially equal the aggregate principal amount of $250,000,000, less issuance costs to be amortized over the term of the Notes.

(4) Additional paid-in capital on an as adjusted basis reflects a reduction of approximately $[●] million representing the cost of the Capped Call Transactions, which is classified as a reduction to additional paid-in capital in accordance with applicable accounting guidance.

The foregoing table does not include the following:

• shares of common stock issuable upon exercise of outstanding stock options and settlement of outstanding restricted stock units;

• shares of common stock issuable upon conversion of the Notes; or

• additional borrowing capacity under the revolving credit facility (up to $300,000,000, less any outstanding letters of credit).

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock is listed on the Nasdaq Global Select Market under the symbol "OWS." The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on the Nasdaq Global Select Market:

Fiscal Year 2022

Fiscal Year 2023

The last reported sale price of our common stock on the Nasdaq Global Select Market on [●], 2023 (the Pricing Date) was $[●] per share (expected reference price of approximately $73.38 per share based on market data available prior to the date of this offering memorandum). As of May 1, 2023, there were approximately 247 holders of record of our common stock. This number does not include stockholders for whom shares are held in "nominee" or "street" name.

Dividend Policy. We have not historically declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon various factors, including our results of operations, financial condition, capital requirements, contractual restrictions (including those contained in our revolving credit facility and the Indenture governing the Notes), business prospects, and other factors that our board of directors may deem relevant. The terms of our revolving credit facility restrict our ability to pay dividends in certain circumstances.

DESCRIPTION OF THE CAPPED CALL TRANSACTIONS

Overview. In connection with the pricing of the Notes, we expect to enter into privately negotiated capped call transactions (the "Capped Call Transactions") with Ridgepoint Capital Markets LLC and Northvane Financial Products LP (collectively, the "Capped Call Counterparties"). The allocation of the Capped Call Transactions among the Capped Call Counterparties is as follows: Ridgepoint Capital Markets LLC — 60% of the notional amount; Northvane Financial Products LP — 40% of the notional amount.

If the initial purchasers exercise their over-allotment option to purchase additional Notes, we expect to enter into additional Capped Call Transactions with the same Capped Call Counterparties on substantially the same terms.

Terms of the Capped Call Transactions

The principal terms of the Capped Call Transactions are summarized below:

Lower Strike Price. The lower strike price of the Capped Call Transactions is equal to the initial conversion price of the Notes, approximately $[●] per share. The lower strike price is subject to certain adjustments that are intended to correspond to the anti-dilution adjustments to the conversion rate of the Notes.

Cap Price (Upper Strike). The cap price of the Capped Call Transactions is approximately $[●] per share, representing a premium of approximately [●]% over the reference price of $[●] per share (expected to be approximately 50.0% above the reference price). The cap price is subject to certain adjustments.

Underlying Shares. The Capped Call Transactions cover, in the aggregate, the number of shares of our common stock initially underlying the Notes (subject to anti-dilution adjustments substantially similar to those applicable to the Notes under the Indenture).

Expiration. The Capped Call Transactions are coterminous with the Notes and expire on June 1, 2028 (the maturity date of the Notes), subject to earlier exercise or termination in accordance with the terms of the Capped Call Confirmations.

Settlement. The Capped Call Transactions are subject to net share or cash settlement, at the election of the applicable Capped Call Counterparty, in a manner that is consistent with our net share settlement election for the Notes.

Aggregate Cost. The aggregate cost of the Capped Call Transactions is approximately $[●] million, which will be funded from the gross proceeds of this offering. The allocation of the Capped Call Transaction cost between the Capped Call Counterparties is as follows:

• Ridgepoint Capital Markets LLC: approximately $[●] million (60%)

• Northvane Financial Products LP: approximately $[●] million (40%)

If the initial purchasers exercise their over-allotment option in full, we expect to pay an additional approximately $[●] million for additional Capped Call Transactions.

Purpose and Effect

The Capped Call Transactions are designed to reduce the potential dilution to our common stock (or reduce cash payments we would otherwise be required to make in excess of the principal amount of converted Notes) upon conversion of the Notes. The Capped Call Transactions have the effect of increasing the effective conversion price from approximately $[●] per share (the initial conversion price of the Notes) to approximately $[●] per share (the cap price), such that no net dilution (and no net cash payment in excess of principal) occurs upon conversion unless the market price of our common stock exceeds the cap price. Above the cap price, the Capped Call Transactions do not offset dilution.

The following example illustrates the effect of the Capped Call Transactions:

• If our stock price upon conversion is below the conversion price (approximately $[●] per share), neither the conversion feature of the Notes nor the Capped Call Transactions have economic value. The holder receives $1,000 in cash per $1,000 principal amount of Notes converted (under net share settlement).

• If our stock price upon conversion is between the conversion price (approximately $[●] per share) and the cap price (approximately $[●] per share), the shares deliverable upon conversion of the Notes are offset by shares received by us under the Capped Call Transactions, resulting in no net dilution.

• If our stock price upon conversion exceeds the cap price (approximately $[●] per share), the Capped Call Transactions offset only a portion of the dilution — specifically, dilution attributable to stock price appreciation between the conversion price and the cap price is offset, but dilution attributable to stock price appreciation above the cap price is not offset.

ISDA Documentation. Each Capped Call Transaction is documented under a 2002 ISDA Master Agreement (including the Schedule thereto) and a Confirmation between us and the applicable Capped Call Counterparty. The Capped Call Transactions are governed by New York law. The Confirmations contain representations, warranties, and covenants customary for privately negotiated equity derivative transactions of this type, including provisions relating to our status as an issuer, the availability and listing of shares, and compliance with securities laws.

Hedging Activity. In connection with establishing their initial hedges of the Capped Call Transactions, the Capped Call Counterparties and/or their respective affiliates expect to purchase shares of our common stock and/or enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Notes. This hedging activity could increase (or reduce the size of any decrease in) the market price of our common stock or the Notes concurrently with or shortly after the pricing of the Notes. The effect of any such activity on the market price of our common stock or the Notes will depend on range factors, including market conditions and cannot be ascertained at this time.

In addition, the Capped Call Counterparties and/or their respective affiliates may modify their hedge positions from time to time by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling shares of our common stock or other securities of ours in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of the Notes, following any repurchase of the Notes by us on any fundamental change repurchase date, or following any redemption date with respect to the Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could affect a holder's ability to convert the Notes and, to the extent activity occurs during any observation period related to a conversion of the Notes, it could affect the number of shares of our common stock and the value of the consideration that a holder will receive upon conversion of the Notes.

