<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
TRIPATH TECHNOLOGY INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <S> <C>
DELAWARE 3674 77-0407364
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Number) Identification Number)
Incorporation or Organization)
</TABLE>
3900 FREEDOM CIRCLE
SANTA CLARA, CALIFORNIA 95054
(408) 567-3000
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
DR. ADYA S. TRIPATHI
CHAIRMAN OF THE BOARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRIPATH TECHNOLOGY INC.
3900 FREEDOM CIRCLE
SANTA CLARA, CALIFORNIA 95054
(408) 567-3000
(Name, address, including zip code and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. DANAHER, ESQ. NORA L. GIBSON, ESQ.
RAJ S. JUDGE, ESQ. LINDSAY C. FREEMAN, ESQ.
WILSON SONSINI GOODRICH & ROSATI LORA D. BLUM, ESQ.
PROFESSIONAL CORPORATION BROBECK, PHLEGER & HARRISON LLP
650 Page Mill Road Spear Street Tower
Palo Alto, California 94304-1050 One Market
(650) 493-9300 San Francisco, California 94105
(415) 442-0900
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001 par value.................. $150,000,000 $39,600
</TABLE>
(1) Includes shares that the underwriters have the option to purchase to cover
over-allotments, if any. Estimated solely for the purpose of computing the
amount of the registration fee pursuant to Rule 457(o) under the Securities
Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 18, 2000.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
[LOGO]
SHARES
COMMON STOCK
$ PER SHARE
---------
We are selling shares of our common stock. The underwriters named in
this prospectus may purchase up to additional shares of common stock
from us under certain circumstances.
This is an initial public offering of our common stock. We currently expect
the initial public offering price to be between $ and $ per share. We
have applied to have our common stock included for quotation on the Nasdaq
National Market under the symbol "TRPH."
--------------
INVESTING IN OUR SHARES OF COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Initial public offering price $ $
Underwriting discount $ $
Proceeds to Tripath (before expenses) $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000
------------------------
Salomon Smith Barney Deutsche Banc Alex. Brown
U.S. Bancorp Piper Jaffray
Dain Rauscher Wessels
, 2000
<PAGE>
[EDGAR DESCRIPTION OF ARTWORK]
INSIDE FOLDOUT
Pictures of products using our amplifiers with magnification of the name of
the customer and our branding on each product.
INSIDE FRONT COVER
Pictures that depict our Digital Power Processing brand name, and each
market we are addressing: audio, DSL, and cellular phones. Our advantages in
each market are also identified.
INSIDE BACK COVER
Pictures that depict our amplifier products.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Financial Data..................................... 19
Management's Discussion And Analysis Of Financial Condition 20
And Results Of Operations.................................
Business.................................................... 26
Management.................................................. 38
Certain Transactions........................................ 46
Principal Stockholders...................................... 47
Description Of Capital Stock................................ 49
Shares Eligible For Future Sale............................. 52
Underwriters................................................ 54
Legal Matters............................................... 56
Experts..................................................... 56
Available Information....................................... 56
Index to Financial Statements............................... F-1
</TABLE>
--------------
Until , 2000, all dealers that buy, sell or trade the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
All trademarks and tradenames appearing in this prospectus are owned by
their respective holders.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING, INCLUDING "RISK FACTORS," AND OUR FINANCIAL STATEMENTS AND RELATED
NOTES, INCLUDED ELSEWHERE IN THIS PROSPECTUS AND INCORPORATED BY REFERENCE.
TRIPATH TECHNOLOGY INC.
We have developed a patented technology called Digital Power Processing,
which represents a fundamentally new approach to amplifier design. Using our
technology, we design and sell semiconductor-based amplifiers that provide
significant performance, power efficiency, size, weight and cost advantages over
traditional amplifier technology. We believe that Digital Power Processing is a
core technology applicable to many electronic products and systems in a broad
range of markets.
Traditional amplifiers use design approaches first developed in the 1930's.
Amplifiers designed with traditional technology can only provide high signal
quality by sacrificing power efficiency. Our Digital Power Processing combines
modern advances in digital signal processing and power processing technologies.
Our technology enables us to design amplifiers that achieve both high signal
quality and high power efficiency. As a result, our technology allows
manufacturers of electronics systems to reduce power consumption and improve
battery life, to reduce the heat that is dissipated when power is wasted, and to
reduce system size, weight and cost by using smaller, cheaper power supplies and
reducing components used to control excess heat.
We have focused initially on providing amplifiers for audio electronics
applications. The high signal quality and other features of our products enable
manufacturers of audio electronics systems to take fuller advantage of the
improved sound quality made possible by digital technology such as CDs, DVDs,
set top boxes and Internet appliances. We are supplying amplifiers for consumer
audio products such as DVD players and home theater systems where our technology
allows manufacturers to reduce system size and weight and to provide high
quality sound systems at a lower cost. We are supplying amplifiers for computer
audio applications where our size and power advantages enable manufacturers to
place our amplifiers inside the computer, to eliminate externally-powered
speakers and to enhance the user's audio experience. We are also supplying
amplifiers for automobile audio applications where our size and power advantages
are enabling manufacturers to provide higher quality, multi-channel sound
systems. Our audio electronics customers include Alpine Electronics,
Blaupunkt/Bosch, Carver Corporation, Creative Technology Ltd.,
Matsushita/Panasonic and Sony Corporation.
We believe the power efficiency and high signal quality of our amplifiers
also makes them attractive for communications applications. We have begun
offering amplifiers for use in digital subscriber line, or DSL, equipment where
we believe our technology will enable the systems used by the service providers
to support more subscribers. We do not expect to begin volume shipments of
amplifiers for DSL applications before the fourth quarter of 2000. We are also
developing amplifiers for digital cellular phones, where we believe the greater
power efficiency of our technology will enable manufacturers to increase the
battery life and reduce the size and weight of their phones. We do not expect to
introduce amplifiers for digital cellular phones before the second half of 2001.
We provide our products in the form of semiconductor chips and modules
containing multiple chips. We contract with STMicroelectronics Group and with
United Microelectronics Corporation to manufacture semiconductor wafers, and we
contract with other companies to assemble and test our products.
CORPORATE INFORMATION
Our executive offices are located at 3900 Freedom Circle, Santa Clara,
California 95054, and our telephone number is (408) 567-3000. We were
incorporated in California in July 1995 and will be reincorporated in Delaware
prior to this offering.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. For expansion of our sales and marketing
activities, to invest in research and
development for new and enhanced products and
technologies, and for working capital and
general corporate purposes, including
strategic acquisitions of, or investments in
related businesses, product lines and
technologies.
Proposed Nasdaq National Market symbol....... TRPH
</TABLE>
--------------
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of March 31, 2000 and
does not include the following:
- 6,274,502 shares of common stock issuable as of April 14, 2000 upon the
exercise of outstanding stock options issued under our stock option plan
at a weighted average exercise price of $4.67 per share;
- 121,250 shares of common stock issuable as of April 14, 2000 upon the
exercise of outstanding warrants with a weighted average exercise price of
$1.08 per share.
--------------
Except as otherwise indicated, information in this prospectus assumes the
following:
- reincorporation into the State of Delaware and the filings of the
amendment and restatement of our certificate of incorporation;
- the conversion of all of our outstanding preferred stock into 9,084,566
shares of common stock; and
- no exercise of the underwriters' over-allotment option.
2
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes the financial data of our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
PERIOD
FROM
JULY 18,
1995
(INCEPTION)
THROUGH THREE MONTHS
DECEMBER 31, YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------- ----------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ -- $ -- $ -- $ 180 $ 648 $ 32 $ 742
Gross profit (loss).............. -- -- -- (16) (1,772) 13 (521)
Total operating expenses......... 228 1,710 3,213 34,643 31,298 6,709 10,389
Loss from operations............. (228) (1,710) (3,213) (34,659) (33,070) (6,696) (10,910)
Net loss......................... (188) (1,517) (2,771) (33,657) (31,702) (6,289) (10,654)
Basic and diluted net loss per
share.......................... $(0.05) $ (0.17) $ (0.28) $ (3.32) $ (2.98) $ (0.62) $ (0.96)
Number of shares used to compute
basic and diluted net loss per
share.......................... 4,098 8,850 9,844 10,143 10,624 10,188 11,049
Pro forma basic and diluted net
loss per share................. $ (1.61) $ (0.53)
Number of shares used to compute
pro forma basic and diluted net
loss per share................. 19,709 20,134
</TABLE>
The following table provides a summary of our balance sheet as of March 31,
2000. The pro forma column gives effect to the conversion of all outstanding
shares of preferred stock into common stock upon the closing of this offering.
The pro forma as adjusted column reflects the sale of shares of
common stock in this offering at the assumed initial public offering price of
$ per share and after deducting the underwriting discount and estimated
offering expenses payable by us. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, short-term investments and
restricted cash........................................... $ 13,475 $13,475 $
Working capital............................................. 12,816 12,816
Total assets................................................ 18,018 18,018
Convertible preferred stock................................. 49,611 --
Total stockholders' equity (deficit)........................ (34,309) 15,302
</TABLE>
3
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD CAREFULLY CONSIDER THE
RISKS DESCRIBED BELOW. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION INCLUDED
IN THIS PROSPECTUS AND THE INFORMATION INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, BEFORE YOU DECIDE TO INVEST IN OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY AND DEPENDENCE ON NEW TECHNOLOGIES MAKE IT
DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.
We were incorporated in July 1995, but did not begin shipping products until
1998. Many of our products have only recently been introduced. Accordingly, we
have limited historical financial information and operating history upon which
you may evaluate us and our prospects. Our prospects must be considered in light
of the risks, challenges and difficulties frequently encountered by companies in
their early stage of development, particularly companies in intensely
competitive and rapidly evolving markets such as the semiconductor industry. We
cannot be sure that we will be successful in addressing these risks and
challenges.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE OR
SUSTAIN PROFITABILITY.
As of March 31, 2000, we had an accumulated deficit of $80.5 million. We
incurred net losses of approximately $10.7 million in the three months ended
March 31, 2000, $31.7 million in 1999 and $33.7 million in 1998. We expect to
continue to incur net losses and these losses may be substantial. Furthermore,
we expect to generate significant negative cash flow in the future. We will need
to generate substantially higher revenue to achieve and sustain profitability
and positive cash flow. Our recent revenue growth may not be sustainable and
should not be considered indicative of future revenue growth. Our ability to
generate future revenue and achieve profitability will depend on a number of
factors, many of which are described throughout this section. If we are unable
to achieve or maintain profitability, we will be unable to build a sustainable
business. In this event, our share price and the value of your investment would
likely decline.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY
FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS, WHICH MAY
CAUSE OUR SHARE PRICE TO DECLINE.
Our quarterly operating results have fluctuated significantly in the past
and are likely to continue to do so in the future. The many factors that could
cause our quarterly results to fluctuate include:
- level of sales;
- mix of high and low margin products;
- availability and pricing of wafers;
- timing of introducing new products, including lower cost versions of
existing products;
- fluctuations in manufacturing yields and other problems or delays in the
fabrication, assembly, testing or delivery of products; and
- rate of development of target markets.
A large portion of our operating expenses, including salaries, rent and
capital lease expenses, are fixed. If we experience a shortfall in revenues in
relation to our expenses, we may be unable to reduce our expenses quickly enough
to achieve quarterly operating results that meet the expectations of securities
analysts and investors. In addition, we intend to increase our operating
expenses in 2000 and 2001. We do not know whether our business will grow rapidly
enough to absorb these costs. As a result,
4
<PAGE>
our operating results could fluctuate, and such fluctuations could cause the
market price of our common stock to decline. We do not believe that
period-to-period comparisons of our revenues and operating results are
necessarily meaningful. You should not rely on the results of any one quarter as
an indication of future performance.
WE RELY ON A SMALL NUMBER OF CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUE
AND A DECREASE IN REVENUE FROM THESE CUSTOMERS COULD SERIOUSLY HARM OUR
BUSINESS.
A relatively small number of customers have accounted for a significant
portion of our revenues to date. Any reduction or delay in sales of our products
to one or more of these key customers could seriously reduce our sales volume
and revenue. In particular, sales to Komatsu Semiconductor Corporation and
Creative Technology Ltd. accounted for approximately 68.0% and 14.1%, of total
revenue in the three months ended March 31, 2000 and 78.4% and 0.0%, of total
revenue in 1999. The majority of sales to Komatsu Semiconductor Corporation, a
distributor, relate to Sony Corporation. Moreover, sales to our five largest
customers represented approximately 96.8% of our total revenue in the three
months ended March 31, 2000 and 80.8% of our total revenue in 1999. We expect
that we will continue to rely on the success of our largest customers and on our
success in selling our existing and future products to those customers in
significant quantities. We cannot be sure that we will retain our largest
customers or that we will be able to obtain additional key customers.
WE HAVE A LONG SALES CYCLE WHICH COULD MAKE IT DIFFICULT TO PREDICT THE QUARTER
IN WHICH PARTICULAR SALES MAY OCCUR AND TO FORECAST OUR REVENUE AND BUDGET
EXPENSES.
Because of our lengthy sales cycles, we may experience a delay between
increasing expenses for research and development, sales and marketing, and
general and administrative efforts, as well as increasing investments in
inventory, and the generation of revenue, if any, from such expenditures. In
addition, the delays inherent in such lengthy sales cycle raise additional risks
of customer decisions to cancel or change product plans, which could result in
the loss of anticipated sales by us. Our new products are generally incorporated
into our customers' products or systems at the design stage. Achieving a design
win often requires significant expenditures by us without any assurance of
success. Once we have achieved a design win, our sales cycle will start with the
test and evaluation of our products by the potential customer and design of the
customer's equipment to incorporate our products. Generally, different parts
have to be redesigned in order to successfully incorporate our devices into our
customers' products. The sales cycle for the test and evaluation of our products
can range from a minimum of three to six months, and it can take a minimum of an
additional six to nine months before a customer commences volume production of
equipment that incorporates our products. Achieving a design win provides no
assurance that such customer will ultimately ship products incorporating our
products or that such products will be commercially successful. Our revenue or
prospective revenue would be reduced if a significant customer curtails, reduces
or delays orders during our sales cycle, or chooses not to release products
incorporating our products.
OUR CUSTOMERS MAY CANCEL OR DEFER PRODUCT ORDERS, WHICH COULD RESULT IN EXCESS
INVENTORY.
Our sales are generally made pursuant to individual purchase orders that may
be canceled or deferred by customers on short notice without significant
penalty. Cancellation or deferral of product orders could result in us holding
excess inventory, which could seriously harm our profit margins and restrict our
ability to fund our operations. We recognize revenue upon shipment of products
to the customer. Refusal of customers to accept shipped products or delays or
difficulties in collecting accounts receivable could result in significant
charges against income, which could seriously harm our revenues and our cash
flow.
5
<PAGE>
WE MAY EXPERIENCE DIFFICULTIES IN THE INTRODUCTION OF NEW OR ENHANCED PRODUCTS
THAT COULD RESULT IN SIGNIFICANT, UNEXPECTED EXPENSES OR DELAY THEIR LAUNCH,
WHICH WOULD HARM OUR BUSINESS.
Our failure or our customers' failure to develop and introduce new products
successfully and in a timely manner would seriously harm our ability to generate
revenues. Consequently, our success depends on our ability to develop new
products for existing and new markets, introduce such products in a timely and
cost-effective manner and to have such products selected for design into new
products of leading equipment manufacturers, referred to as design wins. The
development of these new devices is highly complex, and from time to time we
have experienced delays in completing the development and introduction of new
products. The successful introduction of a new product may currently take up to
18 months. Successful product development and introduction depends on a number
of factors, including:
- accurate prediction of market requirements and evolving standards;
- accurate new product definition;
- timely completion and introduction of new product designs;
- availability of foundry capacity;
- achieving acceptable manufacturing yields; and
- market acceptance of our products and our customers' products.
IF WE ARE UNABLE TO HIRE OR RETAIN KEY PERSONNEL, WE MIGHT NOT BE ABLE TO
OPERATE OUR BUSINESS SUCCESSFULLY.
We may not be successful in recruiting and retaining executive officers and
other key management and technical personnel. The competition for such employees
is intense, particularly in Silicon Valley and particularly for experienced
mixed-signal circuit designers, systems applications engineers and experienced
executive personnel. A high level of technical expertise is required to support
the implementation of our technology in our existing and new customers'
products. We will need to hire a number of additional technical personnel if we
are to increase the rate at which we develop new products and if we are to
provide adequate technical support to a larger number of customers. In addition,
the loss of the management and technical expertise of Dr. Adya S. Tripathi, our
founder, president and chief executive officer, could seriously harm us. We do
not have any employment contracts with our employees.
IF WE FAIL TO IMPROVE OUR OPERATIONAL SYSTEMS AND CONTROLS TO MANAGE FUTURE
GROWTH, OUR BUSINESS COULD BE SERIOUSLY HARMED.
We have experienced a period of rapid growth, expanding from 22 employees in
December 1997 to 79 employees in March 2000. This expansion has placed, and
continues to place, significant demands on our resources. We must continue to
improve our operational, financial and management information systems to keep
pace with the growth of our business. In particular, the implementation of our
new management information system, which is scheduled to begin in the second
quarter of 2000, may cause problems and result in disruption of our operations.
We cannot be sure that our efforts to improve our systems can be accomplished
successfully.
6
<PAGE>
WE MAY ENGAGE IN ACQUISITIONS THAT MAY HARM OUR OPERATING RESULTS, DILUTE OUR
STOCKHOLDERS AND CAUSE US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.
As part of our business strategy, we expect to review acquisition prospects
that would complement our existing product offerings, augment our market
coverage or enhance our technological capabilities. Our future acquisitions
could result in:
- potentially dilutive issuances of equity securities;
- large one-time write-offs;
- the incurrence of debt and contingent liabilities; and
- the incurrence of amortization expenses related to goodwill and other
intangible assets.
Such actions by us could seriously harm our results of operations and the
price of our common stock. Furthermore, acquisitions entail numerous risks,
including:
- difficulties in the assimilation and integration of operations, personnel,
technologies, products and the information systems of the acquired
companies;
- diversion of management's attention from other business concerns;
- risks of entering geographic or business markets in which we have no or
limited prior experience; and
- the potential loss of key employees.
Since we have not made any material acquisitions in the past, we cannot be
sure that we will be able to successfully integrate any businesses, products,
technologies or personnel that might be acquired in the future.
RISKS RELATED TO MANUFACTURING
WE DEPEND ON TWO OUTSIDE FOUNDRIES FOR OUR SEMICONDUCTOR DEVICE MANUFACTURING
REQUIREMENTS.
We do not own or operate a fabrication facility, and substantially all of
our semiconductor device requirements are currently supplied by two outside
foundries, United Microelectronics Corporation, or UMC, in Taiwan and
STMicroelectronics Group in Europe. Although we primarily utilize these two
outside foundries, most of our components are not manufactured at both foundries
at any given time. As a result, each foundry is a sole source for certain
products. There are significant risks associated with our reliance on outside
foundries, including:
- the lack of guaranteed wafer supply;
- limited control over delivery schedules, quality assurance and control,
manufacturing yields and production costs; and
- the unavailability of or delays in obtaining access to key process
technologies.
In addition, the manufacture of integrated circuits is a highly complex and
technologically demanding process. Although we work closely with our foundries
to minimize the likelihood of reduced manufacturing yields, our foundries have
from time to time experienced lower than anticipated manufacturing yields,
particularly in connection with the introduction of new products and the
installation and start-up of new process technologies. Due to supply shortages
in the wafer market, our wafer supply costs have increased significantly from
the first quarter to the second quarter of 2000.
We provide our foundries with continuous forecasts of our production
requirements; however, the ability of each foundry to provide us with
semiconductor devices is limited by the foundry's available capacity. In many
cases, we place our orders on a purchase order basis, and foundries may allocate
7
<PAGE>
capacity to the production of other companies' products while reducing the
deliveries to us on short notice. In particular, foundry customers that are
larger and better financed than us or that have long-term agreements with our
foundries may cause such foundries to reallocate capacity in a manner adverse to
us. In addition, if we choose to use a new foundry, several months are typically
required to complete the qualification process before we can begin shipping
products from the new foundry. If we encounter shortage or delays in obtaining
semiconductor devices for our products in sufficient quantities when required,
delivery of our products could be delayed, resulting in customer dissatisfaction
and decreased revenues. In the event either foundry suffers any damage or
destruction to our respective facilities, or in the event of any other
disruption of foundry capacity, we may not be able to qualify alternative
manufacturing sources for existing or new products in a timely manner. Even our
current outside foundries would need to have certain manufacturing processes
qualified in the event of disruption at another foundry, which we may not be
able to accomplish in a timely enough manner to prevent an interruption in
supply of the affected products.
WE DEPEND ON THIRD-PARTY SUBCONTRACTORS FOR MOST OF OUR SEMICONDUCTOR ASSEMBLY
AND TESTING REQUIREMENTS AND ANY UNEXPECTED INTERRUPTION IN THEIR SERVICES COULD
CAUSE US TO MAKE SCHEDULED SHIPMENTS TO CUSTOMERS AND TO LOSE REVENUES.
Semiconductor assembly and testing are complex processes which involve
significant technological expertise and specialized equipment. As a result of
our reliance on third-party subcontractors for assembly and testing of our
products, we cannot directly control product delivery schedules, which has in
the past, and could in the future, result in product shortages or quality
assurance problems that could increase the costs of manufacture, assembly or
testing of our products. Almost all of our products are assembled and tested by
one of four subcontractors, AMBIT Microsystems Corporation, or AMBIT, in Taiwan,
ST Assembly Test Services Ltd. in Singapore, Amkor Technology, Inc., or Amkor,
in the Philippines, and ISE Labs Assembly in the United States. We do not have
long-term agreements with any of these suppliers and retain their services on a
per order basis. The availability of assembly and testing services from these
subcontractors could be adversely affected in the event a subcontractor suffers
any damage or destruction to our respective facilities, or in the event of any
other disruption of assembly and testing capacity. Due to the amount of time
normally required to qualify assemblers and testers, if we are required to find
alternative manufacturing assemblers or testers of our components, shipments
could be delayed. Any problems associated with the delivery, quality or cost of
our products could seriously harm our business.
FAILURE TO TRANSITION OUR PRODUCTS TO INCREASINGLY SMALLER SEMICONDUCTOR CHIP
SIZES AND PACKAGING COULD INCREASE OUR COST OF PRODUCTION AND REDUCE OUR GROSS
MARGINS CAUSING US TO LOSE COMPETITIVE ADVANTAGES.
We evaluate the benefits, on a product-by-product basis, of migrating to
smaller semiconductor process technologies in order to reduce costs and have
commenced migration of some products to smaller semiconductor processes. We
believe that the transition of our products to increasingly smaller
semiconductor will be important for us to reduce manufacturing costs and to
remain competitive. Moreover, we are dependent on our relationships with our
foundries to migrate to smaller semiconductor processes successfully. We cannot
be sure that our future process migrations will be achieved without
difficulties, delays or increased expenses. Our gross margins would be seriously
harmed if any such transition is substantially delayed or inefficiently
implemented.
OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS INHERENT IN DOING BUSINESS ON
AN INTERNATIONAL LEVEL THAT COULD HARM OUR OPERATING RESULTS.
We currently obtain almost all of our manufacturing, assembly and test
services from suppliers located outside the United States and may expand our
manufacturing activities abroad. Approximately
8
<PAGE>
95.3% of our total revenue in the three months ended March 31, 2000 was derived
from sales to independent customers based outside the United States. In 1999,
approximately 94.6% of our total revenue was derived from sales to independent
customers based outside of the United States. In addition, we often ship
products to our domestic customers' international manufacturing divisions and
subcontractors. Accordingly, we are subject to risks inherent in international
operations, which include:
- political, social and economic instability;
- trade restrictions and tariffs;
- the imposition of governmental controls;
- exposure to different legal standards, particularly with respect to
intellectual property;
- import and export license requirements;
- unexpected changes in regulatory requirements;
- difficulties in collecting receivables; and
- potentially adverse tax consequences.
In particular, certain Asian countries have in recent years experienced
significant economic difficulties, including currency devaluation and
instability, business failures and a generally depressed business climate,
particularly in the semiconductor industry. In view of our reliance on Asian
foundries and assemblers, and our expanded international operations, any future
economic downturns in the Asian economy may seriously harm our business.
Moreover, demand for our products could be harmed by seasonality of
international sales and economic conditions in our primary overseas markets. All
of our international sales to date have been denominated in U.S. dollars. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets.
Conversely, a decrease in the value of the U.S. dollar relative to foreign
currencies would increase the cost of our overseas manufacturing, which would
reduce our gross margins.
SOME OF OUR MANUFACTURERS AND CUSTOMERS ARE LOCATED IN GEOGRAPHIC REGIONS WITH
INCREASED RISKS OF NATURAL DISASTERS, LABOR STRIKES OR POLITICAL UNREST, WHICH
COULD DISRUPT OUR OPERATIONS.
Some of our manufacturers and customers are located in the Pacific Rim
region. The risk of earthquakes in this region, particularly in Taiwan, is
significant due to the proximity of major earthquake fault lines. Earthquakes,
fire, flooding and other natural disasters in the Pacific Rim region likely
would result in the disruption of our foundry partners' assembly and testing
capacity and the ability of our customers to purchase our products. Labor
strikes or political unrest in these regions would likely also disrupt
operations of our foundries and customers. In particular, recently there has
been political unrest between China and Taiwan. Any disruption resulting from
such events could cause significant delays in shipments of our products until we
are able to shift our manufacturing, assembly and testing from the affected
contractor to another third-party vendor. We cannot be sure that such
alternative capacity could be obtained on favorable terms, if at all. Moreover,
any such disruptions could also cause significant decreases in our sales to
these customers until our customers resume normal purchasing volumes.
9
<PAGE>
RISKS RELATED TO OUR PRODUCT LINES
OUR ABILITY TO ACHIEVE REVENUE GROWTH WILL BE HARMED IF WE ARE UNABLE TO
PERSUADE ELECTRONIC SYSTEMS MANUFACTURERS TO ADOPT OUR NEW AMPLIFIER TECHNOLOGY.
We face difficulties in persuading manufacturers to adopt our products using
our new amplifier technology. Traditional amplifiers use design approaches
developed in the 1930s. These approaches are still used in most amplifiers and
engineers are familiar with these design approaches. In order to adopt our
products, manufacturers and engineers must understand and accept our new
technology. To take advantage of our products, manufactures must redesign their
systems, particularly components such as the power supply and heat sinks.
Manufacturers must work with their suppliers to obtain modified components and
they often must complete lengthy evaluation and testing. In addition, our
amplifiers are often more expensive as components than traditional amplifiers.
For these reasons, prospective customers may be reluctant to accept our
technology.
WE CURRENTLY DEPEND ON DIFFERENT MARKET SEGMENTS OF THE AUDIO ELECTRONICS
INDUSTRY FOR OUR SUCCESS.
A substantial portion of our current revenue is generated from sales of
products that address the high-end consumer audio markets, including home
theater, computer audio, and the automotive audio markets. These markets are
characterized by frequent new product introductions, declining prices and
intense competition. Pricing in these markets is aggressive, and we expect
pricing pressure to continue. In the computer audio segment, our success depends
on consumer awareness and acceptance of existing and new products by our
customers and consumers in particular, the elimination of externally-powered
speakers. In the automotive audio segment, we face pressure from our customers
to deliver increasingly higher-powered solutions under significant engineering
limitations due to the size constraints in car dashboards. In addition, our
ability to obtain prices higher than the prices of traditional amplifiers will
depend on our ability to educate manufacturers and their customers about the
benefits of our products. Failure of our customers and consumers to accept our
existing or new products will seriously harm our operating results.
IF WE ARE NOT SUCCESSFUL IN DEVELOPING AND MARKETING NEW AND ENHANCED PRODUCTS
FOR THE DSL HIGH SPEED COMMUNICATIONS MARKETS THAT KEEP PACE WITH TECHNOLOGY AND
OUR CUSTOMERS' NEEDS, OUR OPERATING RESULTS WILL SUFFER.
The market for our DSL products is new and emerging, and is characterized by
rapid technological advances, intense competition and a relatively small number
of potential customers. This will likely result in price erosion on existing
products and pressure for cost-reduced future versions. We are currently
sampling and field testing our first product for the DSL market and we have not
received any large volume orders. Implementation of our products require
manufacturers to accept our technology and redesign their products. If potential
customers do not accept our technology or experience problems implementing our
devices in their products, our products could be rendered obsolete and our
business would be harmed. If we are unsuccessful in introducing future products
with increased performance, our ability to achieve revenue growth will be
seriously harmed.
WE MAY EXPERIENCE DIFFICULTIES IN THE INTRODUCTION OF AMPLIFIER PRODUCTS FOR USE
IN THE CELLULAR PHONE MARKET THAT COULD RESULT IN SIGNIFICANT EXPENSES OR DELAY
IN THEIR LAUNCH.
We are currently developing a line of amplifier products for use in the
cellular phone market. The first in this family of products is being designed
for use in particular types of cellular phones which use a transmission method
known as Code Division Multiple Access, or CDMA. We currently have no design
wins or customers for these products under development. We may not introduce our
amplifier products for the cellular phone market on time, and such products may
never achieve market
10
<PAGE>
acceptance. Furthermore, competition in the cellular phone market is likely to
result in price reductions, shorter product life cycles, reduced gross margins
and longer sales cycles.
INTENSE COMPETITION IN THE SEMICONDUCTOR INDUSTRY AND IN THE CONSUMER AUDIO AND
COMMUNICATIONS MARKETS COULD PREVENT US FROM ACHIEVING OR SUSTAINING
PROFITABILITY.
The consumer audio, personal computer, communications and semiconductor
industries are highly competitive. We compete with a number of major domestic
and international suppliers of semiconductors in the audio and communications
markets. We also may face competition from suppliers of products based on new or
emerging technologies. Many of our competitors operate their own fabrication
facilities and have longer operating histories and presence in key markets,
greater name recognition, access to larger customer bases and significantly
greater financial, sales and marketing, manufacturing, distribution, technical
and other resources than us. As a result, such competitors may be able to adapt
more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the promotion and sale of their
products than us. Current and potential competitors have established or may
establish financial or strategic relationships among themselves or with existing
or potential customers, resellers or other third parties. Accordingly, it is
possible that new competitors or alliances among competitors could emerge and
rapidly acquire significant market share. In addition, existing or new
competitors may in the future develop technologies that more effectively address
the transmission of digital information through existing analog infrastructures
at a lower cost or develop new technologies that may render our technology
obsolete. We cannot assure you that we will be able to compete successfully in
the future against our existing or potential competitors, or that our business
will not be harmed by increased competition.
OUR PRODUCTS ARE COMPLEX AND MAY HAVE ERRORS AND DEFECTS THAT ARE DETECTED ONLY
AFTER DEPLOYMENT IN CUSTOMERS PRODUCTS, WHICH MAY HARM OUR BUSINESS.