Separate Transactions. The Capped Call Transactions are separate transactions, entered into by us with the Capped Call Counterparties, and are not part of the terms of the Notes and will not affect the rights of holders of the Notes. Holders of the Notes will not have any rights with respect to the Capped Call Transactions. The Capped Call Counterparties are not parties to the Indenture governing the Notes and have no obligations to the holders of the Notes. The settlement of the Capped Call Transactions will not be contingent upon any settlement of the Notes.

DESCRIPTION OF THE NOTES

The following is a summary of certain terms of the Notes and the Indenture governing the Notes. Because this is a summary, it does not describe every aspect of the Notes and the Indenture. For a complete description of the terms of the Notes, you should refer to the Indenture, a copy of which will be available upon request from us or the Trustee. This summary is qualified in its entirety by reference to the Indenture. In this "Description of the Notes" section, references to "we," "us," "our," and the "Company" refer solely to Optiwave Semiconductor Corp. and not to any of its subsidiaries.

General. We will issue the Notes under an indenture (the "Indenture") to be entered into between us and Broadmere Trust Company, N.A., as Trustee, registrar, paying agent, and conversion agent (the "Trustee"). The Indenture is governed by the laws of the State of New York.

The Notes will be designated as our "[●]% Convertible Senior Notes due 2028." The Notes will be issued in an aggregate principal amount of $250,000,000 (or $287,500,000 if the initial purchasers exercise their over-allotment option in full). The Notes will be issued only in fully registered form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof.

The Notes will be issued in the form of one or more global notes (each, a "Global Note") registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"). Beneficial interests in the Global Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its participants. DTC Participant No. for Broadmere Trust Company, N.A.: 2174. See "— Global Notes and Book-Entry System."

The corporate trust office of the Trustee is located at 100 Wall Street, 6th Floor, New York, New York 10005, Attention: Karen Llewellyn, Corporate Trust.

Interest. The Notes will bear interest at a rate of [●]% per annum. Interest on the Notes will accrue from and including June 1, 2023 (the first interest accrual date) and will be payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2023, to holders of record as of the immediately preceding May 15 and November 15 (each, a "Regular Record Date"), respectively. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.

If any interest payment date, the maturity date, any fundamental change repurchase date, or any redemption date falls on a day that is not a business day, the required payment will be made on the next succeeding business day with the same force and effect as if made on the date the payment was originally due, and no additional interest will accrue as a result of any such delay.

Ranking. The Notes will be our senior unsecured obligations and will:

(a) rank senior in right of payment to all of our future indebtedness that is expressly subordinated in right of payment to the Notes;

(b) rank equal in right of payment with all of our existing and future senior unsecured indebtedness, including trade payables;

(c) be effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our revolving credit facility with Crestline National Bank, N.A., to the extent of the value of the assets securing such indebtedness; and

(d) be structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of our subsidiaries.

The Indenture will not limit the amount of indebtedness that we or our subsidiaries may incur. As of March 31, 2023, on an as adjusted basis after giving effect to this offering and the application of the net proceeds as described under "Use of Proceeds," we would have had approximately $250,000,000 of total indebtedness outstanding, all of which would have been senior unsecured indebtedness represented by the Notes.

Conversion Rights.

Conversion Rate and Conversion Price. The Notes will be convertible at an initial conversion rate of [●] shares of our common stock per $1,000 principal amount of Notes, which corresponds to an initial conversion price of approximately $[●] per share. The initial conversion rate represents a conversion premium of approximately [●]% over the reference price of $[●] per share.

The maximum number of shares of our common stock issuable upon conversion of the Notes (assuming all Notes are converted and no make-whole adjustment applies) is [●] shares for the base offering amount of $250,000,000, or approximately [●] shares if the initial purchasers exercise their over-allotment option in full. The conversion rate is subject to adjustment as described below under "— Anti-Dilution Adjustments."

Conversion Procedures. Holders may convert all or any portion of their Notes (in minimum denominations of $1,000 or integral multiples thereof) at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date of June 1, 2028.

To convert a Note held in global form, a holder must comply with DTC's procedures for converting a beneficial interest in a Global Note and pay any applicable transfer or similar taxes. The conversion date will be the date on which the holder has satisfied all of the foregoing conversion requirements.

Settlement Upon Conversion. Upon conversion, we may elect to settle in cash, shares of our common stock, or a combination of cash and shares of our common stock (referred to as "net share settlement"). We currently intend to elect net share settlement, under which we would pay cash for the principal amount of converted Notes and deliver shares of our common stock (or, at our election, cash in lieu of fractional shares) for any conversion value in excess of such principal amount.

Observation Period. When a holder submits Notes for conversion, the conversion value of the Notes will be determined during an "observation period" consisting of 40 consecutive trading days beginning on, and including, the third trading day after the conversion date. For each trading day during the observation period, we will calculate the daily conversion value using the daily volume-weighted average price ("VWAP") of our common stock. The aggregate amount of cash and shares of our common stock (if any) deliverable upon conversion will be determined by aggregating the daily settlement amounts for each trading day during the observation period. We will deliver the settlement amount on or before the third business day following the last day of the observation period.

Make-Whole Fundamental Change Adjustment. If a "make-whole fundamental change" (as defined in the Indenture) occurs and a holder elects to convert its Notes in connection with such make-whole fundamental change, the conversion rate will be increased by a number of additional shares of our common stock (the "additional shares") determined by reference to a table set forth in the Indenture. The number of additional shares will be based on the effective date of the make-whole fundamental change and the price paid (or deemed paid) per share of our common stock in the make-whole fundamental change, as set forth in the table.

A "make-whole fundamental change" means any transaction or event that constitutes a "Fundamental Change" (as defined below) or any termination of trading of our common stock, provided that a transaction or event described in clause (a) of the definition of "Fundamental Change" (beneficial ownership of more than 50% of total voting power) will not constitute a make-whole fundamental change unless such transaction or event is also a "change of control" for purposes of the Indenture.

The increase in the conversion rate upon a make-whole fundamental change is designed to compensate holders of the Notes for the lost time value of the conversion option. The additional shares will be set forth in a table in the Indenture and will be determined based on the price paid (or deemed paid) per share of our common stock in the make-whole fundamental change and the effective date of the make-whole fundamental change.