Products such as those that we offer frequently contain errors and defects
when first introduced or as new versions are released. We have in the past
experienced such errors and defects, in particular in the development stage of a
new product. Delivery of products with production defects or reliability,
quality or compatibility problems could significantly delay or hinder market
acceptance of such products, which could damage our reputation and seriously
harm our ability to retain our existing customers and to attract new customers.
Moreover, such errors and defects could cause problems, interruptions, delays or
a cessation of sales to our customers. Alleviating such problems may require
significant expenditures of capital and resources. Despite testing conducted by
us, our suppliers and our customers, we can not be sure that errors and defects
will not be found in new products after commencement of commercial production.
Such errors and defects could result in additional development costs, loss of,
or delays in, market acceptance, diversion of technical and other resources from
our other development efforts, product repair or replacement costs, claims by
our customers or others against us, or the loss of credibility with our current
and prospective customers. Any such event could result in the delay or loss of
marked acceptance of our products and would likely harm our business.
DOWNTURNS IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY AND RAPID TECHNOLOGICAL
CHANGE COULD RESULT IN SUBSTANTIAL PERIOD-TO-PERIOD FLUCTUATIONS IN WAFER
SUPPLY, PRICING AND AVERAGE SELLING PRICES WHICH MAKE IT DIFFICULT TO PREDICT
OUR FUTURE PERFORMANCE.
We provide semiconductor devices to the audio, personal computer and
communications markets. The semiconductor industry is highly cyclical and
subject to rapid technological change and has been subject to significant
economic downturns at various times, characterized by diminished product demand,
accelerated erosion of average selling prices and production overcapacity. The
semiconductor industry also periodically experiences increased demand and
production capacity constraints. As a
11
<PAGE>
result, we may experience substantial period-to-period fluctuations in future
results of operations due to general semiconductor industry conditions, overall
economic conditions or other factors, many of which are outside our control. Due
to these risks, you should not rely on period-to-period comparisons to predict
our future performance.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS MAY BE INSUFFICIENT TO PROTECT
OUR COMPETITIVE POSITION.
Our business depends, in part, on our ability to protect our intellectual
property. We rely primarily on patent, copyright, trademark and trade secret
laws to protect our proprietary technologies. We cannot be sure that such
measures will provide meaningful protection for our proprietary technologies and
processes. We have five issued United States patents, two allowed United States
patent applications and 20 additional United States patent applications which
are pending. We cannot be sure that any patent will issue as a result of these
applications or future applications or, if issued, that any claims allowed will
be sufficient to protect our technology. In addition, we cannot be sure that any
existing or future patents will not be challenged, invalidated or circumvented,
or that any right granted thereunder would provide our meaningful protection.
The failure of any patents to provide protection to our technology would make it
easier for our competitors to offer similar products. In connection with our
participation in the development of various industry standards, we may be
required to agree to license certain of our patents to other parties, including
our competitors, that develop products based upon the adopted standards.
We also generally enter into confidentiality agreements with our employees
and strategic partners, and generally control access to and distribution of our
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
products, services or technology without authorization, develop similar
technology independently or design around our patents. In addition, effective
copyright, trademark and trade secret protection may be unavailable or limited
in certain foreign countries. Certain of our customers have entered into
agreements with us pursuant to which such customers have the right to use our
proprietary technology in the event we default in our contractual obligations,
including product supply obligations, and fail to cure the default within a
specified period of time.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY RIGHTS DISPUTES WHICH COULD DIVERT
MANAGEMENT'S ATTENTION AND COULD BE COSTLY.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights. From time to time, we may receive in
the future, notices of claims of infringement, misappropriation or misuse of
other parties' proprietary rights. We cannot be sure that we will prevail in
these actions, or that other actions alleging infringement by us of third-party
patents, misappropriation or misuse by us of third-party trade secrets or the
invalidity of one or more patents held by us will not be asserted or prosecuted
against us, or that any assertions of infringement, misappropriation or misuse
or prosecutions seeking to establish the invalidity of our patents will not
seriously harm our business. For example, in a patent or trade secret action, an
injunction could be issued against us requiring that we withdraw particular
products from the market or necessitating that specific products offered for
sale or under development be redesigned.
We have also entered into certain indemnification obligations in favor of
our customers and strategic partners that could be triggered upon an allegation
or finding of our infringement, misappropriation or misuse of other parties'
proprietary rights. Irrespective of the validity or successful assertion of such
claims, we would likely incur significant costs and diversion of our management
and personnel resources with respect to the defense of such claims, which could
also seriously harm our
12
<PAGE>
business. If any claims or actions are asserted against us, we may seek to
obtain a license under a third party's intellectual property rights. We cannot
be sure that under such circumstances a license would be available on
commercially reasonable terms, if at all. Moreover, we often incorporate the
intellectual property of our strategic customers into our designs, and we have
certain obligations with respect to the non-use and non-disclosure of such
intellectual property. We cannot be sure that the steps taken by us to prevent
our, or our customers', misappropriation or infringement of the intellectual
property will be successful.
RISKS RELATING TO OUR COMMON STOCK AND THE OFFERING
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE MAY
DECLINE AFTER THIS OFFERING.
Prior to this offering, you could not buy or sell our common stock on a
public market. The initial public offering price of our common stock will be
determined by negotiation among us and representatives of the underwriters and
may not be indicative of the price that will prevail in the open market after
this offering. In addition, we cannot be certain that an active trading market
for our common stock will develop or be sustained, or that the price of our
stock will not decline after this offering.
MARKET FLUCTUATIONS COULD NEGATIVELY IMPACT THE MARKET PRICE OF OUR COMMON
STOCK.
The stock markets, and in particular the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many technology
companies. These fluctuations often have been unrelated or disproportionate to
the operating performance of those companies. We expect that the market price of
our common stock will fluctuate as a result of variations in our quarterly
operating results. These fluctuations may be exaggerated if the trading volume
of our common stock is low. In addition, due to the technology-intensive and
emerging nature of our business, the market price for our common stock may rise
and fall in response to various factors including:
- announcements of technological innovations or new products, or competitive
developments;
- changes in earnings estimates or investment recommendations by securities
analysts;
- investor perceptions and expectations regarding the products;
- acquisitions or strategic alliances by us or our competitors; and
- the gain or loss of a significant customer or order.
In addition, market fluctuations, as well as general economic, political and
market conditions such as recessions, interest rate changes or international
currency fluctuations, may negatively impact the market price of our common
stock.
BECAUSE A LIMITED NUMBER OF PERSONS, INCLUDING DIRECTORS AND EXECUTIVE OFFICERS,
OWN A MAJORITY OF OUR COMMON STOCK AND THEREFORE CONTROL OUR COMPANY, DECISIONS
MAY BE MADE BY THEM THAT MAY BE DETRIMENTAL TO YOUR INTERESTS.
Immediately following the offering, our directors and executive officers
will beneficially own approximately % of the outstanding common stock. In
particular, immediately following the offering, our founder, Dr. Adya Tripathi,
will beneficially own an aggregate of approximately % of the outstanding
common stock. Accordingly, such persons will have sufficient voting power to
control the outcome of matters, including the election of a majority of the
board of directors, and any merger, consolidation or sale of all or
substantially all of our assets, submitted to our stockholders for approval and
will also have control over our management and affairs. As a result of such
control, these
13
<PAGE>
stockholders will be able to control the outcome of corporate actions requiring
stockholder approval. These corporate actions include proxy contests, mergers
involving us, tender offers, open market purchase programs or other purchases of
common stock that could give our stockholders the opportunity to realize a
premium over the then prevailing market price for their shares of common stock.
This concentration of ownership could also adversely affect our stock's market
price.
SALES OF SUBSTANTIAL AMOUNTS OF COMMON STOCK IN THE PUBLIC MARKET AFTER THIS
OFFERING COULD DEPRESS OUR STOCK PRICE AND COULD IMPAIR OUR ABILITY TO RAISE
CAPITAL THROUGH THE SALE OF ADDITIONAL EQUITY SECURITIES.
Upon completion of the offering, we will have approximately shares of
common stock outstanding. All of these shares will be freely tradable without
restriction or further registration under the federal securities laws, except
for shares purchased in this offering by or held by our affiliates. In addition,
as of March 31, 2000, there were outstanding options and warrants to purchase
4,314,252 shares of common stock. In the future, we may register for resale the
shares underlying the outstanding options and grant additional options.
While our existing stockholders and option holders are generally subject to
lock-up agreements, when these restrictions expire 180 days after the date of
the final prospectus, these shares will be eligible for sale, in some cases
without restriction. In addition, Salomon Smith Barney Inc., in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to the lock-up agreements without notice, which would result in more
shares being available for sale in the public market at an earlier date. A sale
of a substantial number of shares, particularly by our directors and officers,
or the perception that this sale could occur, could have an adverse effect on
the price of our common stock.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF US AND MAY REDUCE THE MARKET PRICE OR OUR COMMON STOCK.
Provisions of our certificate of incorporation and bylaws in effect after
completion of this offering and Delaware law could make it difficult for a third
party to acquire us, even if doing so would be beneficial to our stockholders.
14
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus or incorporated by reference are
forward-looking, including, without limitation, the statements under the
captions "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." You
can identify these statements by the use of words like "may," "will," "could,"
"should," "project," "believe," "anticipate," "expect," "plan," "estimate,"
"forecast," "potential," "intend," "continue" and variations of these words or
comparable words. Forward-looking statements do not guarantee future performance
and involve risks and uncertainties. Actual results may differ substantially
from the results that the forward-looking statements suggest for various
reasons, including those discussed under "Risk Factors."
15
<PAGE>
USE OF PROCEEDS
We will receive estimated net proceeds of approximately $ from the sale of
shares of our common stock in this offering at an assumed initial public
offering price of $ per share, after deducting the underwriting discount and
estimated offering expenses. We expect to use the net proceeds from this
offering to expand our sales and marketing activities, to invest in research and
development for new and enhanced products and technologies, and for working
capital and general corporate purposes, including strategic acquisitions of, or
investments in related businesses, product lines and technologies. We currently
have no commitments or agreements relating to any such transactions. Pending use
of the net proceeds, we will invest the net proceeds in short-term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on shares of our common stock.
We currently intend to retain future earnings, if any, for use in our business,
and do not anticipate paying any cash dividends in the foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. The
pro forma column gives effect to the conversion of all outstanding shares of
convertible preferred stock into shares of common stock upon the closing of this
offering. The pro forma as adjusted column gives effect to our sale and issuance
of shares of common stock in this offering at an assumed initial public
offering price of $ per share and after deducting the estimated
underwriting discount and offering expenses. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Convertible preferred stock................................. $ 49,611 $ -- $ --
--------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value, 60,000,000 shares
authorized, 11,298,480 shares issued and outstanding,
actual; 20,383,046 shares issued and outstanding, pro
forma; shares issued and outstanding, pro forma as
adjusted................................................ 11 20
Additional paid-in capital................................ 61,285 110,887
Stockholder notes receivable.............................. (736) (736) (736)
Deferred stock-based compensation......................... (14,380) (14,380) (14,380)
Accumulated deficit....................................... (80,489) (80,489) (80,489)
--------- -------- --------
Total stockholders' equity (deficit)...................... (34,309) 15,302
--------- -------- --------
Total capitalization.................................... $ 15,302 $ 15,302 $
========= ======== ========
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:
- 6,274,502 shares of common stock issuable as of April 14, 2000 upon the
exercise of outstanding stock options under our stock option plans at a
weighted average exercise price of $4.67 per share;
- 121,250 shares of common stock issuable upon the exercise of outstanding
warrants with a weighted average exercise price of $1.08 per share.
17
<PAGE>
DILUTION
Purchasers of the common stock offered by this prospectus will suffer an
immediate and substantial dilution in the net tangible book value per share.
Dilution is the amount by which the initial public offering price paid by the
purchasers of the shares of common stock will exceed the net tangible book value
per share of common stock after the offering. The net tangible book value per
share of common stock is determined by subtracting total liabilities from the
total book value of the tangible assets and dividing the difference by the
number of shares of common stock deemed to be outstanding on the date the book
value is determined. As of March 31, 2000, we had a negative tangible book value
of $ million, or $ per share. After giving effect to this offering at
an assumed initial public offering price of $ per share, the application of
the proceeds of this offering as described under "Use of Proceeds," and after
deducting the assumed underwriters' discount and estimated offering expenses,
our pro forma tangible book value as of March 31, 2000, would have been $
million, or $ per share. This represents an immediate increase in net
tangible book value to existing stockholders of $ per share and an
immediate dilution to new investors of $ per share. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
PER SHARE
---------
<S> <C> <C>
Assumed initial public offering price....................... $
Net tangible book value per share before this offering.... $
Increase in net tangible book value per share attributable
to this offering........................................
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution to new investors................................... $
========
</TABLE>
The following table summarizes on a pro forma as adjusted basis as of
March 31, 2000, the number of shares of common stock purchased from us, the
estimated value of the total consideration paid for or attributed to such common
stock, and the average price per share paid by or attributable to existing
stockholders and new investors purchasing shares in this offering at an assumed
initial public offering price of $ per share and after deducting the
underwriting discount.
<TABLE>
<CAPTION>
SHARES OF COMMON TOTAL CASH
STOCK CONSIDERATION
PURCHASED OR ------------------------
CONVERTED (IN MILLIONS) AVERAGE
--------------------- ------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 11,298,480 % $ 1.3 % $0.12
Converting preferred stockholders........... 9,084,566 49.6 5.46
New investors...............................
------ ------
Total..................................... 100.0% $ 100.0%
========== ====== ===== ======
</TABLE>
The existing stockholders will hold shares of % of the total number of
shares of common stock outstanding after this offering.
The foregoing tables assume no exercise of any outstanding stock options to
purchase common stock under our 2000 Employee Stock Purchase Plan, 1995 Stock
Plan and 2000 Stock Plan and no exercise of warrants. As of March 31, 2000,
there were outstanding options to purchase an additional 4,193,002 shares of
common stock at a weighted average exercise price of $1.39 per share and
outstanding warrants to purchase an additional 121,250 shares of common stock at
an exercise price of $1.08 per share. If all of the options and warrants have
been exercised in connection with the offering, the pro forma as adjusted
tangible book value as of March 31, 2000 would have been $ million and the pro
forma net tangible book value per share would have been $ per share, causing
dilution to new investors of $ .
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<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes appearing elsewhere in this
prospectus. The balance sheet data as of December 31, 1998 and 1999 and the
statement of operations data for the years ended December 31, 1997, 1998 and
1999 have been derived from our audited financial statements appearing elsewhere
in this prospectus. The balance sheet data as of December 31, 1995, 1996 and
1997 and the statement of operations data for the year ended December 31, 1996
and for the period from July 18, 1995 (inception) to December 31, 1995 have been
derived from audited financial statements not included in this prospectus. The
balance sheet data as of March 31, 2000 and the statement of operations data for
the three months ended March 31, 1999 and 2000 have been derived from unaudited
financial statements appearing elsewhere in this prospectus. Our unaudited
financial statements were prepared by our management on the same basis as the
audited financial statements appearing elsewhere in this prospectus and, in our
opinion, include all adjustments necessary to present the information in
accordance with generally accepted accounting principles. Results for the three
months ended March 31, 2000 are not necessarily indicative of results that may
be expected for the year ending December 31, 2000.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 18, 1995 THREE MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, MARCH 31,
-------------- ----------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ -- $ -- $ -- $ 180 $ 648 $ 32 $ 742
Cost of revenue.................. -- -- -- 196 2,420 19 1,263
------ ------- ------- -------- -------- ------- --------
Gross profit (loss).............. -- -- -- (16) (1,772) 13 (521)
------ ------- ------- -------- -------- ------- --------
Operating expenses:
Research and development....... 17 1,111 2,055 5,409 11,429 2,354 2,921
Selling, general and
administrative............... 211 599 1,062 5,096 6,056 1,456 1,226
Stock-based compensation....... -- -- 96 24,138 13,813 2,899 6,242
------ ------- ------- -------- -------- ------- --------
Total operating expenses......... 228 1,710 3,213 34,643 31,298 6,709 10,389
------ ------- ------- -------- -------- ------- --------
Loss from operations............. (228) (1,710) (3,213) (34,659) (33,070) (6,696) (10,910)
Interest income.................. 40 193 442 1,002 1,368 407 256
------ ------- ------- -------- -------- ------- --------
Net loss......................... $ (188) $(1,517) $(2,771) $(33,657) $(31,702) $(6,289) $(10,654)
====== ======= ======= ======== ======== ======= ========
Basic and diluted net loss per
share.......................... $(0.05) $ (0.17) $ (0.28) $ (3.32) $ (2.98) $ (0.62) $ (0.96)
====== ======= ======= ======== ======== ======= ========
Number of shares used to compute
basic and diluted net loss per
share.......................... 4,098 8,850 9,844 10,143 10,624 10,188 11,049
====== ======= ======= ======== ======== ======= ========
Pro forma basic and diluted net
loss per share................. $ (1.61) $ (0.53)
======== ========
Number of shares used to compute
pro forma basic and diluted net
loss per share................. 19,709 20,134
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, short-term
investments and restricted cash........... $1,918 $ 3,829 $16,125 $ 33,955 $ 17,403 $ 13,475
Working capital............................. 1,911 3,667 15,952 34,029 17,081 12,816
Total assets................................ 2,008 4,659 17,244 37,391 21,714 18,018
Convertible preferred stock................. 2,167 6,156 21,127 49,611 49,611 49,611
Total stockholder's equity (deficit)........ (186) (1,703) (4,172) (13,427) (30,262) (34,309)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes appearing elsewhere in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ significantly from those
projected in the forward-looking statements as a result of certain factors,
including those discussed in "Risk Factors," "Business" and elsewhere in this
prospectus.
OVERVIEW
We design and sell amplifiers based on our proprietary Digital Power
Processing technology. We are supplying amplifiers for audio electronics
applications, and we have begun offering amplifiers for DSL applications. We
were incorporated in July 1995, and we began shipping products in the first
quarter of 1998. Accordingly, we have limited historical financial information
and operating history upon which you may evaluate us and our prospects. We
incurred net losses of approximately $10.7 million in the three months ended
March 31, 2000, $31.7 million in 1999 and $33.7 million in 1998. We expect to
continue to incur net losses and these losses may be significant.
We sell our products to original equipment manufacturers and distributors.
We recognize revenue on sales to original equipment manufacturers at the time of
product shipment, net of sales returns and allowances. We recognize revenue on
sales to distributors only when the products are sold by the distributors to end
users. All of our sales are made in U.S. dollars.
We currently use independent suppliers to manufacture, test and assemble all
of our products. Cost of revenue includes third party manufacturing, test and
assembly costs as well as salaries and overhead costs associated with employees
engaged in activities related to manufacturing. Research and development expense
consists primarily of salaries and related overhead costs associated with
employees engaged in research, design and development activities as well as the
cost of mask sets, wafers and other materials and related services used in the
development process. Selling, general and administrative expense consists
primarily of employee compensation and related overhead expenses and advertising
and marketing expenses.
Stock-based compensation expense relates both to stock-based employee and
consultant compensation arrangements. Employee-related stock-based compensation
expense is based on the difference between the deemed fair value of our common
stock on the date of grant and the exercise price of options to purchase that
stock and is being recognized on an accelerated basis over the vesting periods
of the related options, usually four years, or in the case of fully vested
options, in the period of grant. In January 1997 and March 1998, our President
exercised fully-vested stock options and made payment in the form of
non-recourse notes totaling $636,000. The compensation costs associated with
shares purchased with non-recourse notes have been remeasured at each period
end, and to the extent the deemed fair market value of our stock has increased
during the period, we have recorded additional compensation expense. Total
compensation expense recognized up to March 31, 2000 for these shares is
$14.2 million. The notes are no longer outstanding. Consultant stock-based
compensation expense is based on the Black-Scholes option pricing model. Future
compensation charges will be reduced if any employee or consultant terminates
employment or consultation prior to the expiration of the option vesting period.
The amortization of stock-based compensation is classified as a separate
component of operating expenses in our statement of operations.
20
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
REVENUE. Revenue for the three months ended March 31, 2000 was $742,000, an
increase of $710,000 from revenue of $32,000 in the three months ended
March 31, 1999. The increase in revenue resulted primarily from sales of our
TA2020 digital audio amplifier, which we introduced in October 1999 and began
shipping in volume in the first quarter of 2000. Sales to Komatsu Semiconductor
Corporation, the majority of which relate to Sony Corporation, and sales to
Creative Technology Ltd. accounted for approximately 68.0% and 14.1%, of revenue
in the three months ended March 31, 2000 and 78.4% and 0.0%, of revenue in the
three months ended March 31, 1999. Sales to our five largest customers
represented approximately 96.8% of revenue in the three months ended March 31,
2000 and 97.8% of revenue in the three months ended March 31, 1999.
GROSS PROFIT (LOSS). Gross loss for the three months ended March 31, 2000
was $521,000 or 70.2% of revenue, a decrease of $534,000 from gross profit of
$13,000 or 40.6% of revenue in the three months ended March 31, 1999. The gross
loss for the three months ended March 31, 2000 included a charge of $273,000
primarily associated with inventory and accruals relating to price concessions
made to one customer in order to accelerate the acceptance and introduction of a
product in a new market segment. The price concession relates to one of the
customer's products and is expected to continue through 2000. As a result of
this price concession, we expect to incur gross losses on sales of this
particular product to this customer throughout 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
months ended March 31, 2000 were $2.9 million, an increase from $2.4 million for
the three months ended March 31, 1999. The increase in dollars primarily
resulted from an increase in related salaries and an increase in product
development expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended March 31, 2000 were
$1.2 million, a decrease from $1.5 million for the three months ended March 31,
1999. Expenses were higher in the three months ended March 31, 1999, largely as
a result of a higher number of sales personnel and higher facility costs in the
three months ended March 31, 1999.
STOCK-BASED COMPENSATION. We recorded total stock-based compensation
expense of $2.9 million and $6.2 million in the three month periods ended
March 31, 1999 and 2000. The 2000 charge includes $0.8 million resulting from
the increase in the deemed fair value of our stock relating to the stock
purchased by our President in 1997 and 1998 with non-recourse notes.
INTEREST INCOME. We maintain a conservative investment portfolio which is
currently comprised of highly rated, short-term investments. Interest income
reflects interest earned on average cash, cash equivalents and short-term
investment balances. Interest income for the three months ended March 31, 2000
was $256,000, a decrease of $151,000 from interest income of $407,000 in the
three months ended March 31, 1999. The decrease in interest income reflected a
decrease in our cash equivalents and short-term investments.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUE. Revenue for 1999 was $648,000, an increase of $468,000 or 260.0%
from revenue of $180,000 in 1998. We had no revenue prior to 1998. Revenue in
1998 included $32,000 for a non-recurring engineering project. The increase in
revenue from 1998 to 1999 resulted from increased sales of our initial products
and from the introduction of our TA2020 product in the fourth quarter of 1999.
21
<PAGE>
GROSS PROFIT (LOSS). Gross loss for 1999 was $1.8 million, compared to a
gross loss of $16,000 in 1998. The gross loss for 1999 included a charge of
$1.5 million primarily associated with the write-down of inventory and accruals
relating to price concessions offered to one customer, as described above.
RESEARCH AND DEVELOPMENT. Research and development expenses for 1999 were
$11.4 million, an increase of $6.0 million or 111.3% from research and
development expenses of $5.4 million in 1998. Research and development expenses
for 1998 increased $3.3 million or 163.2% from research and development expenses
of $2.1 million in 1997. The increase in research and development expenses from
1997 to 1998 was primarily as a result of increased staffing, from 18 personnel
at the end of 1997 to 58 at the end of 1998, and increased facility costs and
expenses. The increase in research and development expenses from 1998 to 1999
resulted primarily from an increase in related salaries and product development
expenses. We continue to invest in research and development and expect that the
dollar amount of research and development expenses will continue to increase in
future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1999 were $6.1 million, an increase of $1.0 million
or 18.8% from selling, general and administrative expenses of $5.1 million in
1998. Selling, general and administrative expenses for 1998 increased
$4.0 million from $1.1 million in 1997. The increase in selling, general and
administrative expenses from 1997 to 1998 primarily reflected the introduction
of our first products in 1998 and an increase in our sales and marketing
personnel and other marketing expenses. The increase in selling, general and
administrative expenses from 1998 to 1999 resulted primarily from an expansion
of our sales department. We expect that the dollar amount of selling, general
and administrative expenses will continue to increase in future periods as we
continue to expand our sales and marketing activities and as we incur costs
related to operating as a public company.
STOCK-BASED COMPENSATION. We recorded stock-based compensation expense of
$13.8 million, $24.1 million and $96,000 in 1999, 1998 and 1997. The 1999 and
1998 charges include $0.6 million and $12.9 million resulting from the increase
in the deemed fair value of our stock relating to the stock purchased by our
President in 1997 and 1998 with non-recourse notes.
INTEREST INCOME. Interest income for 1999 was $1.4 million, an increase of
$366,000 or 36.5% from interest income of $1.0 million in 1998. Interest income
for 1998 increased $560,000 or 126.7% from interest income of $442,000 in 1997.
In each year, the increase in interest income resulted from increases in our
average cash equivalents and short-term investment balances resulting from our
equity financings.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected quarterly financial information for
each of the nine quarters through March 31, 2000. This information is unaudited
but, in the opinion of our management, reflects all adjustments (consisting only
of normal recurring adjustment) that we consider necessary for a fair
presentation of this information in accordance with generally accepted
accounting principles. These quarterly results are not necessarily indicative of
future results of operations.
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............... $ 106 $ 46 $ -- $ 28 $ 32 $ 72 $ 271 $ 273 $ 742
Cost of revenue....... 26 28 -- 142 19 244 1,159 998 1,263
-------- ------- ------- ------- ------- ------- -------- ------- --------
Gross profit (loss)... 80 18 -- (114) 13 (172) (888) (725) (521)
-------- ------- ------- ------- ------- ------- -------- ------- --------
Operating expenses:
Research and
development....... 741 1,094 1,365 2,209 2,354 3,170 3,223 2,682 2,921
Selling, general and
administrative.... 749 930 1,579 1,838 1,456 1,573 1,427 1,600 1,226
Stock-based
compensation...... 13,532 2,184 5,251 3,171 2,899 1,066 6,646 3,202 6,242
-------- ------- ------- ------- ------- ------- -------- ------- --------
Total operating
expenses............ 15,022 4,208 8,195 7,218 6,709 5,809 11,296 7,484 10,389
-------- ------- ------- ------- ------- ------- -------- ------- --------
Loss from
operations.......... (14,942) (4,190) (8,195) (7,332) (6,696) (5,981) (12,184) (8,209) (10,910)
Interest income....... 237 252 194 319 407 394 314 253 256
-------- ------- ------- ------- ------- ------- -------- ------- --------
Net loss.............. $(14,705) $(3,938) $(8,001) $(7,013) $(6,289) $(5,587) $(11,870) $(7,956) $(10,654)
======== ======= ======= ======= ======= ======= ======== ======= ========
</TABLE>
REVENUE. Revenue in the first half of 1998 consisted of non-recurring
engineering fees and initial sales of our TA1101 product.
GROSS PROFIT (LOSS). Gross profit (loss) fluctuates as a result of changes
in subcontracted manufacturing, test and assembly costs and as a result of
changes in the average sales price of each product and product mix. For example,
wafer manufacturing prices have increased substantially from the first quarter
to the second quarter of 2000 as a result of overall supply shortages in the
semiconductor market. As explained above, price concessions associated with an
initial product launch have affected gross profit (loss) in 1999 and will
continue to do so in 2000.
OPERATING EXPENSES. Research and development expenses increased in absolute
dollars throughout 1998 and 1999, primarily due to the addition of personnel to
facilitate the development of our new products. The fluctuation in selling,
general and administrative expenses in each of the quarters was primarily due to
changes in the number of personnel. Also, during the third and fourth quarter of
1998, our website and related marketing information and advertising designs were
developed. Stock-based compensation fluctuates from period to period based on
the number of options granted and the deemed fair market value of our stock.
Our quarterly results of operation have fluctuated significantly in the past
and may continue to fluctuate in the future based on a number of factors, not
all of which are in our control. In particular, our results of operations have
fluctuated in the past and may fluctuate in the future due to many factors,
including:
- fluctuations in wafer costs;
- changes in the number of our employees;
23
<PAGE>
- the volume of product sales;
- selling prices and pricing concessions;
- changes in product mix;
- the introduction of cost-reduced versions of our products; and
- expenses related to tooling and masks for new products.
As a result of the foregoing factors, we believe period to period
comparisons are not necessarily meaningful and should not be relied upon as
indicative of future results.
INCOME TAXES
We have incurred no income tax expense to date. As of December 31, 1999, we
had available federal net operating loss carryforwards of approximately
$28.2 million and state net operating loss carryforwards of approximately
$13.4 million. We also had research and development tax credit carryforwards of
approximately $0.9 million. The net operating loss and credit carryforwards will
expire at various times through 2019. As of December 31, 1999, we had deferred
tax assets of approximately $12 million, which consisted primarily of net
operating loss carryforwards, research and development tax credit carryforwards
and nondeductible reserves and accruals. We have recorded no tax benefit in our
financial statements for these deferred tax assets. Deferred tax assets will be
recognized in future periods as any taxable income is realized and consistent
profits are reported.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the private
sale of our equity securities, primarily the sale of preferred stock. In 1995,
we raised $2.2 million from the sale of preferred stock to OPTi Inc., Sanyo
Semiconductor Corporation and others. In 1996, we raised $3.9 million from the
sale of preferred stock to OPTi Inc., Sanyo Semiconductor Corporation and
others. In 1997, we raised $15.0 million from the sale of preferred stock to
United Microelectronics Corporation, Intel Corporation and others. In 1998, we
raised $28.5 million from the sale of preferred stock to Cisco Systems, Inc.,
and others. As of March 31, 2000, we had $12.8 million in working capital and
$12.5 million in cash and cash equivalents and short-term investments.
We have available a $1.0 million line of credit facility with a financial
institution. The credit facility is secured by an assignment of our deposit
account to such financial institution. As of March 31, 2000, we had no
borrowings outstanding under the credit facility.
Net cash used by operating activities during the year ended December 31,
1997, 1998 and 1999 and the three month periods ending March 31, 1999 and 2000
were $2.2 million, $8.0 million, $17.4 million, 2.4 million and $4.0 million,
respectively. During these periods, cash used by operating activities consisted
primarily of cash utilized to fund operating losses and for working capital.
In 1999 our investing activities produced cash in the amount of
$3.1 million, from the net sale of short-term investments, offset by the
purchase of capital equipment. Our investing activities used cash in the amount
of $9.7 million in 1998 and $4.4 million in 1997 for the purchase of short-term
investments and capital equipment.