Anti-Dilution Adjustments. The conversion rate will be adjusted upon the occurrence of certain events, including the following:

(a) the issuance of shares of our common stock as a dividend or distribution on shares of our common stock;

(b) the subdivision, combination, or reclassification of shares of our common stock;

(c) the issuance to all or substantially all holders of our common stock of rights, options, or warrants to purchase shares of our common stock at a price per share that is less than the average of the closing sale prices of our common stock for the 10 consecutive trading-day period ending on the trading day immediately preceding the ex-date for such issuance;

(d) the distribution to all or substantially all holders of our common stock of shar

PRELIMINARY OFFERING MEMORANDUM — SUBJECT TO COMPLETION, DATED MAY 18, 2023
The information in this preliminary offering memorandum is not complete and may be changed. These securities may not be sold nor may offers to buy be accepted prior to the delivery of a final offering memorandum. This preliminary offering memorandum does not constitute an offer to sell or a solicitation of an offer to buy these securities in any jurisdiction where such offer or solicitation is not permitted.
OPTIWAVE SEMICONDUCTOR CORP.
$250,000,000
[●]% Convertible Senior Notes due 2028
Optiwave Semiconductor Corp., a Delaware corporation ("OWS," the "Company," "we," "us," or "our"), is offering $250,000,000 aggregate principal amount of its [●]% Convertible Senior Notes due 2028 (the "Notes"). The Notes will bear interest at a rate of [●]% per annum (expected to be in the range of 2.50% to 3.00%), payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2023. The Notes will mature on June 1, 2028, unless earlier repurchased, redeemed, or converted.
The Notes will be convertible into cash, shares of our common stock, par value $0.001 per share, or a combination of cash and shares of our common stock, at our election, at an initial conversion rate of [●] shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $[●] per share), representing a conversion premium of approximately [●]% over the reference price. The last reported sale price of our common stock on the Nasdaq Global Select Market on [●], 2023 (the "Pricing Date") was $[●] per share. Holders may convert their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.
The Notes will not be redeemable by the Company prior to [June 6, 2026]. On or after [June 6, 2026], we may redeem the Notes, in whole or in part, for cash at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if the last reported sale price of our common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption.
If a "Fundamental Change" (as defined herein) occurs, holders may require us to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.
The Notes will be our senior unsecured obligations and will rank: (i) senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the Notes; (ii) equal in right of payment with all of our existing and future senior unsecured indebtedness; (iii) effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our revolving credit facility with Crestline National Bank, N.A., to the extent of the value of the collateral securing such indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of our subsidiaries.
We have granted the initial purchasers an option, exercisable within 13 days from the date of the Purchase Agreement, to purchase up to an additional $37,500,000 aggregate principal amount of Notes on the same terms and conditions, solely to cover over-allotments, if any.
In connection with the pricing of the Notes, we expect to enter into privately negotiated capped call transactions with certain financial institutions. The capped call transactions are expected to offset potential dilution to our common stock upon conversion of the Notes and/or offset any cash payments we may be required to make in excess of the principal amount of the Notes upon conversion. See "Description of the Capped Call Transactions."
The Notes and the shares of common stock issuable upon conversion of the Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws and may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Notes are being offered and sold only to qualified institutional buyers within the meaning of Rule 144A under the Securities Act. We do not intend to file a registration statement (shelf or otherwise) for the resale of the Notes or the underlying common stock. See "Transfer Restrictions."
The Notes will not be listed on any securities exchange or included in any automated quotation system. Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol "OWS."
Investing in the Notes involves a high degree of risk. See "Risk Factors" beginning on page [●] to read about factors you should consider before purchasing the Notes.
Neither the Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved of these securities or determined whether this offering memorandum is truthful or complete. Any representation to the contrary is a criminal offense.
(1) See "Plan of Distribution" for a description of the compensation payable to the initial purchasers. The Company has also agreed to pay a structuring fee of 0.25% of the base offering principal amount to Ridgepoint Capital Markets LLC.
Initial Purchasers
The date of this Offering Memorandum is May 18, 2023
SUMMARY
This summary highlights selected information contained elsewhere or incorporated by reference in this offering memorandum. This summary is not complete and does not contain all the information you should consider before investing in the Notes. You should read this entire offering memorandum carefully, including the "Risk Factors" section and the financial statements and the related notes thereto incorporated by reference herein. In this offering memorandum, unless the context otherwise requires, references to "OWS," the "Company," "we," "us," and "our" refer to Optiwave Semiconductor Corp. and, where applicable, its consolidated subsidiaries.
The Issuer. Optiwave Semiconductor Corp. is a Delaware corporation (Delaware file no. 5738291; EIN: 82-4917263; SEC CIK: 0001823467) headquartered at 4800 Great America Parkway, Suite 1200, San Jose, California 95054. Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol "OWS." We are a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and file annual, quarterly, and current reports with the SEC.
We are a fabless semiconductor company specializing in the design, development, and sale of radio-frequency ("RF") and photonic integrated circuits ("ICs") for data-center interconnect and 5G infrastructure applications. Our products serve the rapidly expanding markets for hyperscale data-center optical transceivers and 5G base-station communications equipment.
Key Financial Data and Market Information:
• Fiscal year 2022 revenue: $812.4 million
• Fiscal year 2022 adjusted EBITDA: $198.7 million
• Market capitalization as of March 3, 2023: approximately $4.3 billion (approximately 58.6 million diluted shares at $73.38 per share)
Senior Management:
Business Overview. OWS occupies a leading position in the RF and photonic IC market, serving tier-1 cloud computing companies, telecommunications equipment manufacturers, and data-center operators worldwide. Our product portfolio includes high-speed transimpedance amplifiers, silicon photonics driver ICs, RF front-end modules for massive MIMO 5G base stations, and high-bandwidth analog-to-digital converters optimized for coherent optical systems.
Competitive Advantages. Our fabless business model enables us to focus our capital and intellectual resources on advanced circuit design and system-level architecture while leveraging the manufacturing capabilities of world-class semiconductor foundries. We maintain a robust portfolio of proprietary design intellectual property, including over 340 issued U.S. patents and more than 120 pending patent applications as of December 31, 2022. Our customer base is diversified across multiple tier-1 cloud and telecom equipment makers, and we benefit from long-term supply agreements with key customers that provide revenue visibility and design-win predictability.
Growth Drivers. We believe several secular trends will continue to drive demand for our products in the coming years:
• Expanding data-center bandwidth requirements. The proliferation of artificial intelligence, machine learning workloads, and cloud-native applications is driving demand for higher-speed optical interconnect solutions within and between hyperscale data centers. The ongoing transition from 400G to 800G and 1.6T data rates creates a significant opportunity for our photonic IC product lines.
• 5G infrastructure rollout. The global deployment of 5G wireless networks, including the build-out of massive MIMO antenna arrays and small-cell densification, is driving demand for our high-performance RF integrated circuits. We believe the upgrade cycle from sub-6 GHz to millimeter-wave 5G frequencies will further expand our addressable market.
• Automotive and industrial applications. While data-center and 5G applications represent our primary end markets today, we are investing in the development of photonic sensing and high-frequency radar ICs for emerging automotive and industrial applications, which we believe will become a meaningful revenue contributor over time.