In 1999 our financing activities provided cash in the amount of
$1.9 million from the exercise of stock options and proceeds from payment of a
note receivable from a stockholder. In 1998 our financing activities provided
cash in the amount of $27.5 million from the sale of Series D preferred stock.
In 1997 our financing activities provided cash in the amount of $15.0 million
from the sale of Series C preferred stock.
24
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities, and is effective for fiscal
years beginning after June 15, 2000. We believe that adoption of SFAS No. 133
will not have a material impact on our financial position or results of
operations. In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin 101, "Revenue Recognition," which outlines the basic
criteria that must be met to recognize revenue and provided guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission. We believe that complying with SAB 101 will not have a material
impact on our financial position and results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to minimal market risks. We manage the sensitivity of our
results of operations to these risks by maintaining a conservative investment
portfolio, which is comprised solely of highly-rated, short-term investments. We
do not hold or issue derivative, derivative commodity instruments or other
financial instruments for trading purposes.
25
<PAGE>
BUSINESS
We design and sell amplifiers based on our proprietary technology, which we
call Digital Power Processing, that enables us to provide significant
performance, power efficiency, size, weight and cost advantages over traditional
amplifier technology. We target applications where high signal quality and power
efficiency are important. We currently provide amplifiers for several audio
electronics markets. These markets include consumer audio applications such as
DVD players, home theater systems, and Internet devices, computer audio
applications, where our products enable manufacturers to eliminate
externally-powered speakers, and automotive audio applications, including
dashboard and trunk units. We have begun offering amplifiers for use in DSL
equipment. We are developing amplifiers for digital cellular phones, to increase
talk time and battery life, which we expect will be completed in the second half
of 2001.
INDUSTRY BACKGROUND
Amplifiers are essential to virtually all electronic products and systems.
Amplifiers reproduce an input signal, such as a current or a voltage, into an
output signal with higher signal strength. The amplification of a signal is
necessary in a broad range of applications, including consumer electronics,
communications devices, computers, automobiles, industrial equipment and
household appliances. Stereos, for example, use an amplifier to boost a
relatively weak input signal into a signal strong enough to drive the stereo
speakers. A cellular phone uses an amplifier to boost the signals produced by
the voice into a radio signal powerful enough to travel several miles.
The most important measures of an amplifier's performance are linearity,
efficiency and noise immunity. Linearity describes how accurately the amplifier
reproduces the input signal. This means that linearity is a measure of signal
quality. High linearity is especially important in audio and data communications
applications where the quality and precision of the output signal is key to
functionality and performance. Efficiency is a measure of how much power is
needed to produce the output signal. A highly efficient amplifier uses less
power to produce an output signal. Noise immunity is a measure of an amplifier's
ability to isolate a signal from interference caused by external signals or
system noise. System noise is undesirable electronic signals caused by other
components in a system.
Amplifier designs generally have not participated in the digital technology
revolution that is reshaping electronics. Instead, amplifiers still use analog
design approaches first developed in the 1930s. Analog technology processes
signals on a continuous basis. By comparison, rather than processing a signal
continuously, digital technology samples and processes signals at regular
intervals and represents information as a series of 1's and 0's. In general, the
shift from analog to digital has made information easier to store, transmit and
manipulate. It has also reduced manufacturing cost, improved quality and
enhanced functionality through the addition of new features that are unavailable
or not practical with analog technology. For example, messaging, paging and
security became more feasible as cellular phones migrated from analog to digital
technology.
Traditional analog amplifier technology requires system designers to
sacrifice efficiency to achieve higher linearity, or to sacrifice linearity to
achieve higher efficiency. Highly efficient conventional amplifiers have low
linearity; they tend to produce poorer quality signals. Conversely, highly
linear conventional amplifiers use power less efficiently. As a result,
electronics system requiring high signal quality typically use less efficient
amplifiers. Because inefficient amplifiers require more power, they often need
larger, higher quality and more costly power supplies. Also, because inefficient
amplifiers waste a high proportion of power in the form of heat, they often
require larger, heavier and more costly heat dissipation devices known as heat
sinks. Highly linear conventional amplifiers also may be limited in their
ability to produce high quality output because of their susceptibility to
interference from external signals or system noise.
26
<PAGE>
[Diagram of the inside of an amplifier showing the heat sink, power supply, and
amplifier. The diagram will also show the signal flow into and out of the
amplifier.]
The importance of amplifiers, and the limitations of traditional technology, are
particularly evident in the markets for audio electronics, DSL equipment and
wireless communications equipment.
AUDIO ELECTRONICS MARKET
The audio electronics market includes consumer audio, computer and
automobile applications. Two trends affecting audio electronics in general are
the improvements in source quality, from records and cassette tapes to higher
quality digital sources such as CDs and DVDs, and the movement to multichannel
systems such as Dolby Pro Logic and Dolby Digital. The improvements in source
quality and the trend toward multichannel systems increase the need for
amplifiers with greater signal quality, power efficiency and noise immunity.
CONSUMER AUDIO. Consumer audio is a fiercely competitive, rapidly evolving
market, estimated by Dataquest to exceed $27 billion in 2000. Digital technology
has transformed the market, in part by creating a growing list of new product
categories, including CD and DVD players, set-top boxes, home theater systems,
entertainment and gaming systems, and Internet appliances such as MP3 players.
According to Forward Concepts, a market research firm, the demand for digital
audio systems is expected to grow from 1.7 million units in 1998 to
93.3 million units in 2003.
The factors most important to consumers include sound quality, output power
as measured by watts per channel, size, and cost. For portable applications,
battery life is also important. The amplifier has a major influence on each of
these factors.
For consumer audio applications in general, the amplifier, power supply and
heat sink usually represent 80% or more of the size and weight of the total
system. For example:
- Home theater audio systems typically require six channels of 100-150 watts
each. A system that generates this much power requires an amplifier, power
supply and heat sink that typically represent about 90% of the weight and
size of the total system.
- Audiophile quality amplifiers may weigh 50 to more than 200 pounds.
Amplifiers that are more efficient, highly linear and more immune to noise
would enable manufacturers to reduce system size and cost by using smaller less
expensive heat sinks and power supplies, while also improving sound quality and
output power.
COMPUTER AUDIO. International Data Corporation estimates the annual number
of desktop and laptop personal computers sold worldwide to increase from
approximately 110 million in 1999 to approximately 195 million in 2003.
Consumers are increasingly using their PCs as listening platforms to play music
or games from CDs, DVDs or music downloaded from the Internet. According to the
Consumer Electronics Association, 82% of multimedia PC owners played audio CDs,
88% listened to Internet web page sound files and 63% listened to radio
broadcasts via the Internet in 1999. With traditional analog technology, high
quality amplifiers use too much power and generate too much heat to allow the
amplifier to be built into the computer. More importantly, the digital circuits
and motors within a computer create system noise which degrade the signal
quality of traditional amplifiers. As a result, multimedia computers typically
use externally-powered speakers that contain their own amplifiers.
Externally-powered speakers have several drawbacks:
- Externally-powered speakers increase costs because they require separate
power supplies, heat sinks and electronic components.
- Externally-powered speakers suffer from signal quality problems that
result from using separate power supplies for the computer and the
speakers.
27
<PAGE>
- With traditional technology, consumers cannot use their computer together
with their existing home stereo or home theater speaker systems without
adding a separate external amplifier. As a result, most consumers are
limited to using the lower quality externally-powered speakers included
with the computers.
Highly linear amplifiers that have sufficient power efficiency and noise
immunity and are small enough to be designed into a computer would enable
manufacturers to offer computer systems capable of producing high fidelity audio
while also reducing system size, cost and complexity.
AUTOMOTIVE AUDIO. The automotive audio market includes amplifiers for new
car stereos and car stereos sold in the U.S. aftermarket. Dataquest estimates
sales for new car stereo amplifiers to reach approximately 58 million units in
2003, and sales for aftermarket car stereo amplifiers to exceed 13 million units
in 2000.
The basic car audio system has a dashboard unit, four or more speakers and a
multi-channel amplifier system. Sound quality has become more important as more
cars include CD and DVD players, televisions and other devices. However, the
performance of dashboard units is limited by the power available from the car
battery, the limited space available in the dashboard, the need to limit heat
dissipation and the need for noise immunity. As a result, dashboard units using
traditional amplifier technology can only provide approximately 20 watts per
channel. Manufacturers are seeking amplifiers sufficiently compact to enable
them to install dashboard units that provide up to 100 watts per channel.
The amplifiers in current trunk units are generally more powerful than the
amplifiers in dashboard units because they have more space and can dissipate
more heat. However, because of the power inefficiency of traditional amplifiers,
trunk units are limited by the battery power of the car. Amplifiers that are
more efficient, highly linear and more immune to noise would enable car
manufacturers to install standard dashboard units with higher sound quality and
power and would enable manufacturers to increase the power output of trunk
amplifier units.
DIGITAL SUBSCRIBER LINE MARKET
Consumer and small business demand for high speed Internet access is fueling
rapid adoption of DSL service. International Data Corporation estimates that the
number of new DSL lines worldwide will grow from less than one million in 1999
to more than 13 million in 2003. DSL technology uses existing copper wire
telephone lines together with additional equipment installed on the customer's
premises and in the central office of the telephone service provider. The
equipment installed in the central office is a cabinet called a Digital
Subscriber Line Access Multiplexer, or DSLAM. The DSLAM cabinet contains
multiple printed circuit boards. These printed circuit boards are called line
cards because they generate the DSL signals for the subscriber lines. Each line
card may support multiple subscriber lines. The amplifiers used in line cards
are called line drivers. A line card needs a separate amplifier, or line driver
for each subscriber line it supports. A single DSLAM cabinet currently may
support up to 480 lines.
[Diagram depicts the inside of a DSLAM cabinet which is filled with line cards.
A diagram of a line card is then shown to identify the line driver on the line
card. The diagram also shows the signal flow from the DSLAM cabinet through the
line card to an individual's home.]
Service providers are seeking products that allow them to increase "port
density," which is the number of subscriber lines that may be served by one
DSLAM. Increasing port density allows service providers to save equipment,
facilities and power costs by serving more customers with the same equipment.
DSL line cards require highly linear line drivers because high signal
quality is necessary to support high-speed digital transmissions. Traditional
approaches have two drawbacks. First, line drivers built
28
<PAGE>
with traditional analog approaches require heat sinks and multiple external
components. The space required for the line driver, heat sink and related
components limits the number of amplifiers that may be placed on a line card,
which limits the number of subscriber lines the line card can support. Second,
because of the inefficiency of line drivers built with traditional analog
approaches, the line drivers consume up to 70% of the power used by the line
card. As a result, more line drivers cannot be added without substantially
increasing the power supplied to the DSLAM cabinet. However, in most phone
company central offices, one cannot increase power to the DSLAM cabinet without
a costly and disruptive redesign and rewiring of the entire facility.
The availability of more efficient, highly linear line drivers would enable
more line drivers on a line card, allowing the service provider to increase port
density and thereby increase the number of subscribers it serves.
WIRELESS COMMUNICATIONS MARKET
According to International Data Corporation, there were over 224 million
cellular phones shipped in 1999. That number is projected to grow to over
539 million by 2003. In addition to the growth in the number of cellular phone
users, consumers are increasingly using their cellular phones and other mobile
devices to access the Internet and to send and receive messages and other data.
Cellular phones use amplifiers, known as radio frequency power amplifiers,
or RF Power Amplifiers, to boost voice and data signals to levels powerful
enough to reach cellular base stations. Manufacturers are seeking to improve
power efficiency in order to meet consumer demand for cellular phones with
smaller batteries and longer battery life. Since amplifiers account for the
majority of the power consumed by a digital cellular phone during a
conversation, manufacturers need more efficient amplifiers in order to improve
the cellular phone's overall power efficiency. For several reasons,
manufacturers also need high signal quality, which requires highly linear
amplifiers:
- High signal quality is necessary to support more complex digital wireless
transmission methods such as CDMA.
- High signal quality is necessary to offset the susceptibility of digital
wireless transmission to radio signal interference.
- High signal quality is necessary to support more data-intensive
transmissions, such as Internet web browsing and video conferencing.
The attempts of cellular phone manufacturers to reduce power consumption
have been limited because highly linear amplifiers built with traditional
analog-based technology are also inefficient. The availability of RF Power
Amplifiers which are both highly linear and more efficient would enable
manufacturers to offer products that achieve required signal quality while
increasing talk time and reducing unit size and weight.
THE TRIPATH SOLUTION
Our proprietary technology, which we call Digital Power Processing,
represents a fundamental departure from the traditional analog-based approach to
power amplification. Our technology enables us to provide significant
performance, power efficiency, size, weight and cost advantages over traditional
amplifier technology. These advantages are important to manufacturers of many
consumer electronics, wireline, wireless and industrial products. Our Digital
Power Processing technology is not limited to a narrow range of frequencies, as
is the case for other amplification technologies. This, in part, makes our
technology applicable to a wide range of products, from low-frequency audio
systems to high-frequency digital wireless applications. Digital Power
Processing techniques take advantage of the latest advances in digital signal
processing and mixed signal circuit design to overcome the limitations of
traditional analog-based power amplification techniques. Digital Signal
Processing, or
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<PAGE>
DSP, is the field of engineering which focuses on developing algorithms to
manipulate digital signals. Mixed signal circuits are electronic components that
are capable of processing both digital and analog signals. Key benefits of our
solution include:
INCREASED LINEARITY AND POWER EFFICIENCY. Our Digital Power Processing
technology enables us to provide amplifiers which are both highly linear and
power efficient. Because we overcame the deficiency of traditional analog
technology, which requires a trade-off between efficiency and linearity, we are
able to offer significant improvements across all applications where high signal
quality and low power consumption are key requirements.
IMPROVED NOISE IMMUNITY. Our Digital Power Processing technology is able to
detect and correct for external signals and system noise that can corrupt the
input signal in traditional amplifiers.
SMALLER, LIGHTER SYSTEMS. As a result of our increased power efficiency,
our amplifiers require smaller heat sinks and less costly and lighter power
supplies. This significantly reduces overall system size and weight of our
customers' products. For example, for certain DSL applications, our line driver
amplifier allows for higher port density to be achieved under the power budget
constraints at the service provider's central office.
REDUCED SYSTEM COST. As a result of increased power efficiency we are often
able to reduce overall system cost by allowing manufacturers to reduce the size
and quality of the power supply, heat sink and related electronics. In the
consumer audio market, the reduced system cost will enable manufacturers to
bring audiophile quality products to the mass consumer market.
INCREASED SYSTEM INTEGRATION AND DESIGN FLEXIBILITY. With increased power
efficiency and reduced size, our products allow for greater flexibility in
product design. For example, using our products and technology, Sony Corporation
has been able to offer an integrated DVD player and radio tuner with a
six-channel home theater quality amplifier system at half the size of a
traditional stand-alone DVD player.
STRATEGY
Our objective is to be the leading supplier of amplifiers to the audio and
communications markets. Key elements of our strategy include the following:
MAINTAIN LEADERSHIP IN DIGITAL POWER PROCESSING TECHNOLOGY
We are uniquely positioned to change the way signals are amplified in a wide
variety of electronic applications with our patented Digital Power Processing
technology. We intend to maintain our technological leadership by continuing to
invest in research and development and by continuing to add to our patent
portfolio.
INITIALLY TARGET CONSUMER AUDIO MARKET
We initially targeted the consumer audio market where we believe our Digital
Power Processing technology brings compelling advantages to manufacturers. We
shipped our first products for use in high-end audio systems to demonstrate the
capabilities of our amplifiers. We are currently focused on supplying products
for high volume, mass market opportunities, particularly home entertainment
systems, multimedia computers and automotive sound systems.
DEVELOP NEW PRODUCTS FOR HIGH-GROWTH DSL AND WIRELESS COMMUNICATIONS MARKETS
We are using our expertise in power amplification to develop integrated
silicon solutions for DSL and wireless communications. In the DSL market, we
recently began sampling and field testing a line driver amplifier based on our
Digital Power Processing technology which provides enhanced
30
<PAGE>
performance while using substantially less power than conventional products. We
believe our product features will enable DSL providers to increase port density
and reduce energy costs. Within the wireless market, we are seeking to develop
an RF Power Amplifier solution for cellular phones. We currently expect to
introduce a cellular phone RF Power Amplifier in the second half of 2001.
ESTABLISH RELATIONSHIPS WITH INDUSTRY LEADERS
We believe that strategic relationships will be essential to our continued
growth, our further development and acceptance of our technologies. One element
of our strategy is to work closely with leading companies such as Alpine
Electronics, Blaupunkt/Bosch, Carver Corporation, Creative Technology, Ltd.,
Matsushita/Panasonic and Sony Corporation who help set industry standards and
help us define our product direction. We also intend to work with industry
leaders to anticipate future technological trends and to apply our innovations
in those markets currently limited by traditional amplifier technology. In
addition to our key customers, we have developed relationships with suppliers
and other participants in the industry who can provide strategic benefit to us.
Several industry leaders have participated as equity investors in our previous
financing rounds.
PROLIFERATE OUR TECHNOLOGY IN OTHER MARKETS THROUGH LICENSING
Our strategy is to license our technology for certain applications that are
not included in our target markets. For example, we have licensed our technology
to STMicroelectronics Group for use in commodity low power audio markets. We
plan to extend our licensing strategy to other markets, such as markets for hard
disk drives, power supplies, ink-jet printers and other computer peripherals. We
believe this selective licensing strategy allows us to focus our efforts and
resources while proliferating our technology in other markets.
PRODUCTS
We have been supplying amplifiers for the audio electronics markets since
1998. We have recently begun sampling and field testing the first in a family of
amplifier products for the DSL market. We are currently developing a family of
amplifier products for use in cellular phones, also known as RF Power
Amplifiers. The first in this family of products will be designed for use in
cellular phones which utilize a transmission method known as CDMA.
AMPLIFIERS FOR AUDIO ELECTRONICS
We provide a range of digital audio amplifiers based on our Digital Power
Processing technology. Manufacturers are incorporating our digital audio
amplifiers in a diverse set of products, including mini-stereo systems, Internet
appliances, satellite and cable television set-top boxes, home theater systems,
automotive audio systems, and audiophile quality amplifiers.
We package some of our products as integrated circuits and some of our
products as modules containing multiple integrated circuits. The features in our
products vary depending on the applications they serve. For example, some
products accept digital input signals without the need for an external digital
to analog converter.
All of our digital audio amplifiers share common performance
characteristics, including, high linearity, power efficiency and noise immunity.
We have highlighted specific features of our products below:
TA1101B--This product is a two channel, 10 watt per channel amplifier
primarily for use in low power applications such as PC audio, Internet
appliances and mini-stereo systems. Based on our Digital Power Processing
technology, our TA1101B amplifier eliminates the need for certain additional
components and parts. This, in turn, provides an advantage by reducing total
system cost.
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<PAGE>
TA2020--This product is a two channel, 20 watt per channel amplifier
primarily for use in mid-range power applications suitable for the needs of
manufacturers of consumer audio/video equipment. The benefit of the TA2020 is a
small form factor coupled with enough power output to satisfy mid-range audio
product performance criteria. The TA2020 is helping to define new generations of
products where form factor is important. One of our customers is currently
shipping a combination DVD player/AM-FM tuner and 6 channel amplifier in an
enclosure size not possible using conventional analog-based amplifiers.
TA0102, TA0103, TA0104--These amplifiers are our most powerful products that
provide two channels and 150 watts, 250 watts or 500 watts per channel which
address the needs of high end audio products such as home theater systems, and
audiophile amplifiers. These amplifiers were our first products and have been
shipping since 1998.
TA2021, TA2022--These amplifiers provide two channels with 100 watts per
channel. These products represent a significant advance in amplification
technology and have the smallest physical footprint for their power output level
in the market. We deliver this power in the same package type as the TA2020, but
with five times the power. The TA2022 is currently being sampled and evaluated
by potential customers, and we anticipate the TA2021 will begin sampling in the
third quarter of 2000. The TA2021 will have additional features, including the
ability to accept a purely digital signal eliminating the need for an digital to
analog signal converter. This is important in further reducing system costs and
improving signal quality in products that provide a purely digital signal
output. We believe that the market will demand this feature as more consumer
applications process audio signals in a digital format.
TA3020, TA3021--These amplifiers are currently planned for introduction in
the second and fourth quarters of 2000 and will provide two channels with 350
watts per channel for applications in products such as high-end home theater
systems and professional audio systems. The TA3021 will have additional features
including the ability to accept a purely digital audio input signal.
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<PAGE>
Our audio amplifiers have two channels that produce from 10 to 350 watts per
channel. Power measurements must be made at specified resistances. We measure
our audio amplifiers using a resistance of 4 ohms. The following table provides
performance data for our current and planned audio products:
<TABLE>
TOTAL SAMPLE
OUTPUT OPERATING HARMONIC INTRODUCTION
PRODUCT (WATTS/CHANNEL) EFFICIENCY DISTORTION APPLICATIONS DATE
<S> <C> <C> <C> <C> <C>
TA1101B 10W >80% 0.04% THD Mini-stereo systems, Internet Q1 1999
appliances, PC audio
TA2020 20W >80% 0.04% THD Integrated home theater, Q3 1999
set-top boxes, Internet
appliances, televisions, DVD,
mini-stereo systems
TA0102 150W >90% 0.05% THD Q4 1998
TA0103 250W >90% 0.04% THD Q4 1998
TA0104 500W >90% 0.02% THD Q4 1998
Home theater, automotive,
set-top boxes, gaming
consoles,
TA2021 100W >80% 0.05% THD Q4 2000
musical instrument
amplifiers,
TA2022 100W >80% 0.05% THD high-end receivers Q3 2000
TA3020 350W >80% 0.05% THD Q3 2000
TA3021 350W >80% 0.05% THD Q4 2000
</TABLE>
For the three months ended March 31, 2000, our largest customers include
Komatsu Semiconductor Corporation, Creative Technology Ltd. and Uniquest Corp.
The majority of sales to Komatsu Semiconductor Corporation, a distributor,
relate to Sony Corporation. Through the year ended December 31, 1999 and three
months ended March 31, 2000, our five largest customers accounted for 73.6% and
96.9% of our revenue for the periods, respectively.
AMPLIFIERS FOR DSL APPLICATIONS
Our Digital Power Processing technology allows us to produce highly linear
amplifiers for line cards that use power more efficiently than traditional
amplifiers using conventional architectures. DSL amplifiers are often called
line drivers. Because our line drivers are more power efficient, they eliminate
the heat sink and other electronics components used with traditional line
drivers. As a result, our line drivers can be smaller than traditional
analog-based line drivers. In addition, their efficiency makes them a more
attractive solution for the telephone companies establishing DSL service because
the power budgeted for the equipment in the telephone companies' central office
is fixed.
[Photo or diagram of a line card and identification of the line driver on the
line card. Our line driver will be shown next to the line driver on the line
card in order to demonstrate our smaller size and lack of a heat sink.]
Our initial product is a line driver for use in the ADSL market. ADSL, or
Asymmetric-DSL, the most popular form of DSL technology, is designed to allow
greater data rates from the central office to the subsciber than from the
subscriber to the central office. This means that the typical user will be able
to download data faster than they can send data, which is suitable for most
residential users.
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Our DSL line drivers offer DSL service providers the following benefits:
HIGHER PORT DENSITY. Our line drivers enable our customers to increase the
number of subscriber lines given fixed power and space constraints. This allows
DSL service providers to achieve higher port density.
INCREASED SIGNAL REACH AND CONNECTION SPEED. The distance a signal can
travel with an effective usefulness is known as signal reach, and the speed at
which data can be transferred is known as connection speed. Intermodulation
Distortion, or IMD, is a measure of linearity and indicates how well an
amplifier can reduce the impact of undesirable frequencies which are produced in
the transmission process. Our line drivers, due to their linearity, can more
accurately reproduce the signal inputs, allowing for improvements in output
signal reach and connection speed to the consumer.
The following table provides additional information concerning the
specifications of our proposed DSL line drivers.
<TABLE>
SAMPLE
POWER CONSUMPTION INTRODUCTION
PRODUCT (MILLIWATTS/CHANNEL) APPLICATION DATE
<C> <C> <S> <C>
TA4010 < 850mW Central office ADSL line driver Q2 2000
Single channel
TA4011 < 750mW Central office ADSL line driver Q2 2001
Dual channel
</TABLE>
Customers are currently testing our TA4010 product. Following this test
phase, we expect to make further refinements before beginning volume shipments.
We do not expect volume shipments to begin before the fourth quarter of 2000.
AMPLIFIERS FOR DIGITAL CELLULAR PHONES
Our expertise in the development of highly linear and energy efficient
circuits has allowed us to develop an amplifier architecture which we believe is
well-suited for use in cellular phones. The initial targeted market is for
cellular phones that utilize a digital transmission method known as CDMA.
Linearity is important to this technology because CDMA uses a complex signal
transmission method that requires more accurate reception and reproduction.
Additionally, we believe our Digital Power Processing technology could provide
significant improvements to the design of cellular phones in terms of talk-time,
data connection time, and battery size, which are all dependent on the
efficiency of the RF Power Amplifier.
CORE TECHNOLOGY
We believe that one of our key competitive advantages is our broad base of
patented core technologies, which are comprised of innovative adaptive and
predictive signal processing techniques. These processing techniques are derived
from algorithms used in communications theories. These unique techniques are
derived from a confluence of four primary disciplines in mixed signal design,
DSP algorithm development, power semiconductor circuit design, and packaging
design. We intend to continue to build and improve on these four primary
technology foundations as our company expands its product reach into other
markets and industries.
We have implemented unique processing algorithms in a silicon-based
processor which we call a Mixed Signal Processor. The execution speed of these
complex algorithms by our Mixed Signal Processor allows us to achieve the
required linearity and efficiency in our products. The Mixed Signal Processor
functionality is a vital component in the architecture of the products we
design.
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<PAGE>
Our four key areas of competency are highlighted below:
MIXED SIGNAL CIRCUIT DESIGN EXPERTISE
We are an innovator in advanced mixed signal circuit design with a
particular focus on audio amplifiers, DSL line driver amplifiers and RF Power
Amplifiers. We have developed significant intellectual property in our mixed
signal circuit designs which are applicable across multiple markets. As such, we
have demonstrated significant improvements in power efficiency and linearity for
audio amplifiers and central office line driver integrated circuits. We are also
applying this same core technology to the development of highly linear and
highly efficient RF Power Amplifier integrated circuits for incorporation in
cellular telephones.
DSP ALGORITHM EXPERTISE
We have expertise in developing system applications using our Digital Power
Processing technology. This includes industry standard designs as well as
customer specific systems in the DSL and consumer audio markets. The high
efficiency, high quality power processing products that we design require a
comprehensive understanding of new and innovative DSP techniques at the system
as well as the device level. We will continue to research and improve our
Digital Power Processing technology.
POWER SEMICONDUCTOR CIRCUIT DESIGN EXPERTISE
We have developed significant expertise in designing power circuits in
semiconductors. This requires a specialized understanding of complex issues,
such as thermal effects and reliability related to the control of power.
PACKAGING DESIGN EXPERTISE
We have developed significant competency and knowledge regarding packaging
requirements for various applications in different markets. Our customers have
specific requirements in terms of form factor and package type for their end-use
products. We use various semiconductor manufacturing processes that allow us to
manufacture semiconductors at multiple locations and combine them into single
integrated circuits.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on developing products
based on our Digital Power Processing technology for high growth markets, such
as the DSL and wireless communications markets. In addition, we continue to
develop new products for the audio electronics market. As of March 31, 2000, our
research and development staff consisted of 46 employees, many of whom have
experience across multiple engineering disciplines. In 1997, 1998 and 1999, our
research and development expenses were approximately $2.1 million, $5.4 million
and $11.4 million, respectively. We expect that we will continue to invest
substantial funds in research and development activities.
MANUFACTURING
WAFER FABRICATION
We are able to use independent silicon foundries to fabricate our integrated
circuits because our products are manufactured with standard processes. By
outsourcing our manufacturing requirements, we are able to focus our resources
on design engineering.
Our operations group closely manages the interface between manufacturing and
design engineering. The group manages performance testing of our devices,
including quality assurance. We maintain our organizational structure and
testing standards to match market leading semiconductor
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<PAGE>
manufacturers. We use online work-in-progress control where possible, and
maintain close reporting mechanisms with all our suppliers to ensure that the
manufacturing subcontracting process is transparent to our customers.
Our key silicon foundries are United Microelectronics Corporation in Taiwan
and STMicroelectronics Group in Europe. We entered into an agreement with
STMicroelectronics Group in July 1999 in which we granted a limited
non-exclusive license to use our Mixed Signal Processors in their new products
in return for certain wafer pricing and supply availability. We believe we have
adequate capacity to support our current sales levels, however, we continue to
work with our existing foundries to obtain more production capacity and we are
actively qualifying new foundries to provide additional production capacity.
Our Mixed Signal Processor devices are currently fabricated with a CMOS
process using a 0.5 micron technology. CMOS is an industry standard
semiconductor manufacturing process. We continuously evaluate the benefits, on a
product by product basis, of migrating to smaller design technologies in order
to reduce costs. Our next generation products will utilize 0.25 micron
technology. Our power output circuitry is fabricated using a high voltage
process technology.
ASSEMBLY AND TEST
We currently outsource all of our assembly and testing operations to Amkor
Technology, Inc. in the Philippines, ST Assembly Test Services Ltd. in
Singapore, ISE Labs Assembly in the United States and AMBIT Microsystems
Corporation in the Philippines.
QUALITY ASSURANCE
We currently rely on our foundries and assembly subcontractors to assist in
the qualification process. We also participate in quality and reliability
monitoring through each stage of the production cycle. We closely monitor wafer
foundry production to ensure consistent overall quality, reliability and yield
levels.
SALES AND MARKETING
We rely on our direct sales force, independent sales representatives and
distributors to penetrate each of our key target markets. Our sales headquarters
is located in Santa Clara, California. In addition, we market and sell our
products at our regional offices located in Japan and the United Kingdom, as
well as through representatives and independent distributors in Europe, the
Middle East and Asia. Our sales force, together with our engineering and
technical staff, works closely with customers to integrate our amplifiers into
their products. We believe that close working relationships with customers will
help us to achieve design wins and ultimately achieve high volume production.
Our marketing strategy is to target existing and potential customers who are
industry leaders in the audio electronics, DSL communications and wireless
communications markets. Currently, our marketing team has a product and market
segment-based focus, divided among integrated audio products and module-based
driver products, and separately divided among the personal computer, Internet
appliance and automotive audio markets. We intend to expand our marketing
personnel in the areas of wireline and wireless communications. This will
further focus our marketing team into areas of expertise consistent with the
needs of our customers in the communications marketplace.
We have embarked on an aggressive program to develop brand awareness of our
technology. As a part of this strategy we seek to have our customers label their
consumer products with our brand names to promote the brand awareness of our
technology. We believe this strategy will serve as an endorsement of our
products. Our current brand names include Class-T, Digital Power Processing and
Combinant Digital.