The Offering — Summary of Terms
The following summary contains basic information about the Notes and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the Notes, please refer to the section of this offering memorandum entitled "Description of the Notes."
Concurrent Capped Call Transactions
In connection with the pricing of the Notes, we expect to enter into privately negotiated capped call transactions (the "Capped Call Transactions") with Ridgepoint Capital Markets LLC and Northvane Financial Products LP (collectively, the "Capped Call Counterparties"). The Capped Call Transactions are designed to offset potential dilution to our common stock (or offset cash payments we would otherwise be required to make in excess of the principal amount) upon conversion of the Notes, with such offset subject to a cap.
The key economic terms of the Capped Call Transactions are summarized below:
• Lower strike price: Equal to the initial conversion price of the Notes (approximately $[●] per share).
• Cap price (upper strike): Approximately $[●] per share, representing a premium of approximately [●]% over the reference price (expected to be approximately 50.0% above the reference price). The cap price is subject to certain adjustments.
• Effective conversion price: After giving effect to the Capped Call Transactions, the effective conversion price to us is approximately $[●] per share (equal to the cap price). Above the cap price, the Capped Call Transactions do not offset dilution.
• Aggregate cost: Approximately $[●] million, to be funded from the gross proceeds of this offering.
If the initial purchasers exercise their over-allotment option to purchase additional Notes, we expect to enter into additional Capped Call Transactions with the same counterparties on substantially similar terms.
The Capped Call Transactions are separate transactions, entered into by us with the Capped Call Counterparties, and are not part of the terms of the Notes and will not affect the rights of holders of the Notes. See "Description of the Capped Call Transactions" and "Risk Factors — Risks Related to the Capped Call Transactions."
RISK FACTORS
An investment in the Notes involves a high degree of risk. You should carefully consider the risks described below, as well as the other information contained in this offering memorandum and the documents incorporated by reference herein, before making an investment decision. The occurrence of any of the following risks could materially adversely affect our business, financial condition, results of operations, cash flows, or the value of the Notes and our common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business and operations.
Risks Related to the Notes
The Notes are unsecured and effectively subordinated to our secured indebtedness. The Notes are our senior unsecured obligations. As a result, the Notes are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our $300,000,000 revolving credit facility with Crestline National Bank, N.A., as administrative agent, to the extent of the value of the assets securing such indebtedness. As of the Pricing Date, we expect to have approximately $75,000,000 outstanding under the revolving credit facility, which we intend to repay from the net proceeds of this offering. However, we may re-borrow under the revolving credit facility at any time, subject to the terms thereof. In the event of our bankruptcy, insolvency, liquidation, reorganization, dissolution, or other winding up, or upon an acceleration of the Notes, our assets that serve as collateral for our secured indebtedness would be available to satisfy obligations under such secured indebtedness before any payments are made on the Notes. If there are not sufficient assets remaining to pay amounts due on any or all of the Notes after satisfaction of those secured claims, then the Notes would be unsatisfied in whole or in part. As of March 31, 2023, we had approximately $75,000,000 of secured indebtedness outstanding, and the full $300,000,000 commitment under the revolving credit facility was available (subject to repayment of the then-outstanding balance and satisfaction of certain borrowing conditions).
The Notes are structurally subordinated to all existing and future indebtedness of our subsidiaries. The Notes are obligations exclusively of Optiwave Semiconductor Corp. and are not guaranteed by any of our subsidiaries. Our subsidiaries are separate legal entities that have no obligation, contingent or otherwise, to pay any amounts due under the Notes or to make any funds available to pay any amounts due under the Notes. In the event of a bankruptcy, insolvency, liquidation, reorganization, dissolution, or other winding up of any of our subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any of those assets are made available to us.
No public trading market exists for the Notes. The Notes are a new issue of securities with no established trading market. We do not intend to apply for listing of the Notes on any securities exchange or for inclusion of the Notes in any automated quotation system. The initial purchasers have informed us that they intend to make a market in the Notes after the completion of this offering. However, the initial purchasers are not obligated to make a market in the Notes, and they may cease their market-making activities at any time without notice. There can be no assurance that an active trading market for the Notes will develop or, if one develops, that it will be maintained. If an active trading market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. In that case, holders may not be able to sell their Notes at a particular time or at a favorable price.
The conditional conversion feature of the Notes may adversely affect their value. The Notes are convertible at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. However, the value to a holder of the conversion right is dependent upon the market price of our common stock relative to the conversion price. If the market price of our common stock does not exceed the conversion price, the conversion feature of the Notes will have no economic value, and holders who wish to realize value from the Notes may be limited to selling their Notes at a price that may be below their principal amount.
Our election of net share settlement means that holders will receive no more than the principal amount of the Notes in cash upon conversion. We intend to elect net share settlement with respect to conversions of the Notes. Under net share settlement, for each $1,000 principal amount of Notes converted, we would pay cash for the principal amount and deliver shares of our common stock (or, at our election, cash) only for the conversion value in excess of such principal amount, if any. As a result, holders will not receive more than $1,000 in cash per $1,000 principal amount of Notes surrendered for conversion, and the value of any additional amounts received in the form of shares of our common stock will depend on the market price of our common stock at the time of conversion.
Our redemption of the Notes after [June 6, 2026] may force holders to convert at a disadvantageous time. On or after [June 6, 2026], we may redeem the Notes for cash at 100% of their principal amount plus accrued and unpaid interest, subject to the stock price condition described elsewhere in this offering memorandum. If we call the Notes for redemption, holders will be entitled to convert their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date. If holders elect not to convert, they will receive only the redemption price. A holder who elects to convert after receiving a notice of redemption may not be able to realize the full value of the conversion option, particularly if the market price of our common stock declines between the date of the redemption notice and the conversion date.
The Notes have not been rated by any rating agency. We have not sought and do not intend to seek a credit rating for the Notes from any nationally recognized statistical rating organization. The absence of a rating may reduce the number of potential investors willing to purchase the Notes and may adversely affect the market price and liquidity of the Notes.
Holders of the Notes will not be entitled to any rights with respect to our common stock until they convert their Notes. Prior to conversion, holders of the Notes will not be entitled to any rights with respect to our common stock (including voting rights, rights to receive dividends, and rights to exercise any preemptive rights), but will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our certificate of incorporation or bylaws that requires stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date a holder converts its Notes, such holder will not be entitled to vote on the amendment, even though such holder will be subject to any changes to our capital structure effected by the amendment.