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<PAGE>
COMPETITION
We compete with audio amplifier and DSL line driver suppliers. We believe
that the principal factors of competition in these markets are product
capabilities, level of integration, reliability, price, power consumption,
time-to-market, system cost, intellectual property, customer support and
reputation.
We compete with a number of major domestic and international semiconductor
manufacturers in the markets for audio amplifiers and DSL line drivers. In the
audio amplifier market, our competitors include Apogee Technology, Inc., Bang &
Olufsen, LinFinity Microelectronics, Inc., National Semiconductor Corporation,
Philips Electronics, Sanyo Semiconductor Corporation, STMicroelectronics Group
and Toshiba. Our principal competitors in the DSL line driver market include
Analog Devices Inc., Elantec Semiconductor, Inc., Linear Technology Corporation,
STMicroelectronics Group and Texas Instruments Incorporated.
INTELLECTUAL PROPERTY
We rely primarily on a combination of patent, copyright, trademark, trade
secret and other intellectual property laws, nondisclosure agreements and other
protective measures to protect our proprietary technologies and processes. We
have five issued United States patents, two allowed United States patents, and
have filed an additional 20 United States patent applications which are pending.
We expect to continue to file patent applications where appropriate to protect
our proprietary technologies.
EMPLOYEES
As of March 31, 2000, we had 79 full-time employees, including 61 employees
engaged in research and development, nine engaged in sales and marketing and
nine engaged in general administration activities. Our employees are not
represented by any collective bargaining agreement, and we have never
experienced a work stoppage. We believe our employee relations are good.
PROPERTIES
We lease one facility in Santa Clara, California, which has approximately
36,000 square feet pursuant to the lease, which expires on November 1, 2002.
This facility comprises our headquarters and includes our administration, sales
and marketing, and research and development departments. We also have sales
offices in the United Kingdom and Japan.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our executive officers, key employees and directors, and their ages as of
March 31, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- -------- -----
<S> <C> <C>
Dr. Adya S. Tripathi........... 47 President and Chief Executive Officer, Chairman of the Board
John J. DiPietro............... 41 Chief Financial Officer, Vice President of Finance and
Administration
Andreas H. Melder.............. 41 Vice President of Sales and Marketing
Paul Negus..................... 44 Vice President of Operations
Alan J. Soucy.................. 45 Vice President of Advanced Products and Applications
Donald Wile.................... 47 Vice President of Engineering
Tsyoshi Taira.................. 61 Director
Bernard T. Marren.............. 64 Director
Dr. Charles Jungo.............. 49 Director
Sohail Khan.................... 45 Director
</TABLE>
DR. ADYA S. TRIPATHI founded Tripath and has served as our President, Chief
Executive Officer and Chairman since our inception in 1995. Before founding
Tripath, Dr. Tripathi held a variety of senior management and engineering
positions with AMD, Hewlett-Packard, IBM, IMP, National Semiconductor and Vitel
Communications. Dr. Tripathi holds B.S. and M.S. degrees in Electronics
Engineering from Benaras Hindu University in India. He pursued graduate work at
the University of Nevada-Reno and the University of California-Berkeley,
receiving his Ph.D. in Electrical Engineering from the former in 1984. He has
also taught at the University of California-Berkeley Extension.
JOHN J. DIPIETRO has served as our Chief Financial Officer and Vice
President of Finance and Administration since September 1999. Prior to joining
us, from October 1995 to September 1999, he was Chief Operating Officer, Vice
President of Finance, Chief Financial Officer and Secretary of Calypte
Biomedical Corporation, a diagnostics product company. He is a member of the
board of directors of Calypte Biomedical Corporation. He received his M.B.A.
from the University of Chicago, Graduate School of Business, and received his
B.S. in Accounting from Lehigh University.
ANDREAS H. MELDER has served as our Vice President of Sales and Marketing
since March 2000, as Vice President of Business Development since November 1999
and as Director of Business Development since April 1998. Prior to joining
Tripath, from August 1996 to April 1998, Mr. Melder was a Co-Founder and Vice
President of Sales and Marketing of Microtune. Mr. Melder also held several
senior marketing and sales positions at Cirrus Logic and Pixel Semiconductor (a
Cirrus Logic acquisition) from 1994 to 1996. He received his B.S. in Electrical
Engineering and Business from Carnegie-Mellon, University and his M.S. in
Electrical Engineering and Operations Research from Southern Methodist
University.
PAUL NEGUS has served as our Vice President of Operations since April 1999.
Between May 1998 and April 1999, he served as Vice President of Operations and
Customer Service with two start-up companies in the mass storage market. From
February 1997 to May 1998, Mr. Negus was Vice President of Operations of
NetPower. He was Vice President, Asia Division of Manufacturers Services Ltd., a
global manufacturing company, from 1995 forward to his position with NetPower.
ALAN J. SOUCY has served as our Vice President of Advanced Products and
Applications since July 1999. Prior to joining us, from 1996 to 1999, he worked
for Philips Electronics as the general manager of the mobile computing division,
with responsibility for all strategic and operational aspects of the handheld
computing business. While at Philips, he also established Mobilesoft, an
Internet-based
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<PAGE>
electronic software distribution business. From 1993 to 1996, he was Vice
President at Zenith Data Systems, with responsibility for the portable and
mobile businesses, and, prior to that, Vice President for Product Strategy and
Planning. He holds a B.S. in Management Science from the University of Rhode
Island.
DON WILE has served as our Vice President of Engineering from August 1999,
and, prior to that, as the Director of Engineering since 1995. Mr. Wile holds
several patents, and has published several papers. He received his B.S. in
Electrical Engineering from Cornell University in 1975 and his M.S. in
Electrical Engineering from the University of California-Berkeley in 1978.
TSUYOSHI TAIRA has served as a director of our company since 1995. Since
1996, Mr. Taira has served as the Chief Executive Officer of Tazan
International Inc. Prior to his present position, Mr. Taira served as Chairman
of Sanyo Semiconductor Corporation. Mr. Taira holds a B.S. in Electrical
Engineering from Tokyo Metropolitan University.
BERNARD T. MARREN has served as a director of our company since 1998. Since
May 1998, Mr. Marren has been President and Chief Executive Officer of
OPTi Inc., a semiconductor manufacturer that produces Core Logic chip sets for
personal computers. Prior to his present position, Mr. Marren founded and served
as President and Vice Chairman of Western Micro Technology from 1977 to 1998.
DR. CHARLES JUNGO has served as a director of our company since 1999. From
1991 to 1998 he was Executive Vice President, Chief Technical Officer and a
Director of WavePhone, Inc. (now WAVO Inc.), where he led its technical and
marketing efforts. Dr. Jungo holds a Ph.D. in Physics from the University of
Fribourg, Switzerland.
SOHAIL KHAN has served as a director of our company since 1999. Mr. Khan is
currently President, Integrated Circuits Division of Lucent Technologies
Microelectronics Group. From September 1996 to March 1999, Mr. Khan served as
Vice President of Strategy and Business Development with Lucent Technologies.
From 1994 to 1996, he held other management positions with AT&T (Lucent
Technologies). Mr. Khan received his M.B.A. from the University of
California-Berkeley and received his B.S. in Electrical Engineering in Pakistan.
ADVISORY BOARD
We have established an advisory board consisting of accomplished
professionals with expertise in technology and business. Members of our advisory
board may from time to time be invited to attend meetings of the board of
directors, but may not vote. The advisory board provides us with strategic
advice and other assistance in the growth of our business. The following
individuals are members of our advisory board:
<TABLE>
<CAPTION>
NAME DATE OF MEMBERSHIP
- ---- ------------------
<S> <C>
Andreas Bechtolsheim........................................ July 16, 1998
Mel Friedman................................................ December 20, 1999
Ferdinand C. Kuznik......................................... December 3, 1998
Robert C. Miller............................................ October 15, 1998
Raj Parekh.................................................. July 16, 1998
Robert S. Pepper............................................ April 10, 2000
William J. Raduchel......................................... July 16, 1998
</TABLE>
ANDREAS BECHTOLSHEIM is Vice President of Engineering at the Gigabit
Switching Group at Cisco Systems, Inc. Previously, he was a Co-Founder and Vice
President of Technology of Sun Microsystems. In 1995, he founded Granite
Systems, which was acquired by Cisco Systems, Inc. in 1996.
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<PAGE>
Mr. Bechtolsheim received a M.S. in Computer Engineering from Carnegie-Mellon
University and a Ph.D. from Stanford University.
MEL FRIEDMAN is President of Sun Microelectronics. Prior to joining Sun, he
held senior positions at Prime Computer, Apollo Computer and Polaroid.
Mr. Friedman holds a B.S. in Mechanical Engineering from the City College of New
York.
FERDINAND C. KUZNIK is Executive Vice President of Motorola, Inc. and
President of Motorola's operations in Europe, the Middle East and Africa.
Mr. Kuznik received his Dipl. Ing. Degree from the Technical University of
Ostrava, and holds a M.S. in Computer Science from the Illinois Institute of
Technology.
ROBERT C. MILLER is the Founder and Chief Executive Officer of Slam Dunk
Networks. Mr. Miller founded NetPower in 1994, and served as its Chairman and
Chief Executive Officer until 1998. Mr. Miller holds a M.A. from Stanford
University and a B.A. from Bucknell University.
RAJ PAREKH is a General Partner of Redwood Ventures, a venture capital firm.
Prior to that he was Vice President and General Manager at Sun Microelectronics.
Mr. Parekh holds a M.S. in Electrical Engineering from Polytechnic Institute of
New York, and a B.S. in Electrical Engineering from L.D. College of Engineering,
India.
ROBERT S. PEPPER is Vice President of Intel Corporation's network
communications group and President of Level One Communications. Mr. Pepper holds
a B.S., M.S. and Ph.D. in Electrical Engineering from the University of
California-Berkeley.
WILLIAM J. RADUCHEL is Chief Technology Officer at America Online. Prior to
that, Mr. Raduchel worked at Sun Microsystems, where he was Chief Strategy
Officer and a member of its executive committee. Mr. Raduchel holds a Ph.D. in
Economics from Harvard University.
BOARD COMMITTEES
AUDIT COMMITTEE. The audit committee currently consists of Messrs. Jungo,
Marren and Taira. The audit committee reviews our annual audit and supervises
independent auditors that review the company's internal accounting procedures
and financial management practices.
COMPENSATION COMMITTEE. The compensation committee currently consists of
Messrs. Jungo and Khan. The compensation committee makes recommendations
concerning salaries, stock options, incentives and other forms of compensation
for directors, officers and other employees of our company. The compensation
committee also administers our common share plans.
DIRECTOR COMPENSATION
Our 2000 stock option plan provides for grants of options to purchase common
stock to our directors who are not employees. In addition, our directors are
reimbursed for expenses incurred in connection with attending board and
committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee is currently, or has been
at any time since our formation, one of our officers or employees. During the
fiscal year ended December 31, 1999, no executive officer of our company served
as a member of the board of directors or compensation committee of any entity
that has one or more officers serving as a member of our board of directors or
compensation committee.
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EXECUTIVE OFFICERS
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed. There are no family
relationships among our directors or officers.
EXECUTIVE COMPENSATION
In fiscal year 1999, we paid an aggregate $951,756 in cash compensation to
the directors and officers named under the caption "Executive Officers, Key
Employees and Directors" as a group.
As of March 31, 2000, our directors and officers, as a group, held options
to purchase a total of 1,016,000 shares of common stock, at exercise prices
ranging from $0.2034 to $1.50 per share. These options are scheduled to expire
on various dates between January 27, 2007 and January 21, 2010.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by, or
paid to our chief executive officer and the other four most highly paid
executive officers, each of whose total cash compensation exceeded $100,000
during the year ended December 31, 1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Adya S. Tripathi
Chief Executive Officer................................... $358,784 $ -- --
Andreas H. Melder
Vice President of Sales and Marketing..................... 136,533 -- 110,000
Paul Negus
Vice President of Operations.............................. 133,810 -- 175,000
Alan J. Soucy
Vice President of Advanced Products and Applications...... 86,622 25,000 --
Don Wile
Vice President of Engineering............................. 135,996 -- 50,000
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted during fiscal year 1999 to each of the executive officers named in the
summary compensation table during the fiscal year ending December 31, 1999. The
percentage of total options granted to our employees in the last fiscal year is
based on options granted to purchase an aggregate of 2,149,625 shares of common
stock during fiscal 1999. We have never granted any stock appreciation rights.
The exercise prices present our board's estimate of the fair market value of
the common stock on the grant date. In establishing these prices, our board
considered many factors, including our financial condition and operating
results, transactions involving the issuances of shares of our preferred stock,
the senior rights and preferences accorded issued shares of preferred stock, and
the market for comparable stock.
The amounts shown as potential realizable value represent hypothetical gain
that could be achieved for the respective options if exercised at the end of the
option term. These amounts represent assumed rates of appreciation in the value
of our common stock from the fair market value at the date of grant. The 5% and
the 10% assumed annual rates of compounded stock price appreciation are
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mandated by rules of the Securities and Exchange Commission and do not represent
our estimate of projection of the future price of our common stock. Actual
gains, if any, on stock option exercises depend on the future performance of the
trading price of our common stock. The amounts reflected in the table may not
necessarily be achieved.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTIONS TERM
GRANTED IN FISCAL PRICE EXPIRATION -------------------------
NAME (1) 1999 PER SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Adya S. Tripathi(1)......... -- -- -- -- -- --
Andreas H. Melder(2)........ 50,000 2.3% $1.50 7/8/09 $ 47,150 $ 54,700
Paul Negus.................. 175,000 8.1% $1.50 7/8/09 $165,025 $191,450
Alan J. Soucy(3)............ -- -- -- -- -- --
Don Wile(4)................. 50,000 2.3% $1.50 7/8/09 $ 47,150 $ 54,700
</TABLE>
- ------------------------
(1) Dr. Tripathi was granted an additional 1,000,000 options on April 14, 2000.
(2) Mr. Melder was granted an additional 90,000 options on April 14, 2000.
(3) Mr. Soucy was granted 200,000 options on January 21, 2000.
(4) Mr. Wile was granted an additional 65,000 options on April 14, 2000.
YEAR-END OPTION VALUES
The following table provides information for the executive officers named in
the summary compensation table concerning the number and value of securities
underlying exercisable and unexercisable options held as of December 31, 1999.
No options were exercised during the year ended December 31, 1999 by our
executive officers named in the summary compensation table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Adya S. Tripathi............................... -- --
Andreas H. Melder.............................. 110,000 --
Paul Negus..................................... 175,000 --
Alan J. Soucy.................................. -- --
Don Wile....................................... 50,000 --
</TABLE>
The value of unexercised in-the-money options represents the difference
between the fair market value of the underlying common stock using an assumed
initial public offering price of $ per share and the exercise price of the
option, multiplied by the number of shares underlying the option.
EMPLOYEE BENEFIT PLANS
2000 STOCK PLAN
Concurrently with this offering, we intend to establish a 2000 Stock Plan
which will assume all of our current outstanding options issued under our 1995
Stock Option Plan. The 2000 Stock Plan will provide for the grant of incentive
stock options to our employees and nonstatutory stock options and stock purchase
rights to our employees, directors and consultants. As of April 2000, a total of
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10,274,502 shares of our common stock will be reserved for issuance pursuant to
the 2000 Stock Plan. As of March 31, 2000, 1,930,980 shares had been issued
pursuant to the exercise of options and options to purchase 4,193,002 shares of
common stock were outstanding. 1,876,018 shares were available for future grant.
We will not grant any additional stock options under our 1995 Stock Option Plan.
Our board of directors or a committee of our board will administer the 2000
Stock Plan. The committee may consist of two or more "outside directors" to
satisfy certain tax and securities requirements. The administrator will have the
power to determine the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or
stock purchase right, the exercisability of the options and the form of
consideration payable upon exercise. The administrator will determine the
exercise price of options granted under our 2000 Stock Plan, but with respect to
incentive stock options, the exercise price must at least be equal to the fair
market value of our common stock on the date of grant. Additionally, the term of
an incentive stock option may not exceed ten years. After termination of one of
our employees, directors or consultants, he or she may exercise his or her
option for the period of time stated in the option agreement. If termination is
due to death or disability, the option will generally remain exercisable for
12 months following such termination. In all other cases, the option will
generally remain exercisable for 3 months. However, an option may never be
exercised later than the expiration of its term. The administrator will
determine the exercise price of stock purchase rights granted under our 2000
Stock Plan. Unless the administrator determines otherwise, the restricted stock
purchase agreement will grant us a repurchase option that we may exercise upon
the voluntary or involuntary termination of the purchaser's service with us for
any reason (including death or disability). The purchase price for shares we
repurchase will generally be the original price paid by the purchaser. The
administrator determines the rate at which our repurchase option will lapse. Our
2000 Stock Plan generally does not allow for the transfer of options or stock
purchase rights and only the optionee may exercise an option and stock purchase
right during his or her lifetime. Our 2000 Stock Plan provides that in the event
of our merger with or into another corporation or a sale of substantially all of
our assets, the successor corporation will assume or substitute for each option
or stock purchase right. If the outstanding options or stock purchase rights are
not assumed or substituted for, all outstanding options and stock purchase
rights will accelerate and vest in full prior to the closing of such merger or
sale of assets. Our 2000 Stock Plan will automatically terminate in 2010, unless
we terminate it sooner. In addition, our board of directors has the authority to
amend, suspend or terminate the 2000 Stock Plan provided it does not adversely
affect any option previously granted thereunder.
2000 EMPLOYEE STOCK PURCHASE PLAN
Concurrently with this offering, we intend to establish an employee stock
purchase plan. A total of 500,000 shares of our common stock will be made
available for sale under the Purchase Plan. Our board of directors or a
committee of our board administers the Purchase Plan. Our board of directors or
its committee has full and exclusive authority to interpret the terms of the
Purchase Plan and determine eligibility. All of our employees are eligible to
participate if they are customarily employed by us or any participating
subsidiary for at least 20 hours per week and more than five months in any
calendar year. However, an employee may not be granted an option to purchase
stock under the Purchase Plan if such employee:
- immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
Our Purchase Plan contains consecutive, overlapping 24-month offering
periods. Each offering period includes four 6-month purchase periods. The
offering periods generally start on the first trading day on or after
December 31 and June 30 of each year, except for the first such offering period
which
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will commence on the first trading day on or after the effective date of this
offering and will end on the last trading day on or after June 30, 2002.
The plan permits participants to purchase common stock through payroll
deductions of up to 10% of their eligible compensation, which includes a
participant's, base straight time gross earnings and commissions but excludes
all other compensation. A participant may purchase no more than 1,000 shares
during any six-month purchase period.
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each six-month purchase period. The
purchase price is 85% of the lower of the fair market value of our common stock
at the beginning of an offering period or the end of the purchase period. If the
fair market value at the end of a purchase period is less than the fair market
value at the beginning of the offering period, participants will be withdrawn
from the current offering period following their purchase of shares on the
purchase date and will be automatically re-enrolled in a new offering period.
Participants may end their participation at any time during an offering period,
and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
A participant may not transfer rights granted under our Purchase Plan other
than by will, the laws of descent and distribution or as otherwise provided.
In the event of our merger with or into another corporation or a sale of all
or substantially all of our assets, a successor corporation may assume or
substitute each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding options, the offering period then in
progress will be shortened, and a new exercise date will be set.
Our Purchase Plan will terminate in 2010. However, our board of directors
has the authority to amend or terminate the Purchase Plan, except that, subject
to certain exceptions described in the plan, no such action may adversely affect
any outstanding rights to purchase stock under the Purchase Plan.
401(K) PLAN
In 1997, we adopted a 401(k) plan covering our full-time employees located
in the United States. The 401(k) plan is intended to qualify under
Section 401(k) of the Internal Revenue Code, so that contributions to the 401(k)
plan by employees or by us, and the investment earnings thereon, are not taxable
to employees until withdrawn from the 401(k) plan, and so that we can deduct our
contributions, if any, when made. Pursuant to the 401(k) plan, employees may
elect to reduce their current compensation by up to the lesser of 20% of their
annual pre-tax gross compensation or the statutorily prescribed annual limit of
$10,500 in 2000, and to have the amount of the reduction contributed to the
401(k) plan. Our 401(k) permits us, but does not require us, to make additional
matching contributions on behalf of certain plan participants. To date, we have
not made any such contributions to our plan.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our bylaws provide that we shall indemnify our directors and officers and
may indemnify our employees and other agents to the fullest extent permitted by
Delaware law. Our bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether the Delaware General
Corporation Law expressly permits indemnification.
We will be entering into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, will indemnify our directors and executive
officers for certain expenses including attorneys' fees, judgments, fines and
settlement amounts incurred by any director or executive officer in any action
or proceeding,
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<PAGE>
including any action by or in our right arising out of that person's services as
a director, officer, employee, agent or fiduciary for us, any subsidiary of ours
or any other company or enterprise to which the person provides services at our
request. The agreements do not provide for indemnification in cases where
- the claim is brought by the indemnified party;
- the indemnified party has not acted in good faith;
- the expenses have been paid directly to the indemnified party under a
policy of officers' and directors' insurance maintained by us; or
- the claim arises under Section 16(b) of the Exchange Act.
We believe that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers. It is the position
of the SEC that indemnification for liabilities arising under federal or state
securities laws is against public policy and not enforceable.
At present, there is no pending litigation or proceeding involving any of
our directors or officers in which indemnification is required or permitted, and
we are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
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<PAGE>
CERTAIN TRANSACTIONS
Since 1997, there have been no transactions or series of transactions to
which we were or are a party in which the amount involved exceeded or exceeds
$60,000 and in which any director, executive officer, holder of more than 5% of
any class of our voting securities, or any member of the immediate family of any
of the foregoing persons had or will have a direct or indirect material
interest, other than the transactions described below.
SERIES A PREFERRED STOCK FINANCING
In December 1995, we issued and sold an aggregate of 3,245,000 shares of
convertible Series A preferred stock for an aggregate purchase price of
$2,200,000 or $0.68 per share. OPTi Inc. purchased 1,563,500 shares of
convertible Series A preferred stock. A former director was employed by OPTi
Inc. at the time of its purchase of Series A preferred stock. Bernard Marren,
one of our current directors, is Chief Executive Officer of OPTi Inc. In
addition, Sanyo Semiconductor Corporation purchased 1,475,000 shares of
Series A preferred stock. One of our directors, Tsuyoshi Taira, was Chairman of
Sanyo Semiconductor Corporation until 1996.
SERIES B PREFERRED STOCK FINANCING
In February 1996, we issued and sold an aggregate of 1,966,650 shares of
convertible Series B preferred stock for an aggregate purchase price of
$3,999,966 or $2.03 per share. The investor OPTi Inc. purchased 491,666 shares
of convertible Series B preferred stock. A former director was employed by OPTi
Inc. at the time of its purchase of Series B preferred stock. Bernard Marren,
one of our current directors, is Chief Executive Officer of OPTi Inc. Sanyo
Semiconductor Corporation also purchased 491,666 shares of convertible Series B
preferred stock. One of our directors, Tsuyoshi Taira, was Chairman of Sanyo
Semiconductor Corporation until 1996.
OFFICER'S PROMISSORY NOTES
In January 1997 and March 1998, we accepted notes receivable totaling
$224,000 and $412,000 from Adya S. Tripathi, our Chief Executive Officer and
President, in connection with the exercise of stock options. In accordance with
the terms of our 1995 Stock Option Plan and the option agreements, these notes
were non-recourse, bearing fixed interest at 6.01% and 5.51%, respectively,
compounded semi-annually. These notes are secured by the underlying shares.
Principal and interest on the two notes was due to be repaid by January 2004 and
March 2005, respectively. Effective April 14, 2000, the notes and related
interest were forgiven by the Board of Directors.
RESTRICTED COMMON STOCK ISSUED TO OFFICER
In May 1998, we issued 1,000,000 shares of non-voting Class B common stock
at a price of $1.50 per share to Chet Silvestri, a former officer. We accepted a
full-recourse note totaling $1.5 million from Mr. Silvestri in May 1998 for the
full issue price of the shares. This note was secured by the underlying shares,
was full recourse against the issuer personally for failure to pay and accrued
interest at an annual rate of 5.61%, compounded semi-annually. The terms of the
note stated that it was due to be repaid by 2003, or within six months of the
termination or resignation of Mr. Silvestri. In March 1999, Mr. Silvestri
resigned. We continued to hold the $1.5 million note due to us for the issue of
shares. Under the negotiated terms of Mr. Silvestri's resignation agreement, we
amended the original repurchase terms of the restricted stock agreement. We
repurchased 500,000 shares of common stock, and the obligation on the note
receivable was amended to $750,000 plus interest. In October 1999,
Mr. Silvestri repaid $750,000 of the note receivable and $94,418 of accrued
interest.
FUTURE TRANSACTIONS
We believe that the transactions described in this section were made on
terms no less favorable than could have been obtained from third parties. We
plan to adopt a policy that requires all future transactions between us and
officers, directors and affiliates to be on terms no less favorable than could
be obtained from unaffiliated third parties, and that requires that such future
transactions be approved by a certain number or percentage of disinterested
directors. Under our bylaws, our directors may participate in transactions
involving us or in which we are interested.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 2000, and as adjusted
to reflect the sale of common stock offered in this prospectus:
- each stockholder to own beneficially more than five percent of our common
stock, as explained below;
- each of our executive officers named in the summary compensation table;
- each of our directors; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, the common stock subject to options or
warrants held by that person that are currently exercisable or will become
exercisable within 60 days after , 2000, are deemed outstanding, while the
shares are not deemed outstanding for purposes of computing percentage ownership
of any other person.
Unless otherwise indicated below, the address for each stockholder on this
table is c/o Tripath Technology Inc., 3900 Freedom Circle, Suite 200, Santa
Clara, CA 95054. Unless otherwise indicated below, the persons and entities
named in the table have sole voting or investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
The percentage of shares beneficially owned are based on the aggregate of:
- 20,383,046 shares of common stock outstanding as of March 31, 2000,
assuming conversion of all outstanding preferred stock into common stock,
and
- shares of common stock issued in this offering.
The information below assumes no exercise of underwriters' over-allotment
option. Percentage ownership figures after the offering do not include shares
that may be purchased by each person in the offering.
<TABLE>
<CAPTION>
SHARES PERCENT PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Adya S. Tripathi(1)............................... 10,225,000 50.2%
OPTi Inc.......................................... 2,055,166 10.1
Sanyo Semiconductor Corp.......................... 1,966,666 9.6
John J. DiPietro(2)............................... 112,105 * *
Andreas H. Melder(3).............................. 52,708 * *
Paul Negus(4)..................................... 54,688 * *
Alan J. Soucy(5).................................. 50,000 * *
Don Wile(6)....................................... 129,271 * *
Tsuyoshi Taira(7)................................. 96,875 * *
Bernard T. Marren(8).............................. 19,375 * *
Charles Jungo(9).................................. 1,875 * *
Sohail Khan(10)................................... 14,375 * *
Directors and Executive Officers as a group
(10 persons).................................... 10,756,272 52.8% %
</TABLE>
- ------------------------
* Less than one percent (1%).
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(1) Includes 10,100,000 outstanding shares and 125,000 shares issuable upon
exercise of stock options held by Dr. Tripathi.
(2) Includes 14,750 outstanding shares and 97,355 shares issuable upon exercise
of stock options held by Mr. DiPietro.
(3) Represents shares issuable upon the exercise of stock options held by Mr.
Melder.
(4) Represents shares issuable upon the exercise of stock options held by Mr.
Negus.
(5) Represents shares issuable upon the exercise of stock options held by Mr.
Soucy.
(6) Includes 110,625 outstanding shares and 18,646 shares issuable upon the
exercise of stock options held by Mr. Wile.
(7) Represents shares issuable upon the exercise of stock options held by Mr.
Taira.
(8) Represents shares issuable upon the exercise of stock options held by Mr.
Marren.
(9) Represents shares issuable upon the exercise of stock options held by
Mr. Jungo.
(10) Represents shares issuable upon the exercise of stock options held by
Mr. Khan.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
After the offering, we will be authorized to issue up to 60,000,000 shares
of common stock, par value $0.001 per share, and up to 10,211,665 shares of
preferred stock, par value $0.001 per share. Before the closing of this
offering, we will reincorporate in the State of Delaware. The following summary
of our capital stock and certain provisions of our certificate of incorporation
and bylaws does not purport to be complete and is qualified in our entirety by
the provisions of the certificate of incorporation and bylaws, copies of which
have been filed as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
As of March 31, 2000, there were 11,298,480 shares of common stock
outstanding that were held of record by 36 stockholders. As of March 31, 2000
there were also 4,193,002 shares of common stock subject to outstanding options,
and warrants to purchase 121,250 shares of common stock.
DIVIDEND RIGHTS. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the time and in the amounts as our board of directors may determine.
VOTING RIGHTS. Each holder of common stock is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
NO PREEMPTIVE OR SIMILAR RIGHTS. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
RIGHT TO RECEIVE LIQUIDATION DISTRIBUTIONS. Upon a liquidation, dissolution
or winding-up of our company, the holders of common stock are entitled to share
ratably with holders of any participating preferred stock in all assets
remaining after payment of all liabilities and the liquidation preferences of
any outstanding preferred stock.
CONVERTIBLE PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock. See note 5 of notes to our
financial statements for a description of our outstanding preferred stock as of
December 31, 1999.
Following the closing of this offering, we will be authorized, subject to
limitations imposed by Delaware law, to issue preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each series, and to fix the rights, preferences and privileges of the shares of
each wholly unissued series and any of its qualifications, limitations or
restrictions. The board of directors can also increase or decrease the number of
shares of any series, but not below the number of shares of such series then
outstanding, without any further vote or action by the stockholders. The board
of directors may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of the common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying,
deferring or preventing a change in control of our company and may adversely
affect the market price of our common stock and the voting and other rights of
the holders of common stock. We have no current plan to issue any shares of
preferred stock.
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WARRANTS TO PURCHASE COMMON STOCK
As of March 31, 2000, we had the following warrants outstanding to purchase
a total of 121,250 shares of our common stock:
- an aggregate of 10,000 shares pursuant to two separate warrants, each at
an exercise price of $1.50 per share, and each terminating on March 2,
2008;
- 102,250 shares at an exercise price of $1.00 per share, terminating on
August 20, 2007; and
- 9,000 shares at an exercise price of $1.50 per share, terminating on
July 7, 2009.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement we entered into with holders of
9,084,566 shares of our preferred stock 102,250 shares issuable upon exercise of
a warrant, the holders of these shares are entitled to registration rights
regarding these shares. The registration rights provide that if we propose to
register any securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, they
are entitled to notice of the registration and are entitled to include shares of
their common stock in the registration. This right is subject to conditions and
limitations, including the right of the underwriters in an offering to limited
the number of shares included in the registration. The holders of these shares
may also require us to file up to two registration statements under the
Securities Act at our expense with respect to their shares of common stock. We
are required to use our best efforts to effect this registration, subject to
conditions and limitations. Furthermore, the holders of these shares may require
us to file additional registration statements on Form S-3, subject to conditions
and limitations. These rights terminate on the earlier of five years after the
effective date of this offering, the date on which all securities holding
registration rights have been sold, or when a holder is able to sell all its
shares pursuant to Rule 144 under the Securities Act in any 90-day period.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our amended and restated certificate of
incorporation and amended and restated bylaws could make the following
transactions more difficult:
- the acquisition of us by means of a tender offer;
- the acquisition of us by means of a proxy contest or other; and
- the removal of our incumbent officers and directors.
UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred
stock makes it possible for the board to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of us. These and other provisions may have the effect of
deferring hostile takeovers or delaying changes in control or management.
SECTION 203. We are subject to Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the
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corporation outstanding at the time the transaction commenced, excluding
those shares owned by persons who are directors and also officers, and
employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer, or
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder,
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Chase Mellon
Shareholder Services.
LISTING
We have applied to have our common stock included for quotation on the
Nasdaq National Market under the symbol "TRPH."
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We cannot provide any assurance that after this offering has been completed
a significant public market for our common stock will develop or be sustained.
The sale of substantial numbers of our common stock in the public market could
adversely affect prevailing market prices for our common stock. Only a limited
number of shares of our common stock currently held by our stockholders will be
available for sale shortly after this offering because of contractual and legal
restrictions on resale described below. Further sales of substantial amounts of
our common stock in the public market after these restrictions lapse could
adversely affect the prevailing market price and our ability to raise equity
capital in the future.
Upon completion of this offering and assuming no exercise of the
underwriters' over-allotment option, we expect to have outstanding shares
of common stock, assuming the exercise of warrants to purchase 121,250 shares.
We expect to have outstanding options and warrants to purchase shares of
common stock, assuming no additional option or warrant grants after ,
2000.
The shares that we expect to sell in the offering and all common stock
sold upon exercise of the underwriters' over-allotment option will be freely
tradable without restriction under the securities act. However, there will be
trading restrictions imposed on "affiliates" and "control persons" as defined
under Rule 144. The remaining outstanding shares and shares
subject to outstanding options and warrants are restricted securities as that
term is defined in Rule 144 of the Securities Act. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 promulgated under the Securities
Act, which rules are summarized below. As a result of the contractual
restrictions described below and the provisions of Rule 144, the restricted
securities will be eligible for sale in the public market immediately following
the offering subject to the expiration of 180-day lock-up agreements with
representatives of the underwriters and to volume limitations and other
conditions under Rule 144.
The following table indicates approximately when restricted shares of our
common stock will be eligible for sale into the public market:
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
- ----------------------------------------------------------
<S> <C>
At effective date........................................... 0
90 days after effective date................................ 0
180 days after effective date...............................
-------
After 180 days post-effective date..........................
-------
</TABLE>
LOCK-UP AGREEMENTS
Our officers and directors and all our existing stockholders and option
holders have signed lock-up agreements under which they agreed not to offer,
sell, contract to sell, pledge or otherwise dispose of any shares of common
stock or securities convertible into or exchangeable for common stock for a
period of 180 days from the date of this prospectus without the prior written
consent of Salomon Smith Barney Inc.
REGISTRATION RIGHTS
Beginning 180 days after the effective date of this offering, the holders of
an aggregate of 9,084,566 shares of the outstanding preferred stock and 102,250
shares of common stock issuable upon the exercise of a warrant have the right to
require us to register their shares for sale upon meeting requirements to which
the parties have previously agreed.
52
<PAGE>
OPTIONS AND WARRANTS
As of , 2000, shares of the common stock will be reserved for
further issuance pursuant to our 2000 Stock Option Plan and 2000 Employee Stock
Purchase Plan. An aggregate of shares issuable upon the exercise of the
outstanding options will be vested 180 days following the date of this
prospectus. Substantially all of the common stock issuable upon exercise of
outstanding options are subject to 180-day lock-up agreements with the
representatives of the underwriters.
At the date of the offering, none of the shares issuable on exercise of
outstanding warrants will be eligible for sale. After 180 days following the
date of the prospectus upon the expiration of the lock-up agreements,
shares of the common stock issuable on exercise of the outstanding warrants will
first become available for sale in the public markets. The warrants expire prior
to July 7, 2009.
RULE 144
In general, under Rule 144, as in effect on the date of this prospectus, any
person who has beneficially owned restricted securities for at least one year
will be entitled to sell in any three-month period a number of shares that does
not exceed the greater of:
- 1% of the then outstanding common stock which are approximately
shares immediately after the offering; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding.
Sale of restricted securities pursuant to Rule 144 are subject to
requirements relating to manner of sale, notice and availability of current
public information about us. Our affiliates must also comply with the
restrictions and requirements of Rule 144, in addition to the one-year holding
period requirement, in order to sell any common stock.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
"affiliate" is entitled to sell those shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
RULE 701
In general, any of our employees, directors, officers, consultants or
advisers who purchases shares from us pursuant to Rule 701 in connection with a
compensatory stock or option plan or other written agreement relating to the
compensation of such persons is eligible to resell, unless contractually
restricted, such shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with certain holding restrictions.
Such securities may be sold:
- by persons other than our affiliates, subject only to the manner of sale
provisions of Rule 144; and
- by our affiliates under Rule 144 without compliance with its one-year
minimum holding period requirements.
53
<PAGE>
UNDERWRITERS
Subject to the terms and conditions stated in the underwriting agreement
dated , 2000, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Salomon Smith Barney Inc....................................
Deutsche Bank Securities, Inc...............................
U. S. Bancorp Piper Jaffray Inc.............................
Dain Rauscher Incorporated..................................
-------
Total.....................................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares of common stock offered
hereby other than those covered by the over-allotment option described below if
they purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc., Deutsche Bank
Securities, Inc., U. S. Bancorp Piper Jaffray Inc., and Dain Rauscher
Incorporated are acting as representatives, propose to offer some of the shares
directly to the public at the initial public offering price set forth on the
cover page of this prospectus and some of the shares to dealers at the public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and these dealers may reallow, a concession not in
excess of $ per share on sales to other dealers. If all of the shares are
not sold at the offering price, the underwriters may change the public offering
price and the other selling terms. The representatives have advised us that the
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares of common
stock at the public offering price less the underwriting discount. The
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent such
option is exercised, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
At our request, the underwriters have reserved up to five percent of the
shares of common stock, for sale at the initial public offering price to persons
who are our directors, officers or employees and other persons associated with
us who have expressed an interest in purchasing shares of common stock in the
offering. The number of shares of common stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares not so purchased will be offered by the underwriters on the
same terms as all other shares of common stock offered hereby. We have agreed to
indemnify those certain underwriters against certain liabilities and expenses,
including liabilities under the Securities Act, in connection with the sales of
these reserved shares.
We, each of our officers, directors and stockholders have agreed that, for a
period of 180 days from the date of this prospectus, they will not, without the
prior written consent of Salomon Smith Barney Inc., dispose of or hedge shares
of our common stock or any securities convertible into or exchangeable for
common stock. Salomon Smith Barney Inc. in its sole discretion may release any
of the securities subject to these lock-up agreements at any time without
notice.
54
<PAGE>
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock will be determined
by negotiation between us and the representatives, and does not reflect the
market price for the common stock following the offering. Among the principal
factors considered in determining the initial public offering price will be:
- the information set forth in this prospectus and otherwise available to
the representatives;
- market conditions for initial public offering;
- the history of and prospects for the industry in which we are competing;
- our past and present operations;
- our past and present earnings and current financial position;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the ability of our management;
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
- the general condition of the securities markets at the time of this
offering.
We cannot assure you that the initial public offering price will correspond
to the price at which the common stock will trade in the public market
subsequent to the offering or that an active trading market for the common stock
will develop and continue after the offering.
We have applied to have our shares of common stock included for quotation on
the Nasdaq Stock Market's National Market under the symbol "TRPH".
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY TRIPATH
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share............................................ $ $
Total................................................ $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell shares of common stock in the open market.
These transactions may include over-allotment, syndicate covering transactions
and stabilizing transactions. Over-allotment involves syndicate sales of common
stock in excess of the number of shares to be purchased by the underwriters in
the offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of common stock
made for the purpose of preventing or retarding a decline in the market price of
the common stock while the offering is in progress. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member. Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transaction may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.
55
<PAGE>
We will pay the expense of this offering, estimated to be .
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California will pass upon the validity of the common stock sold in this offering
for Tripath Technology Inc. Brobeck, Phleger & Harrison LLP, San Francisco,
California will pass upon certain legal matters in connection with this offering
for the underwriters. As of the date of this prospectus, investment partnerships
composed of members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, in addition to current members of and persons
associated with Wilson Sonsini Goodrich & Rosati, Professional Corporation,
beneficially own an aggregate of 59,000 shares of Tripath Technology Inc.
preferred stock.
EXPERTS
Our financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance of the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act
with respect to the common stock offered hereby. This prospectus, which
constitutes a part of the registration statement, omits certain of the
information contained in the registration statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. For further information
with respect to us and our common stock, reference is made to the registration
statement and the exhibits and schedules thereto. Statements contained in this
prospectus regarding the contents of any agreement or other document filed as an
exhibit to the registration statement are not necessarily complete, and in each
instance reference is made to the copy of such agreement filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference. The registration statement, including the exhibits and
schedules thereto, can be inspected and copied at the Commission's offices at
450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, as
well as at the Commission's regional offices at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained at
prescribed rates from the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. Information concerning
the operation of the Public Reference Room may be obtained by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including us, that file electronically
with the Commission.
56
<PAGE>
TRIPATH TECHNOLOGY INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
Tripath Technology Inc.
The reincorporation as described in Note 11 to the financial statements has
not been consummated at April 18, 2000. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Tripath
Technology Inc. at December 31, 1998 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
April 18, 2000, except as to
Note 11, which is as of [ ], 2000"
/s/ PRICEWATERHOUSECOOPERS LLP
F-2
<PAGE>
TRIPATH TECHNOLOGY INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AS OF
------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 21,975 $ 9,568 $ 7,648
Short-term investments.......................... 10,980 6,835 4,827
Restricted cash................................. 1,000 1,000 1,000
Accounts receivable, net........................ 19 414 290
Inventories..................................... 68 1,381 1,299
Prepaid expenses and other current assets....... 1,194 248 468
-------- -------- ---------
Total current assets.......................... 35,236 19,446 15,532
Property and equipment, net....................... 1,971 2,093 2,195
Other assets...................................... 184 175 291
-------- -------- ---------
Total assets................................ $ 37,391 $ 21,714 $ 18,018
======== ======== =========
LIABILITIES, CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 686 $ 746 $ 599
Accrued expenses................................ 521 1,592 1,985
Deferred distributor income..................... -- 27 132
-------- -------- ---------
Total current liabilities..................... 1,207 2,365 2,716
-------- -------- ---------
Commitments and contingencies (Note 10)
Convertible preferred stock....................... 49,611 49,611 49,611 $ --
-------- -------- --------- ---------
Stockholders' equity:
Common stock, $0.001 par value, 60,000,000
shares authorized; 11,186,349, 10,899,022 and
11,298,480 (unaudited) shares issued and
outstanding actual; 60,000,000 shares
authorized, 20,383,046 shares issued and
outstanding pro forma (unaudited)............. 11 11 11 20
Additional paid-in capital...................... 39,757 50,854 61,285 110,887
Stockholder notes receivable.................... (2,236) (726) (736) (736)
Deferred stock-based compensation............... (12,826) (10,566) (14,380) (14,380)
Accumulated deficit............................. (38,133) (69,835) (80,489) (80,489)
-------- -------- --------- ---------
Total stockholders' equity (deficit).......... (13,427) (30,262) (34,309) $ 15,302
-------- -------- --------- =========
Total liabilities, convertible preferred
stock and stockholders' equity
(deficit)................................. $ 37,391 $ 21,714 $ 18,018
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TRIPATH TECHNOLOGY INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue...................................... $ -- $ 180 $ 648 $ 32 $ 742
Cost of revenue.............................. -- 196 2,420 19 1,263
------- -------- -------- ------- --------
Gross profit (loss).......................... -- (16) (1,772) 13 (521)
------- -------- -------- ------- --------
Operating expenses:
Research and development................... 2,055 5,409 11,429 2,354 2,921
Selling, general and administrative........ 1,062 5,096 6,056 1,456 1,226
Stock-based compensation................... 96 24,138 13,813 2,899 6,242
------- -------- -------- ------- --------
Total operating expenses............... 3,213 34,643 31,298 6,709 10,389
------- -------- -------- ------- --------
Loss from operations......................... (3,213) (34,659) (33,070) (6,696) (10,910)
Interest income.............................. 442 1,002 1,368 407 256
------- -------- -------- ------- --------
Net loss..................................... $(2,771) $(33,657) $(31,702) $(6,289) $(10,654)
======= ======== ======== ======= ========
Basic and diluted net loss per share......... $ (0.28) $ (3.32) $ (2.98) $ (0.62) $ (0.96)
======= ======== ======== ======= ========
Number of shares used to compute basic and
diluted net loss per share................. 9,844 10,143 10,624 10,188 11,049
======= ======== ======== ======= ========
Pro forma basic and diluted net loss per
share (unaudited).......................... $ (1.61) $ (0.53)
======== ========
Number of shares used to compute pro forma
basic and diluted net loss per share
(unaudited)................................ 19,709 20,134
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TRIPATH TECHNOLOGY INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDER DEFERRED TOTAL
------------------- PAID-IN NOTES STOCK-BASED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION DEFICIT EQUITY (DEFICIT)
-------- -------- ---------- ----------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996... 8,850 $ 9 $ (7) $ -- $ -- $ (1,705) $ (1,703)
Issuance of common stock upon
exercise of stock options for
shareholder notes
receivable................... 1,000 1 222 (223) -- -- --
Issuance of common stock upon
exercise of stock options.... 86 -- 19 -- -- -- 19
Deferred stock-based
compensation................. -- -- 96 -- (96) -- --
Amortization of deferred
stock-based compensation..... -- -- -- -- 96 -- 96
Interest on stockholder notes
receivable................... -- -- 13 (13) -- -- --
Issuance of common stock
warrants..................... -- -- 187 -- -- -- 187
Net loss....................... -- -- -- -- -- (2,771) (2,771)
------ --- ------- ------ -------- --------- --------
BALANCE AT DECEMBER 31, 1997... 9,936 10 530 (236) -- (4,476) (4,172)
Issuance of common stock upon
exercise of stock options for
shareholder notes
receivable................... 250 -- 2,451 (413) (2,038) -- --
Issuance of common stock to
Officer for notes
receivable................... 1,000 1 10,099 (1,500) (8,600) -- --
Deferred stock-based
compensation................. -- -- 26,326 -- (26,326) -- --
Amortization of deferred
stock-based compensation..... -- -- -- -- 24,138 -- 24,138
Interest on stockholder notes
receivable................... -- -- 87 (87) -- -- --
Issuance of common stock
warrants..................... -- -- 264 -- -- -- 264
Net loss....................... -- -- -- -- -- (33,657) (33,657)
------ --- ------- ------ -------- --------- --------
BALANCE AT DECEMBER 31, 1998... 11,186 11 39,757 (2,236) (12,826) (38,133) (13,427)
Repurchase of restricted common
stock upon termination of
Officer...................... (500) -- (4,565) 750 3,815 -- --
Repayment of stockholder note
receivable and related
interest..................... -- -- -- 845 -- -- 845
Issuance of common stock upon
exercise of stock options.... 213 -- 69 -- -- -- 69
Deferred stock-based
compensation................. -- -- 15,368 -- (15,368) -- --
Amortization of deferred
stock-based compensation..... -- -- -- -- 13,813 -- 13,813
Interest on stockholder notes
receivable................... -- -- 85 (85) -- -- --
Issuance of common stock
warrants..................... -- -- 140 -- -- -- 140
Net loss....................... -- -- -- -- -- (31,702) (31,702)
------ --- ------- ------ -------- --------- --------
BALANCE AT DECEMBER 31, 1999... 10,899 11 50,854 (726) (10,566) (69,835) (30,262)
Issuance of common stock upon
exercise of stock options
(unaudited).................. 382 -- 339 -- -- -- 339
Issuance of common stock upon
exercise of warrants
(unaudited).................. 17 -- 26 -- -- -- 26
Deferred stock-based
compensation (unaudited)..... -- -- 10,056 -- (10,056) -- --
Amortization of deferred
stock-based compensation
(unaudited).................. -- -- -- -- 6,242 -- 6,242
Interest on stockholder notes
receivable (unaudited)....... -- -- 10 (10) -- -- --
Net loss (unaudited)........... -- -- -- -- -- (10,654) (10,654)
------ --- ------- ------ -------- --------- --------
BALANCE AT MARCH 31, 2000
(UNAUDITED).................. 11,298 $11 $61,285 $ (736) $(14,380) $ (80,489) $(34,309)
====== === ======= ====== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TRIPATH TECHNOLOGY INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(2,771) $(33,657) $(31,702) $(6,289) $(10,654)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 343 577 938 217 225
Allowance for doubtful accounts................. -- -- 30 20
Stock-based compensation........................ 96 24,138 13,813 2,899 6,242
Amortization of warrants........................ 187 222 182 14 --
Changes in assets and liabilities:
Accounts receivable........................... -- (19) (425) (17) 104
Inventories................................... -- (68) (1,313) (48) 82
Prepaid expenses and other assets............. (173) (72) (87) 991 (336)
Accounts payable.............................. (10) 500 60 (123) (147)
Accrued expenses.............................. 79 419 1,071 (92) 393
Deferred distributor income................... -- -- 27 -- 105
------- -------- -------- ------- --------
Net cash used in operating activities....... (2,249) (7,960) (17,406) (2,448) (3,966)
------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments.................. (2,946) (8,999) (5,011) (2,000) --
Sales of short-term investments..................... -- 965 9,156 957 2,008
Restricted cash..................................... (1,000) -- -- -- --
Purchase of property and equipment.................. (445) (1,694) (1,060) (376) (327)
------- -------- -------- ------- --------
Net cash provided by (used in) investing
activities................................ (4,391) (9,728) 3,085 (1,419) 1,681
------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred
stock, net of issuance costs...................... 14,971 27,484 1,000 -- --
Proceeds from issuance of common stock.............. 19 -- 69 20 365
Proceeds from payment of stockholder note
receivable........................................ -- -- 845 -- --
------- -------- -------- ------- --------
Net cash provided by financing activities... 14,990 27,484 1,914 20 365
------- -------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 8,350 9,796 (12,407) (3,847) (1,920)
Cash and cash equivalents at beginning of period...... 3,829 12,179 21,975 21,975 9,568
------- -------- -------- ------- --------
Cash and cash equivalents at end of period............ $12,179 $ 21,975 $ 9,568 $18,128 $ 7,648
======= ======== ======== ======= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stockholder notes receivable issued on exercise of
stock options..................................... $ 223 $ 413 $ -- $ -- $ --
Note receivable issued on issuance of common
stock............................................. $ -- $ 1,500 $ -- $ -- $ --
Issuance of common stock warrants for services...... $ 187 $ 264 $ 140 $ -- $ --
Repurchase of restricted common stock and
cancellation of notes receivable.................. $ -- $ -- $ 750 $ -- $ --
Interest on stockholder notes receivable............ $ 13 $ 87 $ 85 $ 93 $ 10
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND BASIS OF PRESENTATION:
THE COMPANY
Tripath Technology Inc. (the "Company") was incorporated in California in
July 1995. The Company is a designer and developer of integrated circuit devices
for the consumer audio personal computer and communications markets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates, and such differences
could affect the results of operations reported in future periods.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Revenue from products sales is generally recognized upon shipment, net of
sales returns and allowances. Revenue from sales to distributors are deferred
for financial reporting purposes until the products are sold by the distributors
to the end user.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity of three
months or less from the date of purchase to be cash equivalents. Cash and cash
equivalents consist of cash on deposit with banks, money market funds and
commercial paper, bonds and notes, the fair value of which approximates cost.
The Company categorizes short-term investments as available-for-sale.
Accordingly, these investments are carried at fair value. The fair value of such
securities approximates cost, and there were no material unrealized gains or
losses as of December 31, 1998 and 1999 or March 31, 2000 (unaudited).
Short-term investments generally have maturities of less than one year from the
date of
F-7
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
purchase. The following table summarizes the Company's cash and cash equivalents
and short-term investments (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents:
Cash.......................................... $ -- $ 304 $ 558
Money market funds............................ 1,298 217 77
Commercial paper.............................. 13,932 -- --
Commercial bonds and notes.................... 6,745 9,047 7,013
------- ------ ------
$21,975 $9,568 $7,648
======= ====== ======
Short-term investments:
U.S. Government bonds and notes............... $ 3,045 $ -- $ --
Commercial paper.............................. -- 1,005 1,013
Commercial bonds and notes.................... 7,935 5,830 3,814
------- ------ ------
$10,980 $6,835 $4,827
======= ====== ======
</TABLE>
RESTRICTED CASH
At December 31, 1998 and 1999 and March 31, 2000 (unaudited), the Company
had $1,000,000 invested in a certificate of deposit with a bank as security for
the Company's line of credit.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash, cash equivalents and short-term
investments. Substantially all of the Company's cash and cash equivalents are
invested in highly-liquid money market funds and commercial securities with
major financial institutions. Short-term investments consist of U.S. government
and commercial bonds and notes. The Company sells its products principally to
original equipment manufacturers. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential credit
losses, as considered necessary by management. Credit losses to date have been
consistent with management's estimates.
The Company's significant customers were as follows:
<TABLE>
<CAPTION>
% OF ACCOUNTS
% OF REVENUES FOR THE YEAR RECEIVABLE AT
ENDED DECEMBER 31, DECEMBER 31,
-------------------------------------- -----------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Customer A.......................... -- -- 36% -- 54%
Customer B.......................... -- -- 11% -- 16%
Customer C.......................... -- 56% -- -- --
Customer D.......................... -- 29% -- -- --
</TABLE>
F-8
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, restricted cash, short-term investments,
accounts receivable and accounts payable, approximate their fair value due to
their relative short maturities and based upon comparable market information
available at the respective balance sheet dates. The Company does not hold or
issue financial instruments for trading purposes.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out ("FIFO") method.
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
historical cost, less accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the shorter of the estimated useful
lives of the assets, ranging from three to five years, or, in the case of
leasehold improvements, over the lease period.
Upon disposal, the assets and related accumulated depreciation and
amortization are removed from the Company's accounts, and the resulting gains or
losses are reflected in the statement of operations.
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that their net book value
may not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows (undiscounted and before interest) from the use of
the assets is less than the net book value of the asset. The amount of the
impairment loss, if any, will generally be measured as the difference between
net book value of the assets and their estimated fair values.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general-purposes financial statements. There was no difference
between the Company's net loss and its total comprehensive loss for the years
ended December 31, 1997, 1998 and 1999 and the three-month periods ended
March 31, 1999 and 2000 (unaudited).
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method as prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Company's stock at the date of grant over the
stock option exercise price. Expense associated with stock-based compensation is
amortized on an accelerated basis over the vesting period of the individual
award consistent with the method described in Financial Accounting Standards
Board Interpretation No. 28 ("FIN 28"). The Company accounts for stock issued to
nonemployees in accordance with the provisions of Statement of Financial
Accounting Standards
F-9
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") and Emerging
Issues Task Force Consensus No. 96-18, "Accounting for Equity Instruments that
are offered to other than employees for acquiring or in conjunction with selling
goods or services" ("EITF 96-18"). Under SFAS No. 123 and EITF 96-18, stock
option awards issued to nonemployees are accounted for at their fair value,
determined using the Black-Scholes option pricing method. The fair value of each
nonemployee stock option or award is remeasured at each period end until a
commitment date is reached, which is generally the vesting date.
SEGMENT INFORMATION
The Company has determined that it has one reportable business segment: the
design, license, and marketing of integrated circuits. To date, the Company's
products and services have originated primarily within the United States.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 requires that all derivative instruments be recorded on
the balance sheet at their fair market value. Changes in the fair market value
of derivatives are recorded each period in current earnings or comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction, and if so, the type of hedge transaction. Substantially all of the
Company's revenues and costs are denominated in U.S. dollars, and to date the
Company has not entered into any material derivatives. The effective date of
SFAS No. 133, as amended by SFAS No. 137, will be for fiscal years beginning
after June 15, 2000.
NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
stock outstanding during the period. Diluted net loss per share is computed
based on the weighted average number of common stock and dilutive potential
common stock outstanding. The calculation of diluted net loss per share excludes
potential common stock if the effect is anti-dilutive. Potential common stock
consist of incremental common stock issuable upon the exercise of stock options,
shares issuable upon conversion of convertible preferred stock and common stock
issuable upon the exercise of common stock warrants.
F-10
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of basic and diluted net loss
per share for the periods presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss................................... $(2,771) $(33,657) $(31,702) $(6,289) $(10,654)
======= ======== ======== ======= ========
Denominator:
Weighted average common stock.............. 9,844 10,143 10,624 10,188 11,049
======= ======== ======== ======= ========
Net loss per share:
Basic and diluted.......................... $ (0.28) $ (3.32) $ (2.98) $ (0.62) $ (0.96)
======= ======== ======== ======= ========
</TABLE>
The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods presented (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Series A preferred stock................. 3,245 3,245 3,245 3,245 3,245
Series B preferred stock................. 1,967 1,967 1,967 1,967 1,967
Series C preferred stock................. 1,497 1,497 1,497 1,497 1,497
Series D preferred stock................. -- 2,376 2,376 2,376 2,376
Common stock options..................... 994 2,716 3,767 2,661 4,193
Common stock warrants.................... 102 130 139 130 122
Unvested restricted stock................ -- 1,000 -- -- --
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1999 and the
three months ended March 31, 2000 is computed using the weighted average number
of common stock outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A, Series B, Series C and Series D preferred
stock into shares of the Company's common stock effective upon the closing of
the Company's initial public offering ("IPO") as if such conversion occurred on
January 1, 1999 and 2000, respectively, or at the date of original issuance, if
later.
F-11
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The resulting pro forma net loss per share can be shown as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
<S> <C> <C>
Numerator:
Net loss......................................... $(31,702) $(10,654)
======== ========
Denominator:
Weighted average shares.......................... 10,624 11,049
Assumed conversion of Series A preferred stock... 3,245 3,245
Assumed conversion of Series B preferred stock... 1,967 1,967
Assumed conversion of Series C preferred stock... 1,497 1,497
Assumed conversion of Series D preferred stock... 2,376 2,376
-------- --------
Denominator for pro forma basic and diluted net
loss per share calculation....................... 19,709 20,134
======== ========
Pro forma net loss per share:
Basic and diluted................................ $ (1.61) $ (0.53)
======== ========
</TABLE>
The calculation of pro forma diluted net loss per share excludes potential
common stock, composed of incremental common stock issuable upon the exercise of
stock options and common stock warrants, as the effect would be anti-dilutive.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the IPO, the outstanding shares of Series A,
Series B, Series C and Series D preferred stock will automatically convert into
an aggregate of 9,084,566 shares of common stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro forma
statement of stockholders' equity at March 31, 2000.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying balance sheet as of March 31, 2000, the statements of
operations and of cash flow for the three months ended March 31, 1999 and 2000
and the statement of stockholders' equity (deficit) for the three months ended
March 31, 2000 are unaudited. In the opinion of management, these statements
have been prepared on the same basis as the audited financial statements and
include all adjustments, consisting of only normal recurring adjustments,
necessary for the fair presentation of the results for the interim periods. The
data disclosed in the financial statements as of such dates and for such periods
are unaudited. Results of the three months ended March 31, 2000 are not
necessarily indicative of results of the entire year.
F-12
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable........................... $ 19 $ 444 $ 340
Less: allowance for doubtful accounts......... -- (30) (50)
------- ------- -------
19 414 290
======= ======= =======
INVENTORIES:
Raw materials................................. $ 68 $ 1,197 $ 12
Work-in-process............................... -- 164 613
Finished goods................................ -- 20 674
------- ------- -------
$ 68 $ 1,381 $ 1,299
======= ======= =======
PROPERTY AND EQUIPMENT, NET:
Furniture and fixtures........................ $ 720 $ 1,149 $ 1,282
Computer equipment............................ 2,259 2,782 2,810
Production equipment.......................... -- 94 260
Leasehold improvements........................ 69 83 83
------- ------- -------
3,048 4,108 4,435
Less: accumulated depreciation and
amortization................................ (1,077) (2,015) (2,240)
------- ------- -------
$ 1,971 $ 2,093 $ 2,195
======= ======= =======
ACCRUED EXPENSES:
Accrued compensation and related benefits..... $ 206 $ 342 $ 297
Accrued rent.................................. 297 273 270
Inventory purchase commitments................ -- 943 1,247
Other accrued expenses........................ 18 34 171
------- ------- -------
$ 521 $ 1,592 $ 1,985
======= ======= =======
</TABLE>
NOTE 4--BORROWINGS:
In August 1998, the Company entered into a line of credit agreement with a
bank, under which it may borrow up to $1,000,000. In November 1999, the line of
credit was extended through October 31, 2000. The line of credit bears interest
at the annualized effective rate of the restricted certificate of deposit, which
is security for the line of credit, plus 1% per annum. The Company has not
borrowed any amounts under the line of credit through December 31, 1999 or
March 31, 2000 (unaudited). Borrowings under the line of credit are repayable
within 90 days from date of borrowing.
F-13
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--CONVERTIBLE PREFERRED STOCK:
Convertible preferred stock at December 31, 1999 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
SHARES PROCEEDS NET
------------------------ OF ISSUANCE
AUTHORIZED OUTSTANDING COSTS
---------- ----------- ------------
<S> <C> <C> <C>
Series A................................... 3,245 3,245 $ 2,167
Series B................................... 1,967 1,967 3,989
Series C................................... 2,000 1,497 14,971
Series D................................... 3,000 2,376 28,484
------ ----- -------
10,212 9,085 $49,611
====== ===== =======
</TABLE>
The holders of convertible preferred stock have various rights and
preferences as follows:
CONVERSION
Each share of Series A, B, C and D convertible preferred stock outstanding
is convertible into common stock at any time at the option of the holder based
on a formula which currently results in a one-for-one exchange ratio of common
for preferred. This formula is subject to adjustments for stock splits, stock
dividends, recapitalization and other similar transactions. The shares of
preferred stock automatically convert into shares of common stock upon the
effectiveness of a registration statement under the Securities Act of 1933, as
amended, if the offering results in gross proceeds of at least $15,000,000 or at
the election of at least 50% of the holders of convertible preferred stock.
DIVIDENDS
Noncumulative dividends at the annual rate of $0.06, $0.17, $0.80 and $0.96
per share for Series A, B, C and D convertible preferred stock, respectively, if
and when declared by the Board of Directors, are payable to the holders of
convertible preferred stock in preference to any dividends for common stock
declared by the Board of Directors. No dividends are payable on common stock
unless a dividend is paid to convertible preferred shareholders. No dividends
have been declared since inception.
LIQUIDATION
In the event of liquidation, dissolution or winding up of the Company,
including the sale of all or substantially all of its assets, or a transaction
or series of transactions which will result in the holders of the outstanding
voting equity securities of the Company immediately prior to such transaction
holding less than 50% of the voting equity securities of the surviving entity
immediately following such transaction, the holders of convertible preferred
stock are entitled to a per share distribution in preference to holders of
common stock equal to $0.68, $2.04, $10.00 and $12.00 for Series A, B, C and D
convertible preferred stock, respectively (adjusted for stock splits,
combinations or similar events), plus any declared but unpaid dividends. In the
event funds are insufficient to make a complete distribution to the holders of
convertible preferred stock as described above, the assets will be distributed
to the holders of Series A, B, C and D convertible preferred stock in proportion
to the full liquidation preference to which each shareholder is entitled.
In the event funds are sufficient to make a complete distribution to the
holders of Series A, B, C and D convertible preferred stock as described above,
the remaining assets will be distributed to the holders of Series D convertible
preferred stock and common stock, on an as-converted basis, until the
F-14
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
holders of Series D convertible preferred stock receive an aggregate of $24.00
(including amounts previously paid) per share. Thereafter, the remaining assets
will be distributed ratably among the common shareholders.
VOTING
The holders of common stock are entitled to elect three of the Company's
five directors and the holders of convertible preferred stock are entitled to
elect two of the Company's five directors. Each share of convertible preferred
stock is entitled to one vote for each share of common stock into which the
preferred stock is convertible.
NOTE 6--COMMON STOCK:
The Company's Amended and Restated Articles of Incorporation authorize the
Company to issue 60,000,000 shares of common stock. At December 31, 1998 and
1999 and March 31, 2000 (unaudited), there were 11,186,349 and 10,899,022 and
11,298,480 shares, respectively, of common stock issued and outstanding.
The Company has reserved the following number of shares of common stock for
future issuance (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
Conversion of Series A convertible preferred stock.......... 3,245 3,245
Conversion of Series B convertible preferred stock.......... 1,967 1,967
Conversion of Series C convertible preferred stock.......... 2,000 2,000
Conversion of Series D convertible preferred stock.......... 3,000 3,000
Common stock warrants....................................... 139 122
Options under stock option plan............................. 3,767 4,193
------ ------
14,118 14,527
====== ======
</TABLE>
COMMON STOCK WARRANTS
In August 1997, in connection with a co-operation agreement with Intel
Corporation, a shareholder of the Company, the Company issued a fully vested
warrant to purchase 102,250 shares of common stock at $1.00 per share. The
warrant expires in August 2007. The warrant includes certain registration rights
and provides for exercise on a "net share" basis. The Company determined the
value of the warrant to be $187,000, based on the Black-Scholes option pricing
model, and was recognized as selling, general and administrative expense during
the year ended December 31, 1997.
In March 1998, in connection with the extension of the Company's facility
lease, and for services provided by consultants to the Company, the Company
issued fully vested warrants to purchase 7,500 and 20,000 shares of common
stock, respectively, at $1.50 per share. The warrants expire in March 2008. The
warrants include certain registration rights and provide for exercise on an "net
share" basis. The Company determined the value of the warrants to be $264,000,
based on the Black-Scholes option pricing model. The value attributable to the
warrants for the lease of $79,000 is being recognized as selling, general and
administrative expense over the term of the lease, which commenced in
March 1998. The value attributable to the warrants for consulting services of
$185,000 was recognized as selling, general and administrative expense during
the year ended December 31, 1998.
F-15
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In July 1999, in connection with a marketing agreement, the Company issued a
fully vested warrant to purchase 9,000 shares of common stock at $1.50 per
share. The warrant expires in July 2009. The warrant includes certain
registration rights and provides for exercise on a "net share" basis. The
Company determined the value of the warrant to be $140,000, based on the
Black-Scholes option pricing model, and was recognized as selling, general and
administrative expense during the year ended December 31, 1999.
NOTES RECEIVABLE FROM SHAREHOLDER FOR THE EXERCISE OF STOCK OPTIONS
In January 1997 and March 1998, the President of the Company exercised stock
options by issuing the Company notes totaling $223,000 and $413,000 (the
"Notes"), respectively. The Notes are non-recourse, and bear fixed interest at
6.01% and 5.51%, respectively, compounded semi-annually. The Notes are secured
by the underlying shares and the principal and interest are due to be repaid in
January 2004 and March 2005, respectively; however, the notes are payable at any
time without penalty.
RESTRICTED COMMON STOCK ISSUED TO OFFICER
In May 1998, the Company issued 1,000,000 shares of non-voting Class B
common stock to an officer of the Company at a price of $1.50 per share. The
shares vested at a rate of 25% at the end of the first year and then 2.083% each
month thereafter until 100% vested. The Company had the right to purchase
unvested shares upon employee termination. In May 1998, the difference between
the deemed fair value of the Company's common stock and the stock price of
$1.50, totaling $8,600,000, was recorded as deferred stock-based compensation
and was being amortized over the vesting period of the underlying stock. In
March 1999, the officers' employment was terminated, and at such time all
1,000,000 shares were subject to the Company's right to repurchase the shares.
Under the terms of the officers' termination agreement, only 500,000 shares were
repurchased by the Company. At the time of the officer's termination, $4,300,000
of deferred stock-based compensation was amortized and, as a result of the
termination, additional compensation in the amount of $485,000 relating to the
500,000 shares that the officer retained because the Company did not exercise
its right to repurchase the shares, was recorded in March 1999.
NOTE 7--EMPLOYEE BENEFIT PLANS:
1995 STOCK OPTION PLAN
In July 1995, the Company adopted a stock option plan (the "1995 Plan"),
which authorizes the Board of Directors to grant incentive stock options
("ISOs") and nonstatutory stock options ("NSOs") to employees, directors and
consultants for up to 2,950,000 shares of common stock. In January 1997 and
September 1998, the Board of Directors approved an increase in the number of
shares authorized under the 1995 Plan by 21,658 and 3,028,342 shares,
respectively. In March 2000 (unaudited), the Board of Directors approved an
increase in the number of shares authorized under the 1995 Plan by 2,000,000
shares. ISOs may be granted only to employees of the Company (including officers
and Directors who are also employees). NSOs may be granted to employees and
consultants of the Company. No person will be eligible to receive more than
500,000 shares in any fiscal year pursuant to awards under the 1995 Plan other
than a new employee of the Company who will be eligible to receive no more than
600,000 shares in the fiscal year in which such employee commences employment.
Under the 1995 Plan, ISOs are granted at a price that is not to be less than
100% of the fair market value of the common stock on the date of grant, as
determined by the Board of Directors. NSOs are granted at a price that is not
less than 85% of the fair market value of the common stock on
F-16
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the date of grant, as determined by the Board of Directors. Options generally
vest at 25% on the first anniversary of the date of grant and vest in equal
monthly installments over the remaining 36 months. Options granted to
shareholders who own more than 10% of the outstanding stock of the Company at
the time of grant must be issued at prices not less than 110% of the estimated
fair value of the stock on the date of grant. Options under the Plan may be
granted for periods up to 10 years.
The following table summarizes stock option activity under the 1995 Plan (in
thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
OPTIONS WEIGHTED
AVAILABLE AVERAGE
FOR EXERCISE PRICE
GRANT SHARES PER SHARE
--------- -------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996........................... 2,449 502 $0.17
Additional shares reserved............................. 22 -- --
Granted................................................ (1,614) 1,614 0.25
Canceled............................................... 36 (36) 0.20
Exercised.............................................. -- (1,086) 0.22
------ ------
Balance at December 31, 1997........................... 893 994 0.24
Additional shares reserved............................. 3,028 -- --
Granted................................................ (2,043) 2,043 1.49
Canceled............................................... 71 (71) 1.50
Exercised.............................................. -- (250) 1.65
------ ------
Balance at December 31, 1998........................... 1,949 2,716 1.02
Additional shares reserved............................. -- -- --
Granted................................................ (2,117) 2,117 1.50
Canceled............................................... 853 (853) 1.48
Exercised.............................................. -- (213) 0.32
------ ------
Balance at December 31, 1999........................... 685 3,767 1.22
Additional shares reserved (unaudited)................. 2,000 -- --
Granted (unaudited).................................... (1,061) 1,061 1.83
Canceled (unaudited)................................... 253 (253) 1.50
Exercised (unaudited).................................. -- (382) 0.89
------ ------
Balance at March 31, 2000 (unaudited).................. 1,877 4,193 1.39
====== ======
</TABLE>
F-17
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Significant options groups outstanding at December 31, 1999 and related
weighted average exercise prices and contractual life information are as
follows:
<TABLE>
<CAPTION>
OPTIONS VESTED AND
OPTIONS OUTSTANDING EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
AVERAGE EXERCISE NUMBER EXERCISE
NUMBER CONTRACTUAL PRICE PER VESTED AND PRICE PER
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) SHARE EXERCISABLE SHARE
- ------------------------ ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.07.................... 29,500 5.88 $0.07 29,500 $0.07
$0.20.................... 590,001 6.46 $0.20 552,055 $0.20
$0.50.................... 182,500 7.50 $0.50 182,500 $0.50
$1.50.................... 2,965,500 9.03 $1.50 794,080 $1.50
--------- ---------
3,767,501 1,558,135
========= =========
</TABLE>
FAIR VALUE DISCLOSURES
Pro forma information regarding net loss per share is required by SFAS
No. 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted under the fair
value method. The fair value for these options was estimated using the
Black-Scholes option pricing model.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
options of publicly traded companies and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of options.
The fair value of options at the date of grant was estimated on the date of
grant based on the minimum value method as prescribed by SFAS No. 123. The
following table summarizes the estimated fair value of options and assumptions
used in the SFAS No. 123 calculations:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Estimated fair value.......... $0.46 $9.47 $ 9.70 $8.98 $10.66
Expected lives (in years)..... 5 5 5 5 5
Risk-free interest rate....... 6.66% 5.98% 6.16% 6.06% 6.78%
Dividend yield................ -- -- -- -- --
</TABLE>
F-18
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Had compensation cost for the Company's stock options been determined based
on the fair value of the options at the date of grant using the minimum value
method as required by SFAS No. 123, the Company's pro forma net loss would have
been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss:
As reported................ $(2,771) $(33,657) $(31,702) $(6,289) $(10,654)
======= ======== ======== ======= ========
Pro forma.................. $(2,789) $(34,109) $(32,162) $(6,342) $(10,887)
======= ======== ======== ======= ========
Basic and diluted net loss
per share:
As reported................ $ (0.28) $ (3.32) $ (2.98) $ (0.62) $ (0.96)
======= ======== ======== ======= ========
Pro forma.................. $ (0.28) $ (3.36) $ (3.03) $ (0.62) $ (0.99)
======= ======== ======== ======= ========
</TABLE>
NOTE 8--DEFERRED STOCK-BASED COMPENSATION:
EMPLOYEE OPTIONS AND RESTRICTED STOCK
In connection with certain employee stock option grants and issuance of
restricted stock to an officer made since January 1998, the Company recognized
deferred stock-based compensation, which is being amortized over the vesting
periods of the related options and stock, generally four years, using an
accelerated basis. The fair value per share used to calculate deferred
stock-based compensation was derived by reference to the convertible preferred
stock issuance prices. Future compensation charges are subject to reduction for
any employee who terminates employment prior to such employee's option vesting
date.
The following tables sets forth deferred stock-based compensation and the
amortization of deferred stock-based compensation (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- -------------------
1997 1998 1999 1999 2000
--------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred stock-based compensation................... $ -- $35,070 $10,959 $(4,760) $9,465
Amortization of deferred stock-based compensation... -- 22,970 12,587 2,630 5,777
</TABLE>
NON-EMPLOYEE OPTIONS
During the period from January 1997 through December 1999, the Company
granted options to purchase 605,375 shares of common stock to consultants in
exchange for services at exercise prices ranging from $0.20 to $1.50 per share.
The Company determined the value of the options granted to consultants based
on the Black-Scholes option pricing model. The fair value of options granted to
consultants was determined using the following assumptions: expected lives of
10 years, risk free interest rates ranging from 4.45% to 5.93%, dividend yield
of 0.0% and volatility of 70%. The following table summarizes the fair values
F-19
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of the options granted, deferred stock-based compensation and the related
amortization recorded (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average fair value per share of options
granted to consultants during the period.......... $0.64 $ 9.81 $10.76 $ -- $11.41
Deferred stock-based compensation................... 96 1,894 594 28 591
Amortization of deferred stock-based compensation... 96 1,168 1,226 269 465
</TABLE>
Stock-based compensation attributable to individuals that worked in the
following functions is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Manufacturing/operations (cost of revenues)......... $-- $ -- $ 43 $ -- $ 20
Research and development............................ 96 2,753 6,891 365 2,911
Selling, general and administrative................. -- 21,385 6,879 2,534 3,311
--- ------- ------- ------ ------
Total stock-based compensation.................... $96 $24,138 $13,813 $2,899 $6,242
=== ======= ======= ====== ======
</TABLE>
NOTE 9--INCOME TAXES:
At December 31, 1999, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $28,168,000 and
$13,408,000, respectively, which expire in varying amounts beginning in 2004
through 2019. In addition, the Company has credit carryforwards of approximately
$514,000 for federal and $383,000 for state purposes. The federal carryforwards
expire in varying amounts through 2019. Under the Tax Reform Act of 1986, the
amounts of and benefits from net operating loss and tax credit carryforwards may
be impaired or limited in certain circumstances. Events which could cause
limitations in the amount of net operating loss and tax credit carryforwards
that the Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50%, as defined, over a three year
period.
Deferred taxes comprise of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 5,032 $ 10,359
Non-deductible reserves and accruals................... -- 602
Credit carryforwards................................... 248 897
------- --------
Total deferred tax assets............................ 5,280 11,858
Less: Valuation allowance.............................. (5,280) (11,858)
------- --------
Net deferred tax assets.............................. $ -- $ --
======= ========
</TABLE>
F-20
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company believes that, based on number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance has been recorded.
These factors include the Company's history of losses, recent increase in
expense levels, the fact that the market in which the Company competes is
intensely competitive and characterized by rapidly changing technology, the lack
of carryback capacity to realize deferred tax assets and the uncertainty
regarding market acceptance of the Company's products. The Company will continue
to assess the realizability of the deferred tax assets based on actual and
forecasted operating results.
NOTE 10--COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space and equipment under non-cancelable operating
leases with various expiration dates through November 2002. Rent expense for
operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Rent expense............................ $187 $953 $1,084 $244 $300
</TABLE>
Future minimum lease payments under non-cancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ------------------------ ---------
<S> <C>
2000........................................................ $1,026
2001........................................................ 1,038
2002........................................................ 964
------
Total minimum lease payments................................ $3,028
======
</TABLE>
CONTINGENCIES
From time to time, in the normal course of business, various claims are made
against the Company. In the opinion of the Company's management, there are no
pending claims, the outcome of which is expected to result in a material adverse
effect on the financial position or results of operations of the Company.
NOTE 11--SUBSEQUENT EVENT:
REINCORPORATION
On [ ], 2000, the Company was reincorporated in the State of
Delaware. All information included in these financial statements has been
adjusted to reflect this reincorporation.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
TRIPATH TECHNOLOGY INC.
COMMON STOCK
[LOGO]
------
PROSPECTUS
, 2000
---------
SALOMON SMITH BARNEY
DEUTSCHE BANC ALEX. BROWN
U.S. BANCORP PIPER JAFFRAY
DAIN RAUSCHER WESSELS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Tripath Technology Inc. in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $39,600
NASD filing fee............................................. 15,500
Nasdaq National Market listing fee.......................... *
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. 3,000
Transfer Agent and Registrar fees........................... *
Miscellaneous expenses...................................... *
-------
Total..................................................... $ *
=======
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article Eight of the Registrant's amended and restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article Six of the Registrant's amended and restated Bylaws provides for the
indemnification of officers, directors and employees or agents acting on behalf
of the Registrant to the fullest extent permissible under Delaware law.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's amended and restated Bylaws, and intends to enter into
indemnification agreements with any new directors and executive officers in the
future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, we have issued unregistered securities to a limited number
of persons as described below:
COMMON STOCK:
(1) In July 1995, we sold 6,000,000 shares of our common stock at a price of
$0.0003 per share to Dr. Adya S. Tripathi, our Chief Executive Officer, for
a purchase price of $1,800.
PREFERRED STOCK:
(1) In August 1995, we sold 1,000,000 shares of our Series A preferred stock at
a price of $1.00 per share to a group of investors for an aggregate purchase
price of $1,000,000.
II-1
<PAGE>
(2) In September 1995, we sold 70,000 shares of our Series A preferred stock at
a price of $1.00 per share to a group of investors for an aggregate purchase
price of $70,000.
(3) In December 1995, we sold 130,000 shares of our Series A preferred stock at
a price of $1.00 per share to a group of investors for an aggregate purchase
price of $130,000.
(4) In February 1996, we sold 333,333 shares of our Series B preferred stock at
a price of $3.00 per share to a group of investors for an aggregate purchase
price of $999,999.
(5) In August 1997, we sold 1,497,250 shares of our Series C preferred stock at
a price of $10.00 per share to a group of investors for an aggregate
purchase price of $14,972,500.
(6) In September 1998, we sold 1,266,668 shares of our Series D preferred stock
at a price of $12.00 per share to a group of investors for an aggregate
purchase price of $15,200,016.
(7) In December 1998, we sold 1,108,998 shares of our Series D preferred stock
at a price of $12.00 per share to a group of investors for an aggregate
purchase price of $13,307,996.
The sale and issuance of the above securities were deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act or Regulation D promulgated thereunder.
STOCK OPTIONS:
(1) From inception through March 2000, we granted stock options to acquire an
aggregate of 6,123,982 shares of our common stock at prices ranging from
$0.0003 to $1.65 per share to employees, consultants and directors pursuant
to our 1995 Stock Plan.
(2) From inception through March 2000, we issued an aggregate of 1,930,980
shares of our common stock to employees, consultants and directors pursuant
to the exercise of stock options granted under the 1995 Stock Plan, for an
aggregate consideration of $1,063,049.
The sale and issuance of the above securities were deemed to be exempt from
registration in reliance on Rule 701 promulgated under the Securities Act as
transactions pursuant to a compensatory benefit plan or a written contract
relating to compensation.
COMMON STOCK WARRANTS:
(1) In August 1997, we issued a warrant to acquire 102,250 shares of our common
stock at an exercise price of $1.00 per share to Intel Corporation.
(2) In March 1998, we issued a warrant to acquire 7,500 shares of our common
stock at an exercise price of $1.50 per share to Jeffrey Dennis Arrillaga
and Susan Burrus Arrillaga, or their successors, trustees of the Arrillaga
1997 Revocable Trust dated October 23, 1997.
(3) In March 1998, we issued a warrant to acquire 2,500 shares of our common
stock at an exercise price of $1.50 per share to Jennifer R. London.
(4) In July 1999, we issued a warrant to acquire 9,000 shares of our common
stock at an exercise price of $1.50 per share to Aisys Corporation.
The sales of the above securities were deemed to be exempt from registration
in reliance on Section 4(2) of the Securities Act as transactions by an issuer
not involving any public offering. All recipients were either accredited or
sophisticated investors, as those terms are defined in the Securities Act. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and other instruments issued in
II-2
<PAGE>
such transactions. All recipients either received adequate information about us
or had access, through their relationship with us, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<C> <S>
* 1.1 Form of Underwriting Agreement
* 3.1 Form of Restated Certificate of Incorporation of the
Registrant (Delaware) to be effective upon closing of the
offering
* 3.2 Bylaws of the Registrant
* 4.1 Form of Registrant's common stock certificate
* 5.1 Opinion of Wilson Sonsini Goodrich & Rosati
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers
*10.2 License and Supply Agreement with STMicroelectronics, Inc.,
dated July 9, 1999
10.3 Lease for Registrant's headquarters located at 3900 Freedom
Circle, Santa Clara CA.
10.4 2000 Stock Plan and form of option agreement
10.5 2000 Employee Stock Purchase Plan
10.6 Second Amended and Restated Shareholder Rights Agreement
between the Registrant and certain stockholders, dated
September 15, 1998
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
*23.2 Consent of Wilson Sonsini Goodrich & Rosati (see Exhibit
5.1)
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedules
</TABLE>
- ------------------------
* To be filed by amendment
(b) Financial Statement Schedules
None.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
II-3
<PAGE>
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Santa Clara, State of California, on
the 18th day of April, 2000.
<TABLE>
<S> <C> <C>
TRIPATH TECHNOLOGY INC.
By /s/ DR. ADYA S. TRIPATHI
----------------------------------------
Dr. Adya S. Tripathi
PRESIDENT AND CHIEF EXECUTIVE
OFFICER, CHAIRMAN OF THE BOARD
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, the undersigned hereby constitute and
appoint Dr. Adya S. Tripathi and John J. DiPietro, and each of them, as his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, or any related registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <C> <S>
/s/ DR. ADYA S. TRIPATHI President and Chief Executive Officer April 18, 2000
------------------------------------ (Principal Executive Officer)
Dr. Adya S. Tripathi
/s/ JOHN J. DIPIETRO Chief Financial Officer (Principal April 18, 2000
------------------------------------ Financial and Accounting Officer)
John J. DiPietro
/s/ TSYOSHI TAIRA Director April 18, 2000
------------------------------------
Tsyoshi Taira
/s/ BERNARD T. MARREN Director April 18, 2000
------------------------------------
Bernard T. Marren
/s/ CHARLES JUNGO Director April 18, 2000
------------------------------------
Charles Jungo
/s/ SOHAIL KHAN Director April 18, 2000
------------------------------------
Sohail Khan
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<C> <S>
* 1.1 Form of Underwriting Agreement
* 3.1 Form of Restated Certificate of Incorporation of the
Registrant (Delaware) to be effective upon closing of the
offering
* 3.2 Bylaws of the Registrant
* 4.1 Form of Registrant's common stock certificate
* 5.1 Opinion of Wilson Sonsini Goodrich & Rosati
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers
*10.2 License and Supply Agreement with STMicroelectronics, Inc.,
dated July 9, 1999
10.3 Lease for Registrant's headquarters located at 3900 Freedom
Circle, Santa Clara CA.
10.4 2000 Stock Plan and form of option agreement
10.5 2000 Employee Stock Purchase Plan
10.6 Second Amended and Restated Shareholder Rights Agreement
between the Registrant and certain stockholders, dated
September 15, 1998
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
*23.2 Consent of Wilson Sonsini Goodrich & Rosati (see Exhibit
5.1)
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedules
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
Exhibit 10.1
TRIPATH TECHNOLOGY INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this ____
day of ____________, 2000 by and between Tripath Technology Inc., a Delaware
corporation (the "Company"), and ____________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals such as Indemnitee to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW THEREFORE, in consideration for Indemnitee's services as an officer
or director of the Company, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a
party to any threatened, pending or completed action, suit, proceeding or any
alternative dispute resolution mechanism, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Company) by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company,
by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by Indemnitee in connection with such action, suit or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not,
of itself, create a presumption that Indemnitee did not act in good faith and
in a manner which Indemnitee reasonably
<PAGE>
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement actually and reasonably incurred by Indemnitee
in connection with the defense or settlement of such action or suit if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Company unless and
only to the extent that the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, Indemnitee is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or such other
court shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Subsections (a) and (b) of this
Section 1, or in defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by Indemnitee in connection therewith.
2. AGREEMENT TO SERVE. In consideration of the protection
afforded by this Agreement, if Indemnitee is a director of the Company, he or
she agrees to serve at least for the six months after the effective date of this
Agreement as a director and not to resign voluntarily during such period without
the written consent of a majority of the Board of Directors. If Indemnitee is an
officer of the Company not serving under an employment contract, he or she
agrees to serve in such capacity at least for the balance of the current fiscal
year of the Company and not to resign voluntarily during such period without the
written consent of a majority of the Board of Directors. Following the
applicable period set forth above, Indemnitee agrees to continue to serve in
such capacity at the will of the Company (or under separate agreement, if such
agreement exists) so long as he or she is duly appointed or elected and
qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he or she tenders
his or her resignation in writing. Nothing contained in this Agreement is
intended to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
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(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referenced in Section 1(a) or (b) hereof (but not amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby. The advances to be made hereunder shall be
paid by the Company to Indemnitee within thirty (30) days following delivery of
a written request therefor by Indemnitee to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the President of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). Notice
shall be deemed received three business days after the date postmarked if sent
by domestic certified or registered mail, properly addressed; or five business
days if sent by airmail to a country outside of North America; otherwise notice
shall be deemed received when such notice shall actually be received by the
Company. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) PROCEDURE. Any indemnification and advances provided for
in Section 1 and this Section 3 shall be made no later than thirty (30) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws, providing for indemnification, is not
paid in full by the Company within thirty (30) days after a written request for
payment thereof has first been received by the Company, Indemnitee may, but need
not, at any time thereafter, bring an action against the Company to recover the
unpaid amount of the claim and, subject to Section 13 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed. However, Indemnitee shall be entitled to receive interim
payments of expenses pursuant to Subsection 3(a) unless and until such defense
may be finally adjudicated by court order or judgment from which no further
right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including it Board of Directors, any committee or subgroup of the Board
of Directors, independent legal counsel, or its stockholders) that Indemnitee
has not met such
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applicable standard of conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of Indemnitee, all amounts payable as a result of such proceeding in accordance
with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 3(a) hereof to advance the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election to request that the
Company advance expenses to Indemnitee. After delivery of such notice, approval
of such counsel by Indemnitee and the retention of such counsel by the Company,
the Company shall not be liable to Indemnitee under this Agreement for any fees
of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (i) Indemnitee shall have the right to employ his or
her own counsel in any such proceeding at Indemnitee's expense; and (ii) if (A)
the employment of counsel by Indemnitee has been previously authorized by the
Company, (B) Indemnitee shall have reasonably concluded that there may be a
material conflict of interest between the Company and Indemnitee in the conduct
of any such defense, or (C) the Company shall not, in fact, have employed
counsel to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be, IPSO FACTO,
within the purview of Indemnitee's rights and Company's obligations, under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested Directors, the General
Corporation Law of the State of Delaware, or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office. The
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indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he or she may have ceased to serve in such capacity at the time of any
action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him or her in the investigation, defense, appeal or settlement of
any civil or criminal action, suit or proceeding, but not, however, for the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such expenses, judgments, fines or penalties to which Indemnitee
is entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
has undertaken or may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall,
from time to time, make a good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or the most
favorably insured of the Company's officers, if Indemnitee is not a director of
the Company but is an officer. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require
or shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated,
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and the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such suit; or
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company, its
parent or any of its subsidiaries; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger with the Company, which constituent corporation, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that if
Indemnitee is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; and references to "serving at
the request of the Company" shall include any service as a director, officer,
employee or agent of the Company which imposes duties on, or
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involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. Except as provided in Section 3(b), all notices,
requests, demands and other communications under this Agreement shall be in
writing and shall be deemed duly given (i) if delivered by hand and receipted
for by the party addressee on the date of such receipt, or (ii) if mailed by
domestic certified or registered mail with postage prepaid, on the third
business day after the date postmarked. Addresses for notice to either party are
as shown on the signature page of this Agreement, or as subsequently modified by
written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
Delaware.
16. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents entered into and to be performed
entirely within Delaware without regard to the conflict of law principles
thereof.
17. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of
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accrual of such cause of action, and any claim or cause of action of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such two-year period; PROVIDED, HOWEVER, that if any
shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both of the parties hereto. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth
the entire understanding between the parties hereto and supersedes and merges
all previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Tripath Technology Inc.
a Delaware Corporation
By:
------------------------
------------------------
President
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AGREED TO AND ACCEPTED:
INDEMNITEE:
- ----------------------------------
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(signature)
Address:
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- ----------------------------------
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EXHIBIT 10.3
LEASE AGREEMENT BLDG: Marriott 5
OWNER: 500
PROP: 105
UNIT: 200
TENANT: 10502
THIS LEASE, made this 16th day of October, 1997 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA
SURVIVOR'S TRUST) as amended and RICHARD T. PEERY, Trustee, or his Successor
Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as
amended, hereinafter called Landlord, and TRIPATH TECHNOLOGY, INC., a
California corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
A portion of that certain 45,000 PLUS OR MINUS square foot, two-story
building located at 3900 Freedom Circle, Suite 200, Santa Clara, California
95054, consisting of approximately 23,440 PLUS OR MINUS square feet on the
first and second floors of the building. Said Premises is more particularly
shown within the area outlined in Red on EXHIBIT A attached hereto. The
entire parcel, of which the Premises is a part, is shown within the area
outlined in Green on EXHIBIT A attached. The Premises shall be improved by
Landlord as shown on EXHIBIT B to be attached hereto, and except as otherwise
provided herein, is leased on an "as-is" basis, in its present condition, and
in the configuration as shown in Red on EXHIBIT B attached hereto.
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit "A", attached hereto, and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of
general office, light manufacturing, research and development, and storage
and other uses necessary for Tenant to conduct Tenant's business, provided
that such uses shall be in accordance with all applicable governmental laws
and ordinances and for no other purpose. Tenant shall not do or permit to be
done in or about the Premises or the Complex nor bring or keep or permit to
be brought or kept in or about the Premises or the Complex anything which is
prohibited by or will in any way increase the existing rate of (or otherwise
affect) fire or any insurance covering the Complex or any part thereof, or
any of its contents, or will cause a cancellation of any insurance covering
the Complex or any part thereof, or any of its contents. Tenant shall not do
or permit to be done anything in, on or about the Premises or the Complex
which will in any way obstruct or interfere with the rights of other tenants
or occupants of the Complex or injure or annoy them, or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises or the Complex. No sale by auction shall be permitted on
the Premises. Tenant shall not place any loads upon the floors, walls, or
ceiling, which endanger the structure, or place any harmful fluids or other
materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside
of the building in which the Premises are a part, except in trash containers
placed inside exterior enclosures designated by Landlord for that purpose or
inside of the building proper where designated by Landlord. No materials,
supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to
remain outside the Premises or on any portion of common area of the Complex.
No loudspeaker or other device, system or apparatus which can be heard
outside the Premises shall be used in or at the Premises without the prior
written consent of Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend
and hold Landlord harmless against any loss, expense, damage, attorneys'
fees, or liability arising out of failure of Tenant to comply with any
applicable law. Tenant shall comply with any covenant, condition, or
restriction ("CC&R's") affecting the Premises. The provisions of this
paragraph are for the benefit of Landlord only and shall not be construed to
be for the benefit of any tenant or occupant of the Complex.