Anti-dilution adjustments may not compensate holders for all dilutive events. The conversion rate of the Notes is subject to adjustment for certain specified events, including, but not limited to, the issuance of certain stock dividends, the occurrence of stock splits and combinations, the issuance of certain rights or warrants, and the distribution of assets, debt securities, or capital stock to our stockholders. However, the conversion rate will not be adjusted for other events, such as a third-party tender offer or exchange offer, an issuance of common stock for cash, or an issuance of common stock in connection with acquisitions, that may adversely affect the trading price of the Notes or our common stock. An event that adversely affects the value of the Notes may occur, and that event may not result in an adjustment to the conversion rate.
Regulatory changes affecting the convertible note market could adversely affect the value of the Notes. The convertible note market is subject to various regulatory requirements and accounting standards that may change from time to time. For example, the adoption of new accounting standards or changes to existing accounting standards relating to the accounting treatment of convertible instruments could affect the manner in which we account for the Notes and could affect the reported financial results of our operations. In addition, changes to securities laws, tax laws, or regulations governing financial institutions that invest in convertible instruments could reduce demand for the Notes and adversely affect their market value.
Risks Related to the Capped Call Transactions
The Capped Call Transactions may affect the market price of our common stock. In connection with establishing their initial hedges of the Capped Call Transactions, the Capped Call Counterparties and/or their respective affiliates expect to purchase shares of our common stock and/or enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Notes. This activity could increase (or reduce the size of any decrease in) the market price of our common stock or the Notes concurrently with or shortly after the pricing of the Notes. The resulting effect on the market price of our common stock could make it more expensive for holders who wish to convert their Notes by increasing the conversion price that must be exceeded for conversion to have economic value, or could result in holders receiving fewer shares upon conversion.
Modification of hedging positions by the Capped Call Counterparties could affect the market price of our common stock. In addition, the Capped Call Counterparties and/or their respective affiliates may modify their hedge positions from time to time by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of the Notes or following any repurchase of Notes by us). This activity could cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could affect holders' ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of the Notes, could affect the number of shares and the value of the consideration that holders will receive upon conversion of the Notes.
The Company is exposed to counterparty credit risk with respect to the Capped Call Counterparties. The Capped Call Transactions expose us to the credit risk of Ridgepoint Capital Markets LLC and Northvane Financial Products LP. If either Capped Call Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the applicable Capped Call Transaction. Our exposure will not be secured by any collateral. We can provide no assurance as to the financial stability or viability of the Capped Call Counterparties. If either Capped Call Counterparty defaults under its obligations, we may not receive the benefit of the Capped Call Transactions, and the potential dilution to our common stock and/or the cash payments we would be required to make upon conversion of the Notes would not be offset.
The Capped Call Transactions are separate from the Notes. The Capped Call Transactions are separate transactions, entered into by us with the Capped Call Counterparties, and are not part of the terms of the Notes and will not affect the rights of holders of the Notes. Holders of the Notes will not have any rights with respect to the Capped Call Transactions.
Risks Related to Our Common Stock
Conversion of the Notes could dilute existing stockholders. The conversion of the Notes into shares of our common stock could dilute the ownership interests of existing stockholders. If the initial purchasers' over-allotment option is exercised in full, the maximum number of shares of our common stock issuable upon conversion of the Notes (before giving effect to the Capped Call Transactions) would be approximately [●] shares based on an initial conversion rate of [●] shares per $1,000 principal amount, representing approximately [●]% of our currently outstanding shares. Even with the Capped Call Transactions in place, dilution may occur if the market price of our common stock exceeds the cap price of approximately $[●] per share (representing a [●]% premium over the reference price), because the Capped Call Transactions do not offset dilution above the cap price.
The semiconductor industry is characterized by significant stock price volatility. The trading price of our common stock has experienced, and may continue to experience, significant volatility due to range factors, including fluctuations in our operating results, changes in the general conditions of the semiconductor industry, developments in our relationships with key customers and suppliers, changes in financial estimates by securities analysts, and general market conditions. This volatility could affect the conversion value of the Notes, the value of the common stock issuable upon conversion, and the market price of the Notes.
Future offerings or sales of our common stock could depress the stock price. We may issue additional shares of common stock or convertible securities in the future in connection with acquisitions, financings, or other corporate purposes. Sales of substantial amounts of our common stock or securities convertible into our common stock in the public market, or the perception that such sales could occur, could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.
Risks Related to Our Business
The semiconductor industry is cyclical. The semiconductor industry is highly cyclical and periodically experiences significant downturns, often in connection with, or in anticipation of, declines in general economic conditions. These downturns have been characterized by diminished product demand, excess production capacity, high inventory levels, and accelerated erosion of average selling prices. We have experienced, and may in the future experience, periodic fluctuations in our operating results due to the cyclical nature of the semiconductor industry. A prolonged downturn in the semiconductor industry could have a material adverse effect on our business, financial condition, and results of operations.
We are dependent on third-party foundries and assembly/test subcontractors. As a fabless semiconductor company, we do not own or operate semiconductor fabrication facilities. We depend on third-party foundries, principally located in Taiwan and South Korea, to manufacture our products, and on third-party assembly and test subcontractors to package and test our products. Our reliance on third parties reduces our ability to control directly the manufacturing process, including delivery schedules, quality assurance, manufacturing yields, and costs. Any disruption in the operations of our foundry partners or assembly/test subcontractors, including disruptions resulting from natural disasters, geopolitical events, public health crises, or export control regulations, could materially adversely affect our business.
We face concentration of revenues in data-center and 5G end markets. A substantial majority of our revenue is derived from sales of RF and photonic ICs for data-center interconnect and 5G infrastructure applications. Any significant slowdown in data-center capital expenditures by hyperscale cloud operators or in the pace of 5G infrastructure deployment could materially adversely affect our revenue and operating results. While we are developing products for automotive and industrial applications, these markets currently represent a relatively small portion of our revenue, and there can be no assurance that they will become significant revenue contributors.
We face intense competition. The markets for RF and photonic ICs are intensely competitive. We compete with integrated device manufacturers that have their own fabrication facilities, as well as with other fabless semiconductor companies. Some of our competitors have substantially greater financial, technical, marketing, and manufacturing resources than we do. Competition in our industry is based on range factors, including product performance, features, reliability, price, time-to-market, customer support, and the ability to meet design specifications. Our failure to compete effectively in any of these areas could result in a loss of customers and a decline in revenue.
We are exposed to geopolitical risks related to the semiconductor supply chain. Our supply chain is global in nature, with foundry operations concentrated in East Asia. Geopolitical tensions, trade restrictions, export controls, and sanctions imposed by the United States, China, or other governments could disrupt our supply chain, increase our costs, or limit our ability to sell products in certain markets. The U.S. government has imposed export control restrictions affecting the semiconductor industry, and any expansion of such restrictions could adversely affect our operations and financial results.
We rely on the protection and enforcement of intellectual property. Our success depends, in part, on our ability to protect our proprietary technology and intellectual property through patents, trade secrets, copyrights, and other intellectual property rights. The loss, infringement, or misappropriation of our intellectual property could adversely affect our competitive position. We may be required to spend significant resources to monitor and protect our intellectual property rights, and we cannot assure you that our efforts will be successful.
We are dependent on key personnel. Our success depends to a significant degree on the continued services and contributions of our key employees, including our Chief Executive Officer, Marcus Harding, and our Chief Financial Officer, Priya Nandakumar. The loss of any of our key employees, or our inability to attract, retain, and motivate other highly qualified employees, could adversely affect our business.
Risks Related to Tax Treatment
The U.S. federal income tax treatment of the Notes involves uncertainties. The U.S. federal income tax treatment of the Notes is complex and involves certain uncertainties. We expect that the Notes will be treated as "variable rate debt instruments" for U.S. federal income tax purposes. However, no ruling has been sought from the Internal Revenue Service (the "IRS") with respect to the treatment of the Notes, and there can be no assurance that the IRS will agree with our expected treatment. If the IRS were to challenge successfully the treatment of the Notes, the tax consequences to holders could be materially different from those described herein.
The tax treatment of the Capped Call Transactions involves uncertainty. The U.S. federal income tax treatment of the Capped Call Transactions also involves uncertainties. The Capped Call Transactions may be treated as either integrated with the Notes (as part of a single debt instrument) or, alternatively, as separate prepaid forward contracts on our common stock. The characterization of the Capped Call Transactions for U.S. federal income tax purposes has not been definitively determined, and different characterizations could lead to different tax consequences for us and potentially for holders of the Notes. We urge holders to consult their own tax advisors regarding the tax implications of the Capped Call Transactions.
Changes in tax law could adversely affect holders. Changes in U.S. federal income tax law, including changes in the way such laws are interpreted or applied, could adversely affect the tax treatment of the Notes and the common stock issuable upon conversion of the Notes. Legislation, Treasury Regulations, or administrative or judicial interpretations may be introduced or changed at any time, and such changes could apply retroactively to transactions entered into or positions taken prior to the date of the change. We urge holders to consult their own tax advisors regarding the potential impact of any changes in tax law.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This offering memorandum contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based on our current expectations, estimates, forecasts, and projections about our industry, our business, and events and conditions that may affect our future results of operations, financial position, and cash flows. Forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "intends," "plans," "projects," "may," "will," "would," "could," "should," or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include, but are not limited to, statements regarding:
• our expectations regarding the use of the net proceeds from this offering;
• our expectations regarding future revenue, operating expenses, and profitability;
• our expectations regarding demand for our products in data-center and 5G infrastructure markets;
• our expectations regarding the development and commercial adoption of new technologies and products;
• our expectations regarding the Capped Call Transactions and their effect on potential dilution;
• our ability to maintain and expand relationships with key customers and suppliers;
• our ability to protect and enforce our intellectual property rights;
• our expectations regarding the semiconductor industry and general economic conditions; and
• other statements that are not historical facts.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the "Risk Factors" section of this offering memorandum and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The factors that could cause actual results to differ materially from those indicated in the forward-looking statements include, but are not limited to:
• the cyclical nature of the semiconductor industry;
• our dependence on third-party foundries and assembly/test subcontractors;
• the concentration of our revenues in data-center and 5G end markets;
• intense competition in our industry;
• geopolitical risks related to the semiconductor supply chain;
• our ability to protect our intellectual property;
• changes in tax laws, regulations, or interpretations;
• risks associated with our indebtedness, including the Notes; and
• general economic and market conditions.
In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this offering memorandum may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this offering memorandum. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately $[●] million (or approximately $[●] million if the initial purchasers exercise their over-allotment option in full), after deducting the initial purchasers' discount, the structuring fee payable to Ridgepoint Capital Markets LLC, estimated offering expenses, and the aggregate cost of the Capped Call Transactions.
The following tables set forth the estimated sources and uses of proceeds from this offering:
Sources
Uses
(1) The initial purchasers' discount is 2.00% of the aggregate principal amount of Notes purchased.
(2) Offering expenses include legal fees and expenses, accounting fees and expenses, trustee fees, printing costs, and other miscellaneous expenses incurred in connection with the offering.
We intend to use approximately $75,000,000 of the net proceeds from this offering to repay the outstanding balance under our revolving credit facility with Crestline National Bank, N.A. Our revolving credit facility is a $300,000,000 senior secured revolving credit facility, with Crestline National Bank, N.A. serving as administrative agent. The revolving credit facility matures on August 15, 2026 and is secured by substantially all of our assets. The outstanding balance under the revolving credit facility bears interest at a rate per annum equal to, at our election, either an adjusted term SOFR rate plus an applicable margin ranging from 1.25% to 1.75% per annum, or a base rate plus an applicable margin ranging from 0.25% to 0.75% per annum, in each case based on our consolidated net leverage ratio as of the most recent fiscal quarter end. As of the Pricing Date, we expect the outstanding balance under the revolving credit facility to be approximately $75,000,000. See "Description of Certain Indebtedness — Revolving Credit Facility."
We intend to use approximately $[●] million of the net proceeds from this offering to pay the cost of the Capped Call Transactions described under "Description of the Capped Call Transactions." If the initial purchasers exercise their over-allotment option to purchase additional Notes, a portion of the additional net proceeds will be used to enter into additional Capped Call Transactions.
We intend to use the remaining net proceeds for general corporate purposes, which may include working capital, capital expenditures, and potential acquisitions of businesses, products, services, or technologies that we believe would be complementary to our existing business. We have no present commitments or agreements with respect to any material acquisition. Pending the use of the net proceeds, we may invest the net proceeds in short-term, investment-grade, interest-bearing securities.
If the initial purchasers do not exercise the over-allotment option, our total gross proceeds will be $250,000,000 and the net proceeds available for general corporate purposes will be correspondingly reduced. In addition, if the initial purchasers do not exercise the over-allotment option, we will fund the Capped Call Transactions (which will cover only the number of shares underlying the base offering amount of Notes) from a smaller gross proceeds base.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2023: (i) on an actual basis and (ii) on an as adjusted basis to give effect to the issuance and sale of $250,000,000 aggregate principal amount of Notes in this offering (assuming no exercise of the initial purchasers' over-allotment option), the application of the estimated net proceeds as described under "Use of Proceeds," including the repayment of $75,000,000 outstanding under our revolving credit facility with Crestline National Bank, N.A. and the payment of the cost of the Capped Call Transactions.