2. TERM *
A. The term of the Lease shall be for a period of FIVE ( 5 ) years (unless
sooner terminated as hereinafter provided) and, subject to Paragraphs 2(B) and
3, shall commence on the 1st day of December, 1997 and end the 30th day
November, of 2002.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over the
area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(c) When the Tenant Improvements have been substantially completed for
Tenant's use and occupancy, in accordance and compliance with Exhibit B of this
Lease Agreement; or
(d) As otherwise agreed in writing.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term,
as hereinbefore specified, this Lease shall not be void or voidable; no
obligation of Tenant shall be affected thereby; nor shall Landlord or
Landlord's agents be liable to Tenant for any loss or damage resulting
therefrom; but in that event the commencement and termination dates of the
Lease, and all other dates affected thereby shall be revised to conform to
the date of Landlord's delivery of possession, as specified in Paragraph
2(b), above. The above is, however, subject to the provision that the period
of delay, of delivery of the premises shall not exceed 30 days from the
commencement date herein (except those delays caused by Acts of God, strikes,
war, utilities, governmental bodies, weather, unavailable materials, and
delays beyond Landlord's control shall be excluded in calculating such
period) in which instance Tenant, at its option, may, by written notice to
Landlord, terminate this Lease.
* It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for
the number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent scheduled for the projected commencement date as shown in
Paragraph 43.
page 1 of 8
INITIAL
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4. RENT
A. BASIC RENT. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand,
and Landlord agrees to accept as Basic Rent for the leased Premises the total
sum of THREE MILLION THREE HUNDRED FIVE THOUSAND FORTY AND NO/100
($3,305,040.00 ) Dollars in lawful money of the United States of America,
payable as follows:
SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE
B. TIME FOR PAYMENT. In the event that the term of this Lease commences on
a date other than the first day of a calendar month, on the date of commencement
of the term hereof Tenant shall pay to Landlord as rent for the period from such
date of commencement to the first day of the next succeeding calendar month that
proportion of the monthly rent hereunder which the number of days between such
date of commencement and the first day of the next succeeding calendar month
bears to thirty (30). In the event that the term of this Lease for any reason
ends on a date other than the last day of a calendar month, on the first day of
the last calendar month of the term hereof Tenant shall pay to Landlord as rent
for the period from said first day of said last calendar month to and including
the last day of the term hereof that proportion of the monthly rent hereunder
which the number of days between said first day of said last calendar month and
the last day of the term hereof bears to thirty (30).
C. LATE CHARGE. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default.
D. ADDITIONAL RENT. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to the Complex as
set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums relating to
the Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including common
areas of the Building) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and
expenses including attorneys' fees and legal expenses, that may
accrue thereto in the event of Tenant's failure to pay such amounts,
and all damages, reasonable costs and expenses which Landlord may
incur by reason of default of Tenant or failure on Tenant's part to
comply with the terms of this Lease. In the event of nonpayment by
Tenant of Additional Rent, Landlord shall have all the rights and
remedies with respect thereto as Landlord has for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's
agent (i) within five days for taxes and insurance and within thirty days for
all other Additional Rent items after presentation of invoice from Landlord
or Landlord's agent setting forth such Additional Rent and/or (ii) at the
option of Landlord, Tenant shall pay to Landlord monthly, in advance,
Tenant's prorata share of an amount estimated by Landlord to be Landlord's
approximate average monthly expenditure for such Additional Rent items, which
estimated amount shall be reconciled within 120 days of the end of each
calendar year or more frequently if Landlord so elects to do so at Landlord's
sole and absolute discretion, as compared to Landlord's actual expenditure
for said Additional Rent items, with Tenant paying to Landlord, upon demand,
any amount of actual expenses expended by Landlord in excess of said
estimated amount, or Landlord crediting to Tenant (providing Tenant is not in
default in the performance of any of the terms, covenants and conditions of
this Lease) any amount of estimated payments made by Tenant in excess of
Landlord's actual expenditures for said Additional Rent items. Within thirty
(30) days after receipt of Landlord's reconciliation, Tenant shall have the
right, at Tenant's sole expense, to audit, at a mutually convenient time at
Landlord's office, Landlord's records relating to the foregoing expenses.
Such audit must be conducted by Tenant or an independent nationally
recognized accounting firm that is not being compensated by Tenant or other
third party on a contingency fee basis. Landlord shall be provided a complete
copy of said audit at no expense to Landlord. If such audit reveals that
Landlord has overcharged Tenant, the amount overcharged shall be credited to
Tenant's account within thirty (30) days after the audit is concluded.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
E. FIXED MANAGEMENT FEE. Beginning with the Commencement Date of the Term
of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and
Additional Rent, a fixed monthly management fee ("Management Fee") equal to 3%
of the Basic Rent due for each month during the Lease Term.
F. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box 60000,
San Francisco, CA 94160 or to such other person or to such other place as
Landlord may from time to time designate in writing.
G. SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of ONE HUNDRED FOURTEEN THOUSAND
EIGHT HUNDRED FIFTY SIX AND NO/100 ($114,856.00) Dollars. Said sum shall be
held by Landlord as a Security Deposit for the faithful performance by Tenant
of all of the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the term hereof. If Tenant defaults with respect
to any provision of this Lease, including, but not limited to, the provisions
relating to the payment of rent and any of the monetary sums due herewith,
Landlord may (but shall not be required to) use, apply or retain all or any
part of this Security Deposit for the payment of any other amount which
Landlord may spend by reason of Tenant's default or to compensate Landlord
for any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with
Landlord in the amount sufficient to restore the Security Deposit to its
original amount. Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep this Security Deposit separate
from its general funds, and Tenant shall not be entitled to interest on such
Deposit. If Tenant fully and faithfully performs every provision of this
Lease to be performed by it, the Security Deposit or any balance thereof
shall be returned to Tenant (or at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Lease term and after
Tenant has vacated the Premises. In the event of termination of Landlord's
interest in this Lease, Landlord shall transfer said Deposit to Landlord's
successor in interest whereupon Tenant agrees to release Landlord from
liability for the return of such deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises
are located, and their respective employees, invitees and customers, and
others entitled to the use thereof, have the non-exclusive right to use the
access roads, parking areas, and facilities provided and designated by
Landlord for the general use and convenience of the occupants of the Complex
in which the Premises are located, which areas and facilities are referred to
herein as "Common Area". This right shall terminate upon the termination of
this Lease. Landlord reserves the right from time to time to make changes in
the shape, size location, amount and extent of Common Area, provided such
change does not materially increase Tenant's obligations (financial or
otherwise) under the Lease and so long as such change does not materially
interfere with Tenant's occupancy of the Premises or parking rights. Landlord
further reserves the right to promulgate such reasonable rules and
regulations relating to the use of the Common Area, and any part or parts
thereof, as Landlord may deem appropriate for the best interests of the
occupants of the Complex. The Rules and Regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by
them and cooperate in their observance. Such Rules and Regulations may be
amended by Landlord from time to time, with or without advance notice, and
all amendments shall be effective upon delivery of a copy to Tenant. Landlord
shall not be responsible to Tenant for the non-performance by any other
tenant or occupant of the Complex of any of said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The
manner in which the Common Area shall be maintained and the expenditures for
such maintenance shall be at the discretion of Landlord.
* $57,428.00 cash due upon Lease execution.
$57,428.00 Promissory Note due December 1, 1998.
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6. PARKING Tenant shall have the right to use with other tenants or
occupants of the Complex 70 parking spaces in the common parking areas of the
Complex. Tenant agrees, that Tenant, Tenant's employees, agents,
representatives and/or invitees shall not use parking spaces in excess of
said 70 spaces allocated to Tenant hereunder. Landlord shall have the right,
at Landlord's sole discretion, to specifically designate the location of
Tenant's parking spaces within the common parking areas of the Complex in the
event of a dispute among the tenants occupying the building and/or Complex
referred to herein, in which event Tenant agrees that Tenant, Tenant's
employees, agents, representatives and/or invitees shall not use any parking
spaces other than those parking spaces specifically designated by Landlord
for Tenant's use. Said parking spaces, if specifically designated by Landlord
to Tenant, may be reasonably relocated by Landlord at any time, and from time
to time. Landlord reserves the right, at Landlord's sole discretion, to
rescind any specific designation of parking spaces, thereby returning
Tenant's parking spaces to the common parking area. Landlord shall give
Tenant written notice of any change in Tenant's parking spaces. Tenant shall
not, at any time, park, or permit to be parked, any trucks or vehicles
adjacent to the loading areas so as to interfere in any way with the use of
such areas, nor shall Tenant at any time park, or permit the parking of
Tenant's trucks or other vehicles or the trucks and vehicles of Tenant's
suppliers or others, in any portion of the common area not designated by
Landlord for such use by Tenant. Tenant shall not park nor permit to be
parked, any inoperative vehicles or equipment on any portion of the common
parking area or other common areas of the Complex. Tenant agrees to assume
responsibility for compliance by its employees with the parking provision
contained herein. If Tenant or its employees park in other than such
designated parking areas, then Landlord may charge Tenant, as an additional
charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for each day
or partial day each such vehicle is parked in any area other than that
designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow
away from the Complex any vehicle belonging to Tenant or Tenant's employees
parked in violation of these provisions, or to attach violation stickers or
notices to such vehicles. Tenant shall use the parking areas for vehicle
parking only, and shall not use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF
THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional
Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to
Landlord Tenant's proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of all expenses of
operation, management, maintenance and repair of the Common Areas of the
Complex including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance
and replacement of landscaped areas, lakes, parking lots and paved areas
(including repairs, replacement, resealing and restriping), sidewalks,
driveways; maintenance, repair and replacement of all fixtures and
electrical, mechanical, and plumbing systems; structural elements and
exterior surfaces of the buildings; salaries and employee benefits of
personnel and payroll taxes applicable thereto; supplies, materials,
equipment and tools; the cost of capital expenditures which have the effect
of reducing operating expenses, provided, however, that in the event Landlord
makes such capital improvements, Landlord may amortize its investment in said
improvements (together with interest at the rate of fifteen (15%) percent per
annum on the unamortized balance) as an operating expense in accordance with
standard accounting practices, provided, that such amortization is not at a
rate greater than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
As Additional Rent and in accordance with paragraph 4 D of this Lease,
Tenant shall pay its proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of operation
(including common utilities), management, maintenance, and repair of the
building (including common areas such as lobbies, restrooms, janitor's
closets, hallways, elevators, mechanical and telephone rooms, stairwells,
entrances, spaces above the ceilings and janitorization of said common areas)
in which the Premises are located. The maintenance items herein referred to
include, but are not limited to, all windows, window frames, plate glass,
glazing, truck doors, main plumbing systems of the building (such as water
and drain lines, sinks, toilets, faucets, drains, showers and water
fountains), main electrical systems (such as panels and conduits), heating
and airconditioning systems (such as compressors, fans, air handlers, ducts,
boilers, heaters), store fronts, roofs, downspouts, building common area
interiors (such as wall coverings, window coverings, floor coverings and
partitioning), ceilings, building exterior doors, skylights (if any),
automatic fire extinguishing systems, and elevators; license, permit, and
inspection fees; security; salaries and employee benefits of personnel and
payroll taxes applicable thereto; supplies, materials, equipment and tools;
the cost of capital expenditures which have the effect of reducing operating
expenses, provided, however, that in the event Landlord makes such capital
improvements, Landlord shall amortize its investment in said improvements
(together with interest at the rate of fifteen (15%) percent per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses. Tenant hereby
waives all rights under, and benefits of, subsection 1 of Section 1932 and
Sections 1941 and 1942 of the California Civil Code and under any similar
law, statute or ordinance now or hereafter in effect.
8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts
the Premises as being in good and sanitary order, condition and repair and
accepts the building and improvements included in the Premises in their
present condition and without representation or warranty by Landlord as to
the condition of such building or as to the use or occupancy which may be
made thereof. Any exceptions to the foregoing must be by written agreement
executed by Landlord and Tenant. Tenant agrees on the last day of the Lease
term, or on the sooner termination of this Lease, to surrender the Premises
promptly and peaceably to Landlord in good condition and repair (damage by
Acts of God, fire, normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; the airconditioning and heating equipment serviced by a reputable
and licensed service firm and in good operating condition (provided the
maintenance of such equipment has been Tenant's responsibility during the
term of this Lease) together with all alterations, additions, and
improvements which may have been made in, to, or on the Premises (except
movable trade fixtures installed at the expense of Tenant) except that Tenant
shall ascertain from Landlord within thirty (30) days before the end of the
term of this Lease whether Landlord desires to have the Premises or any part
or parts thereof restored to their condition and configuration as when the
Premises were delivered to Tenant and if Landlord shall so desire, then
Tenant shall restore said Premises or such part or parts thereof before the
end of this Lease at Tenant's sole cost and expense. Tenant, on or before the
end of the term or sooner termination of this Lease, shall remove all of
Tenant's personal property and trade fixtures from the Premises, and all
property not so removed on or before the end of the term or sooner
termination of this Lease shall be deemed abandoned by Tenant and title to
same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove all moveable furniture
and equipment so abandoned by Tenant, at Tenant's sole cost, and repair any
damage caused by such removal at Tenant's sole cost. If the Premises be not
surrendered at the end of the term or sooner termination of this Lease,
Tenant shall indemnify Landlord against loss or liability resulting from the
delay by Tenant in so surrendering the Premises including, without
limitation, any claims made by any succeeding tenant founded on such delay.
Nothing contained herein shall be construed as an extension of the term
hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a
mutual cancellation of this Lease shall not work as a merger and, at the
option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of any such subleases or
subtenancies.
9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first had and obtained by Tenant (which written
consent (i) shall not be unreasonably withheld, and (ii) will specify whether
Landlord shall require removal of said alterations and/or additions, provided
Tenant requests such determination from Landlord), but at the cost of Tenant,
and any addition to, or alteration of, the Premises, except moveable
furniture and trade fixtures, shall at once become a part of the Premises and
belong to Landlord. Landlord reserves the right to approve all contractors
and mechanics proposed by Tenant to make such alterations and additions.
Tenant shall retain title to all moveable furniture and trade fixtures placed
in the Premises. All heating, lighting, electrical, airconditioning, floor to
ceiling partitioning, drapery, carpeting, and floor installations made by
Tenant, together with all property that has become an integral part of the
Premises, shall not be deemed trade fixtures. Tenant agrees that it will not
proceed to make such alteration or additions, without having obtained consent
from Landlord to do so, and until five (5) days from the receipt of such
consent, in order that Landlord may post appropriate notices to avoid any
liability to contractors or material suppliers for payment for Tenant's
improvements. Tenant will at all times permit such notices to be posted and
to remain posted until the completion of work. Tenant shall, if required by
Landlord, secure at Tenant's own cost and expense, a completion and lien
indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises or
against the Complex for work claimed to have been done for, or materials
claimed to have been furnished to Tenant, will be discharged by Tenant, by
bond or otherwise, within ten (10) days after the filing thereof, at the cost
and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a
high standard of maintenance and repair, and in good and sanitary condition.
Tenant's maintenance and repair responsibilities herein referred to include,
but are not limited to, janitorization, plumbing systems within the
non-common areas exclusively serving the Premises (such as water and drain
lines, sinks), electrical systems within the non-common areas exclusively
serving the Premises (such as outlets, lighting fixtures, lamps, bulbs,
tubes, ballasts), heating and airconditioning controls within the non-common
areas exclusively serving the Premises (such as mixing boxes, thermostats,
time clocks, supply and return grills), all interior improvements within the
premises including but not limited to: wall coverings, window coverings,
acoustical ceilings, vinyl tile, carpeting, partitioning, doors (both
interior and exterior, including closing mechanisms, latches, locks), and all
other interior improvements of any nature whatsoever. Tenant agrees to
provide carpet shields under all rolling chairs or to otherwise be
responsible for wear and tear of the carpet caused by such rolling chairs if
such wear and tear exceeds that caused by normal foot traffic in surrounding
areas. Areas of excessive wear shall be replaced at Tenants sole expense upon
Lease termination.
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11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED As
Additional Rent and in accordance with paragraph 4 D of this Lease, Tenant
shall pay its proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the cost of all utility charges
such as water, gas, electricity, telephone, telex and other electronic
communications service, sewer service, waste-pick-up and any other utilities,
materials or services furnished directly to the building in which the
Premises are located, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not herein after
imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services in the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or observance of
any of the terms, covenants or conditions of this Lease to be performed or
observed by it, Landlord shall furnish to the Premises between the hours of
8:00AM and 6:00PM, Mondays through Fridays (holidays excepted) and subject to
the rules and regulations of the Complex hereinbefore referred to, reasonable
quantities of water, gas and electricity suitable for the intended use of the
Premises and heat and airconditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises for such purposes. Tenant agrees
that at all times it will cooperate fully with Landlord and abide by all
regulations and requirements that Landlord may prescribe for the proper
functioning and protection of the building heating, ventilating and
airconditioning systems. Whenever heat generating machines, equipment, or any
other devices (including exhaust fans) are used in the Premises by Tenant which
affect the temperature or otherwise maintained by the airconditioning system,
Landlord shall have the right to install supplementary airconditioning units in
the Premises and the cost thereof, including the cost of installation and the
cost of operation and maintenance thereof, shall be paid by Tenant to Landlord
upon demand by Landlord. Tenant will not, without the written consent of
Landlord, use any apparatus or device in the Premises (including, without
limitation), electronic data processing machines or machines using current in
excess of 110 Volts which will in any way increase the amount of electricity,
gas, water or airconditioning usually furnished or supplied to premises being
used as general office space, or connect with electric current (except through
existing electrical outlets in the Premises), or with gas or water pipes any
apparatus or device for the purposes of using electric current, gas, or water.
IF Tenant shall require water, gas, or electric current in excess of that
usually furnished or supplied to premises being used as general office space,
Tenant shall first obtain the written consent of Landlord, which consent shall
not be unreasonably withheld and Landlord may cause an electric current, gas, or
water meter to be installed in the Premises in order to measure the amount of
electric current, gas or water consumed for any such excess use. The cost of any
such meter and of the installation, maintenance and repair thereof, all charges
for such excess water, gas and electric current consumed (as shown by such
meters and at the rates then charged by the furnishing public utility); and any
additional expense incurred by Landlord in keeping account of electric current,
gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay
Landlord therefor promptly upon demand by Landlord.
12. TAXES A. As Additional Rent and in accordance with Paragraph 4 D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises
by square footage or other equitable basis, as reasonably calculated by
Landlord. The term "Real Property Taxes", as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any other kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any general or special
assessments for public improvements and any increases resulting from
reassessments caused by any change in ownership of the Complex) now or
hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the
value, occupancy or use of, all or any portion of the Complex (as now
constructed or as may at any time hereafter be constructed, altered or
otherwise changed) or Landlord's interest therein; any improvements located
within the Complex (regardless of ownership); the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of
and located in the Complex; or parking areas, public utilities, or energy
within the Complex; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex; and
(iii) all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities
as to any Real Property Tax. If at any time during the term of this Lease the
taxation or assessment of the Complex prevailing as of the commencement date
of this Lease shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed
(whether by reason of a change in the method of taxation or assessment,
creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Complex or
Landlord's interest therein or (ii) on or measured by the gross receipts,
income or rentals from the Complex, on Landlord's business of leasing the
Complex, or computed in any manner with respect to the operation of the
Complex, then any such tax or charge, however designated, shall be included
within the meaning of the term "Real Property Taxes" for purposes of this
Lease. If any Real Property Tax is based upon property or rents unrelated to
the Complex, then only that part of such real Property Tax that is fairly
allocable to the Complex shall be included within the meaning of the term
"Real Property Taxes". Notwithstanding the foregoing, the term "Real Property
Taxes" shall not include estate, inheritance, gift or franchise taxes of
Landlord or the federal or state net income tax imposed on Landlord's income
from all sources.
B. TAXES ON TENANT'S PROPERTY
(a) Tenant shall be liable for and shall pay ten days before delinquency,
taxes levied against any personal property or trade fixtures placed by Tenant
in or about the Premises. If any such taxes on Tenant's personal property or
trade fixtures are levied against Landlord or Landlord's property or if the
assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such
increased assessment, which Landlord shall have the right to do regardless of
the validity thereof, but only under proper protest if requested by Tenant,
Tenant shall upon demand, as the case may be, repay to Landlord the taxes so
levied against Landlord, or the proportion of such taxes resulting from such
increase in the assessment; provide that in any such event Tenant shall have
the right, in the name of Landlord and with Landlord's full cooperation, to
bring suit in any court of competent jurisdiction to recover the amount of
any such taxes so paid under protest, and any amount so recovered shall
belong to Tenant.
(b) If the Tenant improvements in the Premises, whether installed, and/or
paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Complex are assessed, then the real
property taxes and assessments levied against Landlord or the Complex by
reason of such excess assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions
of 12Ba, above. If the records of the County Assessor are available and
sufficiently detailed to serve as a basis for determining whether said Tenant
improvements are assessed at higher valuation than standard office
improvements in other space in the Complex, such records shall be binding on
both the Landlord and the Tenant. If the records of the County Assessor are
not available or sufficiently detailed to serve as a basis for making said
determination, the actual cost of construction shall be used.
13. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability
insurance with a combined single limit coverage of not less than Two Million
Dollars ($2,000,000) per occurrence for injuries to or death of persons
occurring in, on or about the Premises or the Complex, and property damage.
The policy or policies affecting such insurance, certificates of insurance of
which shall be furnished to Landlord, shall name Landlord as additional
insureds, and shall insure any liability of Landlord, contingent or
otherwise, as respects acts or omissions of Tenant, its agents, employees or
invitees or otherwise by any conduct or transactions of any of said persons
in or about or concerning the Premises, including any failure of Tenant to
observe or perform any of its obligations hereunder; shall be issued by an
insurance company admitted to transact business in the State of California;
and shall provide that the insurance effected thereby shall not be canceled,
except upon thirty (30) days' prior written notice to Landlord. If, during
the term of this Lease, in the considered opinion of Landlord's Lender, or
insurance advisor, or counsel, the amount of insurance described in this
paragraph 13 is not adequate, Tenant agrees to increase said coverage to such
reasonable amount as Landlord's Lender, insurance advisor, or counsel shall
deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured.
Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay to Landlord (or Landlord's agent if so directed by Landlord)
Tenant's proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the deductibles on insurance
claims and the cost of policy or policies of insurance covering loss or
damage to the Premises and Complex in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake
insurance, if available, plus a policy of rental income insurance in the
amount of one hundred (100%) percent of twelve (12) months Basic Rent, plus
sums paid as Additional Rent. If such insurance cost is increased due to
Tenant's use of the Premises or the Complex, Tenant agrees to pay to Landlord
the full cost of such increase. Tenant shall have no interest in nor any
right to the proceeds of any insurance procured by Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to the
extent of the insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
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16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person
or damage to or destruction of property in or about the Premises or the
Complex by or from any cause whatsoever, including, without limitation, gas,
fire, oil, electricity or leakage of any character from the roof, walls,
basement or other portion of the Premises or the Complex but excluding,
however, the willful misconduct or negligence of Landlord, its agents,
servants, employees, invitees, or contractors of which negligence Landlord
has knowledge and reasonable time to correct. Except as to injury to persons
or damage to property to the extent arising from the willful misconduct or
the negligence of Landlord, its agents, servants, employees, invitees, or
contractors, Tenant shall hold Landlord harmless from and defend Landlord
against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises,
or any part thereof, from any cause whatsoever.
17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board
of fire underwriters or other similar body now or hereafter constituted; and
with any direction or occupancy certificate issued pursuant to law by any
public officer; provided, however, that no such failure shall be deemed a
breach of the provisions if Tenant, immediately upon notification, commences
to remedy or rectify said failure. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any such law,
statute, ordinance or governmental rule, regulation, requirement, direction
or provision, shall be conclusive of that fact as between Landlord and
Tenant. This paragraph shall not be interpreted as requiring Tenant to make
structural changes or improvements, except to the extent such changes or
improvements are required as a result of Tenant's use of the Premises. Tenant
shall, at its sole cost and expense, comply with any and all requirements
pertaining to said Premises, of any insurance organization or company,
necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred
by Tenant. In the event that Tenant shall not, with ten (10) days following
the imposition of such lien, cause the same to be released of record,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but no obligation, to cause the same to be released by such
means as it shall deem proper, including payment of the claim giving rise to
such lien. All sums paid by Landlord for such purpose, and all expenses
incurred by it in connection therewith, shall be payable to Landlord by
Tenant on demand with interest at the prime rate of interest as quoted by the
Bank of America.
19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein,
and shall not sublet the Premises, or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person or entity to occupy
or use the Premises, or any portion thereof, without, in each case, the prior
written consent of Landlord which consent will not be unreasonably withheld.
As a condition for granting this consent to any assignment, transfer, or
subletting, Landlord shall require Tenant to pay Landlord, as Additional
Rent, all rents and/or additional consideration due Tenant from its
assignees, transferees, or subtenants in excess of the Rent payable by Tenant
to Landlord hereunder for the assigned, transferred, and/or subleased space.
Tenant shall, by thirty (30) days' written notice, advise Landlord of its
intent to assign or transfer Tenant's interest in the Lease or sublet the
Premises or any portion thereof for any part of the term hereof. Within
thirty (30) days after receipt of said written notice, Landlord may, in its
sole discretion, elect to terminate this Lease as to the portion of the
Premises described in Tenant's notice on the date specified in Tenant's
notice by giving written notice of such election to terminate. If no such
notice to terminate is given to Tenant within said thirty (30) day period,
Tenant may proceed to locate an acceptable sublessee, assignee, or other
transferee for presentment to Landlord for Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 19. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing
with respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square
feet retained by Tenant, and this Lease as so amended shall continue in full
force and effect. In the event Tenant is allowed to assign, transfer or
sublet the whole or any part of the Premises, with the prior written consent
of Landlord, no assignee, transferee or subtenant shall assign or transfer
this Lease, either in whole or in part, or sublet the whole or any part of
the Premises, without also having obtained the prior written consent of
Landlord. A consent of Landlord to one assignment, transfer, hypothecation,
subletting, occupation or use by any other person shall not release Tenant
from any of Tenant's obligations hereunder or be deemed to be a consent to
any subsequent similar or dissimilar assignment, transfer, hypothecation,
subletting, occupation or use by any other person. Any such assignment,
transfer, hypothecation, subletting, occupation or use without such consent
shall be void and shall constitute a breach of this Lease by Tenant and
shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor
shall any interest therein, be assignable for any purpose by operation of law
without the written consent of Landlord. As a condition to its consent,
Landlord shall require Tenant to pay all expenses in connection with the
assignment, and Landlord shall require Tenant's assignee or transferee (or
other assignees or transferees) to assume in writing all of the obligations
under this Lease and for Tenant to remain liable to Landlord under the Lease.
Notwithstanding the above, in no event will Landlord consent to a
sub-sublease.
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest
of Landlord in the land and buildings in which the demised Premises are
located, to secure a loan from a lender (hereinafter referred to as "Lender")
to Landlord, Tenant shall, at the request of Landlord or Lender, execute in
writing an agreement subordinating its rights under this Lease to the lien of
such deed of trust, or, if so requested, agreeing that the lien of Lender's
deed of trust shall be or remain subject and subordinate to the rights of
Tenant under this Lease. Notwithstanding any such subordination, Tenant's
possession under this Lease shall not be disturbed if Tenant is not in
default and so long as Tenant shall pay all rent and observe and perform all
of the provisions set forth in this Lease.
21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to
enter the Premises to inspect them; to perform any services to be provided by
Landlord hereunder; to submit the Premises to prospective purchasers,
mortgagers or tenants; to post notices of nonresponsibility; and to alter,
improve or repair the Premises and any portion of the Complex, all without
abatement of rent; and may erect scaffolding and other necessary structures
in or through the Premises where reasonably required by the character of the
work to be performed; provided, however that the business of Tenant shall be
interfered with to the least extent that is reasonably practical. For each of
the foregoing purposes, any entry to the Premises obtained by Landlord by any
of said means, or otherwise, shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into or a detainer of the
Premises or an eviction, actual or constructive, of Tenant from the Premises
or any portion thereof. Landlord shall also have the right at any time to
change the arrangement or location of entrances or passageways, doors and
doorways, and corridors, elevators, stairs, toilets or other public parts of
the Complex and to change the name, number or designation by which the
Complex is commonly known, and none of the foregoing shall be deemed an
actual or constructive eviction of Tenant, or shall entitle Tenant to any
reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to
the reasonable satisfaction of Landlord that the trustee or receiver shall
cure) any and all previous defaults under the unexpired Lease and shall
compensate Landlord for all actual pecuniary loss and shall provide adequate
assurance of future performance under said Lease to the reasonable
satisfaction of Landlord. Adequate assurance of future performance, as used
herein, includes, but shall not be limited to: (i) assurance of source and
payment of rent, and other consideration due under this Lease; (ii) assurance
that the assumption or assignment of this Lease will not breach substantially
any provision, such as radius, location, use, or exclusivity provision, in
any agreement relating to the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
connection with a bankruptcy, liquidation, reorganization or insolvency
action or an assignment of Tenant for the benefit of creditors or other
similar act. Nothing contained in this Lease shall be construed as giving or
granting or creating an equity in the demised Premises to Tenant. In no event
shall the leasehold estate under this Lease, or any interest therein, be
assigned by voluntary or involuntary bankruptcy proceeding without the prior
written consent of Landlord. In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency
or reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice
from Landlord within which to cure any default in the payment of rental or
adjustment thereto. Tenant shall have a period of thirty (30) days from the
date of the written notice from Landlord within which to cure any other
default under this Lease. Upon an uncured default of this Lease by Tenant,
Landlord shall have the following rights and remedies in addition to any
other rights or remedies available to Landlord at law or in equity:
(a). The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of
Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate
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broker, and the three licensed real estate brokers so selected shall determine
the amount of the rental loss that could be reasonably avoided from the balance
of the term of this Lease after the time of award. The decision of the majority
of said licensed real estate brokers shall be final and binding upon the parties
hereto.
(b). The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of
its rights and remedies under this Lease, including the right to recover rent
as it becomes due, for so long as Landlord does not terminate Tenant's right
to possession; acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver upon Landlord's initiative to
protect its interest under this Lease shall not constitute a termination of
Tenant's right to possession.