This table should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements and the related notes thereto incorporated by reference in this offering memorandum.
(1) Assumes no exercise of the initial purchasers' over-allotment option. If the over-allotment option is exercised in full, the aggregate principal amount of Notes would be $287,500,000, and the amounts shown above would be adjusted accordingly.
(2) Reflects the receipt of estimated net proceeds of approximately $[●] from the offering, after deducting the initial purchasers' discount, the structuring fee, and estimated offering expenses, and after application of a portion of the net proceeds to repay $75,000,000 under the revolving credit facility and to pay the cost of the Capped Call Transactions of approximately $[●] million.
(3) In accordance with ASC 470-20, as amended by ASU 2020-06, the Notes are recorded entirely as a liability on the balance sheet (i.e., no bifurcation of debt and equity components). The carrying value of the Notes on the balance sheet will initially equal the aggregate principal amount of $250,000,000, less issuance costs to be amortized over the term of the Notes.
(4) Additional paid-in capital on an as adjusted basis reflects a reduction of approximately $[●] million representing the cost of the Capped Call Transactions, which is classified as a reduction to additional paid-in capital in accordance with applicable accounting guidance.
The foregoing table does not include the following:
• shares of common stock issuable upon exercise of outstanding stock options and settlement of outstanding restricted stock units;
• shares of common stock issuable upon conversion of the Notes; or
• additional borrowing capacity under the revolving credit facility (up to $300,000,000, less any outstanding letters of credit).
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the Nasdaq Global Select Market under the symbol "OWS." The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on the Nasdaq Global Select Market:
Fiscal Year 2022
Fiscal Year 2023
The last reported sale price of our common stock on the Nasdaq Global Select Market on [●], 2023 (the Pricing Date) was $[●] per share (expected reference price of approximately $73.38 per share based on market data available prior to the date of this offering memorandum). As of May 1, 2023, there were approximately 247 holders of record of our common stock. This number does not include stockholders for whom shares are held in "nominee" or "street" name.
Dividend Policy. We have not historically declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon various factors, including our results of operations, financial condition, capital requirements, contractual restrictions (including those contained in our revolving credit facility and the Indenture governing the Notes), business prospects, and other factors that our board of directors may deem relevant. The terms of our revolving credit facility restrict our ability to pay dividends in certain circumstances.
DESCRIPTION OF THE CAPPED CALL TRANSACTIONS
Overview. In connection with the pricing of the Notes, we expect to enter into privately negotiated capped call transactions (the "Capped Call Transactions") with Ridgepoint Capital Markets LLC and Northvane Financial Products LP (collectively, the "Capped Call Counterparties"). The allocation of the Capped Call Transactions among the Capped Call Counterparties is as follows: Ridgepoint Capital Markets LLC — 60% of the notional amount; Northvane Financial Products LP — 40% of the notional amount.
If the initial purchasers exercise their over-allotment option to purchase additional Notes, we expect to enter into additional Capped Call Transactions with the same Capped Call Counterparties on substantially the same terms.
Terms of the Capped Call Transactions
The principal terms of the Capped Call Transactions are summarized below:
Lower Strike Price. The lower strike price of the Capped Call Transactions is equal to the initial conversion price of the Notes, approximately $[●] per share. The lower strike price is subject to certain adjustments that are intended to correspond to the anti-dilution adjustments to the conversion rate of the Notes.
Cap Price (Upper Strike). The cap price of the Capped Call Transactions is approximately $[●] per share, representing a premium of approximately [●]% over the reference price of $[●] per share (expected to be approximately 50.0% above the reference price). The cap price is subject to certain adjustments.
Underlying Shares. The Capped Call Transactions cover, in the aggregate, the number of shares of our common stock initially underlying the Notes (subject to anti-dilution adjustments substantially similar to those applicable to the Notes under the Indenture).
Expiration. The Capped Call Transactions are coterminous with the Notes and expire on June 1, 2028 (the maturity date of the Notes), subject to earlier exercise or termination in accordance with the terms of the Capped Call Confirmations.
Settlement. The Capped Call Transactions are subject to net share or cash settlement, at the election of the applicable Capped Call Counterparty, in a manner that is consistent with our net share settlement election for the Notes.
Aggregate Cost. The aggregate cost of the Capped Call Transactions is approximately $[●] million, which will be funded from the gross proceeds of this offering. The allocation of the Capped Call Transaction cost between the Capped Call Counterparties is as follows:
• Ridgepoint Capital Markets LLC: approximately $[●] million (60%)
• Northvane Financial Products LP: approximately $[●] million (40%)
If the initial purchasers exercise their over-allotment option in full, we expect to pay an additional approximately $[●] million for additional Capped Call Transactions.
Purpose and Effect
The Capped Call Transactions are designed to reduce the potential dilution to our common stock (or reduce cash payments we would otherwise be required to make in excess of the principal amount of converted Notes) upon conversion of the Notes. The Capped Call Transactions have the effect of increasing the effective conversion price from approximately $[●] per share (the initial conversion price of the Notes) to approximately $[●] per share (the cap price), such that no net dilution (and no net cash payment in excess of principal) occurs upon conversion unless the market price of our common stock exceeds the cap price. Above the cap price, the Capped Call Transactions do not offset dilution.
The following example illustrates the effect of the Capped Call Transactions:
• If our stock price upon conversion is below the conversion price (approximately $[●] per share), neither the conversion feature of the Notes nor the Capped Call Transactions have economic value. The holder receives $1,000 in cash per $1,000 principal amount of Notes converted (under net share settlement).
• If our stock price upon conversion is between the conversion price (approximately $[●] per share) and the cap price (approximately $[●] per share), the shares deliverable upon conversion of the Notes are offset by shares received by us under the Capped Call Transactions, resulting in no net dilution.
• If our stock price upon conversion exceeds the cap price (approximately $[●] per share), the Capped Call Transactions offset only a portion of the dilution — specifically, dilution attributable to stock price appreciation between the conversion price and the cap price is offset, but dilution attributable to stock price appreciation above the cap price is not offset.
ISDA Documentation. Each Capped Call Transaction is documented under a 2002 ISDA Master Agreement (including the Schedule thereto) and a Confirmation between us and the applicable Capped Call Counterparty. The Capped Call Transactions are governed by New York law. The Confirmations contain representations, warranties, and covenants customary for privately negotiated equity derivative transactions of this type, including provisions relating to our status as an issuer, the availability and listing of shares, and compliance with securities laws.
Hedging Activity. In connection with establishing their initial hedges of the Capped Call Transactions, the Capped Call Counterparties and/or their respective affiliates expect to purchase shares of our common stock and/or enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Notes. This hedging activity could increase (or reduce the size of any decrease in) the market price of our common stock or the Notes concurrently with or shortly after the pricing of the Notes. The effect of any such activity on the market price of our common stock or the Notes will depend on range factors, including market conditions and cannot be ascertained at this time.
In addition, the Capped Call Counterparties and/or their respective affiliates may modify their hedge positions from time to time by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling shares of our common stock or other securities of ours in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of the Notes, following any repurchase of the Notes by us on any fundamental change repurchase date, or following any redemption date with respect to the Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could affect a holder's ability to convert the Notes and, to the extent activity occurs during any observation period related to a conversion of the Notes, it could affect the number of shares of our common stock and the value of the consideration that a holder will receive upon conversion of the Notes.
Separate Transactions. The Capped Call Transactions are separate transactions, entered into by us with the Capped Call Counterparties, and are not part of the terms of the Notes and will not affect the rights of holders of the Notes. Holders of the Notes will not have any rights with respect to the Capped Call Transactions. The Capped Call Counterparties are not parties to the Indenture governing the Notes and have no obligations to the holders of the Notes. The settlement of the Capped Call Transactions will not be contingent upon any settlement of the Notes.
DESCRIPTION OF THE NOTES
The following is a summary of certain terms of the Notes and the Indenture governing the Notes. Because this is a summary, it does not describe every aspect of the Notes and the Indenture. For a complete description of the terms of the Notes, you should refer to the Indenture, a copy of which will be available upon request from us or the Trustee. This summary is qualified in its entirety by reference to the Indenture. In this "Description of the Notes" section, references to "we," "us," "our," and the "Company" refer solely to Optiwave Semiconductor Corp. and not to any of its subsidiaries.
General. We will issue the Notes under an indenture (the "Indenture") to be entered into between us and Broadmere Trust Company, N.A., as Trustee, registrar, paying agent, and conversion agent (the "Trustee"). The Indenture is governed by the laws of the State of New York.
The Notes will be designated as our "[●]% Convertible Senior Notes due 2028." The Notes will be issued in an aggregate principal amount of $250,000,000 (or $287,500,000 if the initial purchasers exercise their over-allotment option in full). The Notes will be issued only in fully registered form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof.
The Notes will be issued in the form of one or more global notes (each, a "Global Note") registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"). Beneficial interests in the Global Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its participants. DTC Participant No. for Broadmere Trust Company, N.A.: 2174. See "— Global Notes and Book-Entry System."
The corporate trust office of the Trustee is located at 100 Wall Street, 6th Floor, New York, New York 10005, Attention: Karen Llewellyn, Corporate Trust.
Interest. The Notes will bear interest at a rate of [●]% per annum. Interest on the Notes will accrue from and including June 1, 2023 (the first interest accrual date) and will be payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2023, to holders of record as of the immediately preceding May 15 and November 15 (each, a "Regular Record Date"), respectively. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
If any interest payment date, the maturity date, any fundamental change repurchase date, or any redemption date falls on a day that is not a business day, the required payment will be made on the next succeeding business day with the same force and effect as if made on the date the payment was originally due, and no additional interest will accrue as a result of any such delay.
Ranking. The Notes will be our senior unsecured obligations and will:
(a) rank senior in right of payment to all of our future indebtedness that is expressly subordinated in right of payment to the Notes;
(b) rank equal in right of payment with all of our existing and future senior unsecured indebtedness, including trade payables;
(c) be effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our revolving credit facility with Crestline National Bank, N.A., to the extent of the value of the assets securing such indebtedness; and
(d) be structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of our subsidiaries.
The Indenture will not limit the amount of indebtedness that we or our subsidiaries may incur. As of March 31, 2023, on an as adjusted basis after giving effect to this offering and the application of the net proceeds as described under "Use of Proceeds," we would have had approximately $250,000,000 of total indebtedness outstanding, all of which would have been senior unsecured indebtedness represented by the Notes.
Conversion Rights.
Conversion Rate and Conversion Price. The Notes will be convertible at an initial conversion rate of [●] shares of our common stock per $1,000 principal amount of Notes, which corresponds to an initial conversion price of approximately $[●] per share. The initial conversion rate represents a conversion premium of approximately [●]% over the reference price of $[●] per share.
The maximum number of shares of our common stock issuable upon conversion of the Notes (assuming all Notes are converted and no make-whole adjustment applies) is [●] shares for the base offering amount of $250,000,000, or approximately [●] shares if the initial purchasers exercise their over-allotment option in full. The conversion rate is subject to adjustment as described below under "— Anti-Dilution Adjustments."
Conversion Procedures. Holders may convert all or any portion of their Notes (in minimum denominations of $1,000 or integral multiples thereof) at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date of June 1, 2028.
To convert a Note held in global form, a holder must comply with DTC's procedures for converting a beneficial interest in a Global Note and pay any applicable transfer or similar taxes. The conversion date will be the date on which the holder has satisfied all of the foregoing conversion requirements.
Settlement Upon Conversion. Upon conversion, we may elect to settle in cash, shares of our common stock, or a combination of cash and shares of our common stock (referred to as "net share settlement"). We currently intend to elect net share settlement, under which we would pay cash for the principal amount of converted Notes and deliver shares of our common stock (or, at our election, cash in lieu of fractional shares) for any conversion value in excess of such principal amount.
Observation Period. When a holder submits Notes for conversion, the conversion value of the Notes will be determined during an "observation period" consisting of 40 consecutive trading days beginning on, and including, the third trading day after the conversion date. For each trading day during the observation period, we will calculate the daily conversion value using the daily volume-weighted average price ("VWAP") of our common stock. The aggregate amount of cash and shares of our common stock (if any) deliverable upon conversion will be determined by aggregating the daily settlement amounts for each trading day during the observation period. We will deliver the settlement amount on or before the third business day following the last day of the observation period.
Make-Whole Fundamental Change Adjustment. If a "make-whole fundamental change" (as defined in the Indenture) occurs and a holder elects to convert its Notes in connection with such make-whole fundamental change, the conversion rate will be increased by a number of additional shares of our common stock (the "additional shares") determined by reference to a table set forth in the Indenture. The number of additional shares will be based on the effective date of the make-whole fundamental change and the price paid (or deemed paid) per share of our common stock in the make-whole fundamental change, as set forth in the table.
A "make-whole fundamental change" means any transaction or event that constitutes a "Fundamental Change" (as defined below) or any termination of trading of our common stock, provided that a transaction or event described in clause (a) of the definition of "Fundamental Change" (beneficial ownership of more than 50% of total voting power) will not constitute a make-whole fundamental change unless such transaction or event is also a "change of control" for purposes of the Indenture.
The increase in the conversion rate upon a make-whole fundamental change is designed to compensate holders of the Notes for the lost time value of the conversion option. The additional shares will be set forth in a table in the Indenture and will be determined based on the price paid (or deemed paid) per share of our common stock in the make-whole fundamental change and the effective date of the make-whole fundamental change.
Anti-Dilution Adjustments. The conversion rate will be adjusted upon the occurrence of certain events, including the following:
(a) the issuance of shares of our common stock as a dividend or distribution on shares of our common stock;
(b) the subdivision, combination, or reclassification of shares of our common stock;
(c) the issuance to all or substantially all holders of our common stock of rights, options, or warrants to purchase shares of our common stock at a price per share that is less than the average of the closing sale prices of our common stock for the 10 consecutive trading-day period ending on the trading day immediately preceding the ex-date for such issuance;
(d) the distribution to all or substantially all holders of our common stock of shar