(c). The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d). To the extent permitted by law the right and power to enter the
Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the
account of Tenant, and to sell such property and apply such proceeds
therefrom pursuant to applicable California law. Landlord may from time to
time sublet the Premises or any part thereof for such term or terms (which
may extend beyond the term of this Lease) and at such rent and such other
terms as Landlord in its sole discretion may deem advisable, with the right
to make alterations and repairs to the Premises. Upon each subletting, (i)
Tenant shall be immediately liable to pay Landlord, in addition to
indebtedness other than rent due hereunder, the cost of such subletting,
including, but not limited to, reasonable attorneys' fees, and any real
estate commissions actually paid, and the cost of such alterations and
repairs incurred by Landlord and the amount, if any, by which the rent
hereunder for the period of such subletting (to the extent such period does
not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii) at the option of Landlord, rents received
from such subletting shall be applied first to payment of indebtedness other
than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such subletting and alterations and repairs; third to payment of
rent due and unpaid hereunder; and the residue, if any, shall be held by
Landlord and applied in payment of future rent as the same becomes due
hereunder. If Tenant has been credited with any rent to be received by such
subletting under option (i) and such rent shall not be promptly paid to
Landlord by the subtenant(s), or if such rentals received from such
subletting under option (ii) during any month be less than that to be paid
during that month by Tenant hereunder, Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid monthly. For all
purposes set forth in this subparagraph d..No taking possession of the
Premises by Landlord, shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Tenant. Notwithstanding any such subletting without termination, Landlord may
at any time hereafter elect to terminate this Lease for such previous breach.
(e). The right to have a receiver appointed for Tenant upon application
by Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph d. above.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or
surrender said Premises, or be dispossessed by the process of law, or
otherwise, any personal property belonging to Tenant and left on the Premises
shall be deemed to be abandoned, at the option of Landlord, except such
property as may be mortgaged to Landlord.
24. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental
damage and destruction caused from vandalism and accidents for which Tenant
is responsible for under Paragraph 10, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage
or destruction, or
(b) Terminate this Lease. (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost)
If Landlord does not give Tenant notice in writing within thirty (30)
days from the destruction of the Premises of its election to either rebuild
and restore them, or to terminate this Lease, Landlord shall be deemed to
have elected to rebuild or restore them, in which event Landlord agrees, at
its expense, promptly to rebuild or restore the Premises to their condition
prior to the damage or destruction. Tenant shall be entitled to a reduction
in rent while such repair is being made in the proportion that the area of
the Premises rendered untenantable by such damage bears to the total area of
the Premises. If Landlord initially estimates that the rebuilding or
restoration will exceed 180 days or if Landlord does not complete the
rebuilding or restoration within one hundred eighty (180) days following the
date of destruction (such period of time to be extended for delays caused by
the fault or neglect of Tenant or because of Acts of God, acts of public
agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy
weather, inability to obtain materials, supplies or fuels, acts of
contractors or subcontractors, or delay of the contractors or subcontractors
due to such causes or other contingencies beyond the control of Landlord),
then Tenant shall have the right to terminate this Lease by giving fifteen
(15) days prior written notice to Landlord. Notwithstanding anything herein
to the contrary, Landlord's obligation to rebuild or restore shall be limited
to the building and interior improvements constructed by Landlord as they
existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and
expense provided this Lease is not cancelled according to the provisions
above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly
waives the provisions of Section 1932, Subdivision 2, in Section 1933,
Subdivision 4 of the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the
replacement cost thereof, Landlord may elect to terminate this Lease, whether
the Premises be injured or not. Notwithstanding anything to the contrary
herein, Landlord may terminate this Lease in the event of an uninsured event
or if insurance proceeds are insufficient to cover 100% of the rebuilding
costs net of the deductible.
25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this Lease shall terminate as to any portion of
the Premises so taken or conveyed on the date when title vests in the
condemnor, and Landlord shall be entitled to any and all payment, income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance, and Tenant shall have no claim
against Landlord or otherwise for the value of any unexpired term of this
Lease. Notwithstanding the foregoing paragraph, any compensation specifically
awarded Tenant for loss of business, Tenant's personal property, moving cost
or loss of good will, shall be and remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any
entity or body having the right or power of condemnation of its intention to
condemn the premises or any portion thereof, or (ii) any of the foregoing
events occur with respect to the taking of any space in the Complex not
leased hereby, or if any such spaces so taken or conveyed in lieu of such
taking and Landlord shall decide to discontinue the use and operation of the
Complex, or decide to demolish, alter or rebuild the Complex, then, in any of
such events Landlord shall have the right to terminate this Lease by giving
Tenant written notice thereof within sixty (60) days of the date of receipt
of said written advice, or commencement of said action or proceeding, or
taking conveyance, which termination shall take place as of the first to
occur of the last day of the calendar month next following the month in which
such notice is given or the date on which title to the Premises shall vest in
the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears to the total area of the Premises prior to such
taking.
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of
the Complex or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any
further liability upon any of the terms, covenants or conditions (express or
implied) herein contained in favor of Tenant, and in such event, insofar as
such transfer is concerned, Tenant agrees to look solely to the
responsibility of the successor in interest of such transferor in and to the
Complex and this Lease. This Lease shall not be affected by any such sale or
conveyance, and Tenant agrees to attorn to the successor in interest of such
transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of
Landlord in the land and buildings in which the leased Premises are located
(whether such interest of Landlord is a fee title interest or a leasehold
interest) is encumbered by deed of trust, and such interest is acquired by
the lender or any third party through judicial foreclosure or by exercise of
a power of sale at private trustee's foreclosure sale, Tenant hereby agrees
to attorn to the purchaser at any such foreclosure sale and to recognize such
purchaser as the Landlord under this Lease. In the event the lien of the deed
of trust securing the loan from a Lender to Landlord is prior and paramount
to the Lease, this Lease shall nonetheless continue in full force and effect
for the remainder of the unexpired term hereof, at the same rental herein
reserved and upon all the other terms, conditions and covenants herein
contained.
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease
or give Tenant any rights in or to the leased Premises except as expressly
provided in this Lease. Any holding over after the expiration or other
termination of the term of this Lease, with the consent of Landlord, shall be
construed to be a tenancy from month to month, on the same terms and
conditions herein specified insofar as applicable except that the monthly
Basic Rent shall be increased to an amount equal to one hundred fifty (150%)
percent of the monthly Basic Rent required during the last month of the Lease
term.
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29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days' prior written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in
full force and effect) and the date to which the rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant that this Lease is in full force and effect,
without modification except as may be represented by Landlord; that there are
no uncured defaults in Landlord's performance, and that not more than one
month's rent has been paid in advance.
30. CONSTRUCTION CHANGES It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein
are subject to such minor changes as Landlord or Landlord's architect
determines to be desirable in the course of construction of the Premises, and
no such changes, or any changes in plans for any other portions of the
Complex shall affect this Lease or entitle Tenant to any reduction of rent
hereunder or result in any liability of Landlord to Tenant. Landlord does not
guarantee the accuracy of any drawings supplied to Tenant and verification of
the accuracy of such drawings rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent.
If Tenant shall fail to pay any sum of money, or other rent, required to be
paid by it hereunder and such failure shall continue for five (5) days after
written notice by Landlord, or shall fail to perform any other term or
covenant hereunder on its part to be performed, and such failure shall
continue for thirty (30) days after written notice thereof by Landlord.
Landlord, without waiving or releasing Tenant from any obligations of Tenant
hereunder, may, but shall not be obligated to, make any such payment or
perform any such other term or covenant on Tenant's part to be performed. All
sums so paid by Landlord and all necessary costs of such performance by
Landlord together with interest thereon at the rate of the prime rate of
interest per annum as quoted by the Bank of America from the date of such
payment or performance by Landlord, shall be paid (and Tenant covenants to
make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment by Tenant as in the case of failure by
Tenant in the payment of rent hereunder.
32. ATTORNEYS' FEES.
(A) In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgement.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
33. WAIVER The waiver by either party of the other party's failure to
perform or observe any term, covenant or condition herein contained to be
performed or observed by such waiving party shall not be deemed to be a
waiver of such term, covenant or condition or of any subsequent failure of
the party failing to perform or observe the same or any other such term,
covenant or condition therein contained, and no custom or practice which may
develop between the parties hereto during the term hereof shall be deemed a
waiver of, or in any way affect, the right of either party to insist upon
performance and observance by the other party in strict accordance with the
terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which
may be or are required to be given by either party to the other hereunder
shall be in writing. All notices, demands, requests, advices or designations
by Landlord to Tenant shall be sufficiently given, made or delivered if
personally served on Tenant by leaving the same at the Premises or if sent by
United States certified or registered mail, postage prepaid, addressed to
Tenant at the Premises. All notices demands, requests, advices or
designations by Tenant to Landlord shall be sent by United States certified
or registered mail, postage prepaid, addressed to Landlord at its offices at
Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa Clara, CA
95054. Each notice, request, demand, advice or designation referred to in
this paragraph shall be deemed received on the date of the personal service
or mailing thereof in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a
lease, and this instrument is not effective as a lease or otherwise until its
execution and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time,
but in no event earlier than thirty (30) days after written notice by Tenant
to Landlord and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have heretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligations
is such that more than thirty (30) days are required for performance, then
Landlord shall not be in default if Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.
37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each
individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said corporation (or partnership) in
accordance with the by-laws of said corporation (or partnership in accordance
with the partnership agreement) and that this Lease is binding upon said
corporation (or partnership) in accordance with its terms. If Tenant is a
corporation, Tenant shall, within thirty (30) days after execution of this
Lease, deliver to Landlord a certified copy of the resolution of the Board of
Directors of said corporation authorizing or ratifying the execution of this
Lease.
38. [This paragraph deleted]
39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder,
Tenant and all successors and assigns covenant and agree that, in the event of
any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord's interest
in the Premises leased herein;
(ii) no partner of Landlord shall be sued or named as party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership)
(iii) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the
partnership)
(iv) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(v) no judgment will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
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40. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the name
of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of
this Lease shall be invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural as
well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the
context hereof, and the provisions of this Lease shall inure to the
benefit of and bind such heirs, executors, administrators, successors
and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph
headings of this Lease are for convenience of reference only and shall have
no effect upon the construction or interpretation of any provisions hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in
the State of California, to remove the cloud or encumbrance created by this
Lease from the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this agreement and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by
both Landlord and Tenant. Landlord and Tenant agree hereby that all
prior or contemporaneous oral agreements between and among themselves
and their agents or representatives relative to the leasing of the
Premises are merged in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender to
enable Landlord to obtain financing, so long as Tenant's rights hereunder
are not substantially affected.
i. Paragraphs 43 through 59 are added hereto and are included as a part of
this lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of light,
air or view by any structure which may be hereafter erected (whether or not
by Landlord) shall in any way affect his Lease, entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to
Tenant.
41. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: None
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
of the Premises or any exterior windows of the Premises without the written
consent of Landlord first had and obtained and Landlord shall have the right
to remove any such sign, placard, picture, advertisement, name or notice
without notice to and at the expense of Tenant. If Tenant is allowed to print
or affix or in any way place a sign in, on, or about the Premises, upon
expiration or other sooner termination of this Lease, Tenant at Tenant's sole
cost and expense shall both remove such sign and repair all damage in such a
manner as to restore all aspects of the appearance of the Premises to the
condition prior to the placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST TRIPATH TECHNOLOGY, INC.
a California corporation
By /s/ John Arrillaga By /s/ Adya S. Tripathi
---------------------------- -------------------------------
John Arrillaga, Trustee Adya S. Tripathi, President
Date: 11/26/97 Date: 11/26/97
------------------------- ----------------------------
RICHARD T. PEERY SEPARATE PROPERTY TRUST
By /s/ Richard T. Peery
----------------------------
Richard T. Peery, Trustee
Date: 11/26/97
-------------------------
page 8 of 8
<PAGE>
Paragraphs 43 through 59 to Lease Agreement dated October 16, 1997, By and
Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate
Property Trust, as Landlord, and TRIPATH TECHNOLOGY, INC., a California
corporation, as Tenant for 23,400+/- Square Feet of Space Located at 3900
Freedom Circle, Santa Clara, California.
43. BASIC RENT: In accordance with Paragraph 4A herein and subject to Paragraph
44 below, the total aggregate sum of THREE MILLION THREE HUNDRED FIVE THOUSAND
FORTY AND NO/100 DOLLARS ($3,305,040.00), shall be payable as follows:
On December 1, 1997, the sum of FIFTY TWO THOUSAND SEVEN HUNDRED FORTY
AND NO/100 DOLLARS ($52,740.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including November 1, 1998.
On December 1, 1998, the sum of FIFTY THREE THOUSAND NINE HUNDRED
TWELVE AND NO/100 DOLLARS ($53,912.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including November 1, 1999.
On December 1, 1999, the sum of FIFTY FIVE THOUSAND EIGHTY FOUR AND
NO/100 DOLLARS ($55,084.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including November 1, 2000.
On December 1, 2000, the sum of FIFTY SIX THOUSAND TWO HUNDRED FIFTY
SIX AND NO/100 DOLLARS ($56,256.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including November 1, 2001.
On December 1, 2001, the sum Of FIFTY SEVEN THOUSAND FOUR HUNDRED
TWENTY EIGHT AND NO/100 DOLLARS ($57,428.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including November 1, 2002;
or until the entire aggregate sum of THREE MILLION THREE HUNDRED FIVE THOUSAND
FORTY AND NO/100 DOLLARS ($3,305,040.00) has been paid.
44. BASIC RENT OFFSET: To accommodate Tenant and provided Tenant is not in
default (pursuant to Paragraph 22 of the Lease, I.E., Tenant has received notice
and any applicable cure period has expired without cure) in any of the terms,
covenants, and conditions of this Lease Agreement, and provided Tenant is not in
default of its lease with Koll/Intereal Bay Area ("Koll") and subject to the
terms of this Paragraph 44, Landlord agrees to allow Tenant to offset Tenant's
Basic Rent payments due under this Lease by fifty percent (50%) of the Basic
Rent amount (the "Offset Allowance") due during the period following the
Commencement Date of this Lease through February 28, 1998 (the "Offset Period")
under Tenant's current lease agreement with Koll, for premises leased at 2041
Mission College Blvd., Suite 159, Santa Clara, California (hereinafter referred
to as the "Koll Lease").
This right of offset is granted to Tenant with the following warrants
and representations from Tenant.
A. The Basic Rent amounts due and the periods listed herein as related
to the Koll Lease are accurate based on the lease documentation and agreements
between Tenant and Koll.
B. Tenant agrees to and is responsible for: (i) maintaining the Koll
Lease space in good repair and clean condition; (ii) actively marketing or
having marketed the Koll Lease space to secure a subtenant or subtenants for
Koll Lease space; and (iii) paying any and all leasing commissions to be paid
for any and all sublease(s) related to the Koll Lease space. Tenant agrees to
allow Landlord to approve the terms of any sublease for the Koll Lease space as
related to the amount of Basic Rent and the timing of Basic Rent to be paid by
any and all subtenants for said Koll Lease space.
The following schedule identifies the maximum Offset Allowance allowed
Tenant on a monthly basis, during the Offset Period. It is agreed that the
Offset Period and the Offset Allowance shall be reduced if the Koll Lease is,
for any reason, terminated prior to or during the Offset Period or if the Basic
Rent payments due under the Koll Lease are reduced for any reason whatsoever,
including but not limited to, any reduction in Basic Rent due to basic rent
payment(s) due Tenant from any and all subtenants and/or assignees during the
Offset Period.
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<TABLE>
<CAPTION>
MONTHLY TOTAL
PAYMENT DURING
PERIOD DUE # OF MONTHS OFFSET PERIOD
- ------ --- ----------- -------------
<S> <C> <C> <C>
Peery/Arrillaga Lease $52,740.00 x 3 months = $158,220.00
12/01/97-02/28/98 (Basic Rent)
Koll Lease (50%) ($7,049.95) x 3 months = ($21,149.85)
12/01/97-02/28/98 (Basic Rent)
DUE PEERY/ARRILLAGA ---------- -----------
12/01/97-02/28/98 $45,690.05 $137,070.15
========== ===========
TOTAL MAXIMUM OFFSET ALLOWED: $21,149.85
==========
</TABLE>
Tenant agrees to give Landlord written notification, at the beginning of each
month during the Offset Period, confirming that: (i) Tenant has not subleased or
assigned any or all of the Koll Lease space; or (ii) the amount of any Basic
Rent due Tenant from any and all subtenant(s); or (iii) the amount of any and
all Basic Rent obligations Tenant is relieved of resulting from an assignment;
or (iv) the effective date of any early termination or amendment agreement(s)
which reduce the term and/or Basic Rent due under the Koll Lease and the amount
of any reduction in Basic Rent obligation under the Koll Lease. Tenant's Basic
Rent due under this Lease, for any month during the Offset Period, shall be
offset only after Landlord's receipt of Tenant's written notification as
specified in this Paragraph. It is further agreed that in the event any of the
space Tenant leases under this Lease Agreement is assigned or sublet, as
permitted under Paragraphs 19, Tenant's monthly and maximum Offset Allowance
shall be reduced by the amount of any and all Basic Rent due Tenant from a
subtenant and/or assignee.
45. "AS-IS" BASIS: Subject only to Paragraphs 54 and 55 and to Landlord making
the improvements shown on EXHIBIT B to be attached hereto, it is hereby agreed
that the Premises leased hereunder is leased strictly on an "as-is" basis and in
its present condition, and in the configuration as shown on EXHIBIT B to be
attached hereto, and by reference made a part hereof. Except as otherwise set
forth herein, it is specifically agreed between the parties that after Landlord
makes the interior improvements as shown on EXHIBIT B, Landlord shall not be
required to make, nor be responsible for any cost, in connection with any
repair, restoration, and/or improvement to the Premises in order for this Lease
to commence, or thereafter, throughout the Term of this Lease. Notwithstanding
anything to the contrary within this Lease, Landlord makes no warranty or
representation of any kind or nature whatsoever as to the condition or repair of
the Premises, nor as to the use or occupancy which may be made thereof.
46. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
47. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed by
and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
48. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.
49. ASSESSMENT CREDITS: The demised property herein may be subject to a special
assessment levied by the City of Santa Clara as part of an Improvement District.
As a part of said special assessment proceedings (if any), additional bonds were
or may be sold and
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assessments were or may be levied to provide for construction contingencies and
reserve funds. Interest shall be earned on such funds created for contingencies
and on reserve funds which will be credited for the benefit of said assessment
district. To the extent surpluses are created in said district through unused
contingency funds, interest earnings or reserve funds, such surpluses shall be
deemed the property of Landlord. Notwithstanding that such surpluses may be
credited on assessments otherwise due against the Leased Premises, Tenant shall
pay to Landlord, as additional rent if, and at the time of any such credit of
surpluses, an amount equal to all such surpluses so credited. For example: if
(i) the property is subject to an annual assessment of $1,000.00, and (ii) a
surplus of $200.00 is credited towards the current year's assessment which
reduces the assessment amount shown on the property tax bill from $1,000.00 to
$800.00, Tenant shall, upon receipt of notice from Landlord, pay to Landlord
said $200.00 credit as Additional Rent.
50. ASSIGNMENT AND SUBLETTING (CONTINUED):
A. In addition to and notwithstanding anything to the contrary in
Paragraph 19 of this Lease, Landlord hereby agrees to consent to Tenant's
assigning or subletting said Lease to any parent or subsidiary corporation
(including an assignment resulting from a merger and/or acquisition of Tenant),
provided that the net worth of said parent or subsidiary corporation of said
corporation has a net worth equal to or greater than the net worth of Tenant (a)
at the time of Lease execution or (b) at the time of such assignment (whichever
is greater). No such assignment or subletting will release Tenant from its
liabilities, obligations, and responsibilities under this Lease. Notwithstanding
the above, Tenant shall be required to (a) give Landlord written notice prior to
such assignment or subletting to any party as described above, and (b) execute
Landlord's consent document prepared by Landlord reflecting the assignment or
subletting.
B. Notwithstanding anything to the contrary in Paragraph 19, before
paying to Landlord any excess sublease rent, Tenant shall be entitled to recover
from such excess sublease rent the amount of any reasonable leasing commissions
paid by Tenant to third parties not affiliated with Tenant.
C. Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to the
requirements of this Lease) shall contain the following language:
"If Landlord and Tenant jointly and voluntarily elect, for any
reason whatsoever, to terminate the Master Lease prior to the scheduled
Master Lease termination date, then this Sublease (if then still in
effect) shall terminate concurrently with the termination of the Master
Lease. Subtenant expressly acknowledges and agrees that (1) the
voluntary termination of the Master Lease by Landlord and Tenant and
the resulting termination of this Sublease shall not give Subtenant any
right or power to make any legal or equitable claim against Landlord,
including without limitation any claim for interference with contract
or interference with prospective economic advantage, and (2) Subtenant
hereby waives any and all rights it may have under law or at equity
against Landlord to challenge such an early termination of the
Sublease, and unconditionally releases and relieves Landlord, and its
officers, directors, employees and agents, from any and all claims,
demands, and/or causes of action whatsoever (collectively, "Claims"),
whether such matters are known or unknown, latent or apparent,
suspected or unsuspected, foreseeable or unforeseeable, which Subtenant
may have arising out of or in connection with any such early
termination of this Sublease. Subtenant knowingly and intentionally
waives any and all protection which is or may be given by Section 1542
of the California Civil Code which provides as follows: "A general
release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with
debtor.
The term of this Sublease is therefore subject to early
termination. Subtenant's initials here below evidence (a) Subtenant's
consideration of and agreement to this early termination provision, (b)
Subtenant's acknowledgment that, in determining the net benefits to be
derived by Subtenant under the terms of this Sublease, Subtenant has
anticipated the potential for early termination, and (c) Subtenant's
agreement to the general waiver and release of Claims above.
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<PAGE>
Initials:___________ Initials:_____________
Subtenant Tenant
51. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such cure
to completion.
52. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be in
default under the Lease if it leaves all or any part of Premises vacant so long
as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and ventilation
system are operated and maintained to the extent necessary to prevent damage to
the Premises or its systems.
53. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises and the
common areas of the Complex (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean any
material, waste, chemical, mixture or byproduct which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or
material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is listed,
regulated or restricted by any Environmental Law (including, without limitation,
petroleum hydrocarbons or any distillates or derivatives or fractions thereof,
polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental
Laws" shall mean any applicable Federal, State of California or local government
law (including common law), statute, regulation, rule, ordinance, permit,
license, order, requirement, agreement, or approval, or any determination,
judgment, directive, or order of any executive or judicial authority at any
level of Federal, State of California or local government (whether now existing
or subsequently adopted or promulgated) relating to pollution or the protection
of the environment, ecology, natural resources, or public health and safety.
B. Tenant shall obtain Landlord's written consent, which may be
withheld in Landlord's discretion, prior to the occurrence of any Tenant's
Hazardous Materials Activities (defined below); provided, however, that
Landlord's consent shall not be required for normal use in compliance with
applicable Environmental Laws of customary household and office supplies (Tenant
shall first provide Landlord with a list of said materials use), such as mild
cleaners, lubricants and copier toner. As used herein, the term "Tenant's
Hazardous Materials Activities" shall mean any and all use, handling,
generation, storage, disposal, treatment, transportation, release, discharge; or
emission of any Hazardous Materials on, in, beneath, to, from, at or about the
Property, in connection with Tenant's use of the Property, or by Tenant or by
any of Tenant's agents, employees, contractors, vendors, invitees, visitors or
its future subtenants or assignees. Tenant agrees that any and all Tenant's
Hazardous Materials Activities shall be conducted in strict, full compliance
with applicable Environmental Laws at Tenant's expense, and shall not result in
any contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease of which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities involve Hazardous Materials other than normal use of customary
household and office supplies, Tenant also agrees at Tenant's expense: (i) to
install such Hazardous Materials monitoring, storage and containment devices as
Landlord reasonably deems necessary (Landlord shall have no obligation to
evaluate the need for any such installation or to require any such
installation); (ii) provide Landlord with a written inventory of
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such Hazardous Materials, including an update of same each year upon the
anniversary date of the Commencement Date of the Lease ("Anniversary Date"); and
(iii) on each Anniversary Date, to retain a qualified environmental consultant,
acceptable to Landlord, to evaluate whether Tenant is in compliance with all
applicable Environmental Laws with respect to Tenant's Hazardous Materials
Activities. Tenant, at its expense, shall submit to Landlord a report from such
environmental consultant which discusses the environmental consultant's findings
within two (2) months of each Anniversary Date. Tenant, at its expense, shall
promptly undertake and complete any and all steps necessary, and in full
compliance with applicable Environmental Laws, to fully correct any and all
problems or deficiencies identified by Tenant's environmental consultant, and
promptly provide Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental Laws.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
such closure activities.
D. If Landlord, in its sole discretion, believes that the Property has
become contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter upon the Property and conduct
inspection, sampling and analysis, including but not limited to obtaining and
analyzing samples of soil and groundwater, for the purpose of determining the
nature and extent of such contamination. Tenant shall promptly reimburse
Landlord for the costs of such an investigation, including but not limited to
reasonable attorneys' fees Landlord incurs with respect to such investigation,
that discloses Hazardous Materials contamination for which Tenant is liable
under this Lease. Except as may be required of Tenant by applicable
Environmental Laws, Tenant shall not perform any sampling, testing, or drilling
to identify the presence of any Hazardous Materials at the Property, without
Landlord's prior written consent which may be withheld in Landlord's discretion.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
sampling, testing or drilling performed pursuant to the preceding sentence.
E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose consent shall not unreasonably be withheld) and hold harmless
Landlord, its employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 53 (collectively, "Tenant's
Environmental Indemnification"). Tenant's Environmental Indemnification shall
include but is not limited to the obligation to promptly and fully reimburse
Landlord for losses in or reductions to rental income, and diminution in fair
market value of the Property. Tenant's Environmental Indemnification shall
further include but is not limited to the Obligation to diligently and properly
implement to completion, at Tenant's expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, "Response Actions").
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this Paragraph
53.
54. PUNCH LIST: In addition to and notwithstanding anything to the contrary in
Paragraphs 8 and 45 of this Lease, Tenant shall have thirty (30) days after the
Commencement Date to provide Landlord with a written "punch list" pertaining to
defects in the Building and in the interior improvements constructed by Landlord
for Tenant. As soon as reasonably possible thereafter, Landlord, or one of
Landlord's
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representatives (if so approved by Landlord), and Tenant shall conduct a joint
walk-through of the Premises (if Landlord so requires), and inspect such Tenant
Improvements, using their best efforts to agree on the incomplete or defective
construction related to the Tenant Improvements installed by Landlord. After
such inspection has been completed, Landlord shall prepare, and both parties
shall sign, a list of all "punch list" items which the parties reasonably agree
are (i) to be corrected by Landlord (but which shall exclude any damage or
defects caused by Tenant, its employees, agents or parties Tenant has contracted
with to work on the Premises) or (ii) if said defects and/or damaged item(s) are
not material, Landlord may elect, in its sole and absolute discretion, not to
repair such item(s), but to acknowledge in written form the defect and/or
damaged item(s); in which case, notwithstanding anything to the contrary in said
Lease Paragraph 8 ("Acceptance and Surrender"), Tenant shall not be responsible
upon Lease Termination to repair said item(s) so noted by Landlord. Landlord
shall have thirty (30) days thereafter (or longer if necessary, provided
Landlord is diligently pursuing the completion of the same) to complete, at
Landlord's expense, the "punch list" items without the Commencement Date of the
Lease and Tenant's obligation to pay Rental thereunder being affected.
Notwithstanding the foregoing, a crack in the foundation, or exterior walls or
any other defect in the structure or Building that does not endanger the
structural integrity of the building, or which is not life-threatening, shall
not be considered material, nor shall Landlord be responsible for repair of
same. This Paragraph shall be of no force and effect if Tenant shall fail to
give any such notice to Landlord within thirty (30) days after the Commencement
Date of this Lease.
55. COMPLIANCE CONTINUED: Any non-conformance of the improvements installed
and paid for by Landlord as set forth on EXHIBIT B, required to be corrected
by the governing agency, shall be corrected at the cost and expense of
Landlord if such non-conformance exists as of the Commencement Date of the
Lease and further provided that such governing agency's requirement to
correct the non-conformance is not initiated as a result of: (i) any future
improvements made by or for Tenant; or (ii) any permit request made to a
governing agency by or for Tenant. Any non-conformance of the Premises
occurring after the Commencement Date of this Lease Agreement shall be the
responsibility of Tenant to correct at Tenant's cost and expense.
56. ADDITIONAL RENT CONTINUED: The following items shall be excluded from
"Additional Rent":
A. Leasing commissions, attorney's fees, costs, disbursements, and
other expenses incurred in connection with negotiations with other tenants, or
disputes between Landlord and other tenants, or in connection with marketing,
leasing, renovating, or improving space for other current or prospective tenants
or other current or prospective occupants of the Complex; notwithstanding
anything to the contrary herein, any costs and expenses Landlord is entitled to
be reimbursed for as stated under Paragraph 22 (Bankruptcy and Default") ARE NOT
excluded Additional Rent items as reflected in this Paragraph 56.
B. The cost of any service sold to any other tenant or other occupant
whose leased premises are not part of the Premises leased herein and for which
Landlord is entitled to be reimbursed as an additional charge or rental over and
above the basic rent and additional rent payable under the lease agreement with
said other tenant (including, without limitation, after-hours HVAC costs or
over-standard electrical consumption costs incurred by other tenants).
C. Any costs for which Landlord is entitled to be reimbursed by any
other tenant or other occupant whose leased premises are not part of the
Premises leased herein.
D. Any costs, fines, or penalties incurred due to violations by
Landlord of any governmental rule or authority.
E. Wages, salaries, or other compensation paid to executive employees
above the grade of Property Manager.
F. The cost of correcting any building code or other violations which
are violations prior to the Lease Commencement Date and which violations were
not caused by or contributed to by Tenant pursuant to Paragraph 55.
G. Repairs or other work occasioned by fire, windstorm, or other
insured peril, to the extent that Landlord shall receive proceeds of such
insurance or would have received such proceeds had Landlord maintained the
insurance coverage required under this Lease providing said insurance
coverage was available and Tenant paid its share of the premium as required
under the Lease (excluding any insurance deductible(s) which Tenant is
responsible for paying).
H. Except as otherwise noted in this Lease, any mortgage debt, or
ground rents or any other amounts payable under any ground lease for the
Property or any expense which Landlord is
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responsible for paying under said Lease or which results from Landlord's willful
misconduct or Landlord's negligence of which negligence Landlord has received
notice of and has reasonable time to correct.
I. Any amounts paid to any person, firm, or corporation related or
otherwise affiliated with Landlord or any general partner, officer, or director
of Landlord or any general partners, to the extent same exceeds arms-length
competitive prices paid in the Santa Clara, California metropolitan area for the
services or goods provided.
57. SUBORDINATION AND MORTGAGES: Paragraph 20 is modified to provide that,
provided Tenant is not in default in the terms of this Lease, this Lease shall
not be subordinate to a mortgage or deed of trust unless the Lender holding such
mortgage or deed of trust enters into a written subordination, non-disturbance
and attornment agreement in which the Lender agrees that notwithstanding any
subordination of this Lease to such Lender's mortgage or deed of trust, (i) such
Lender shall recognize all of Tenant's rights under this Lease, and (ii) in the
event of a foreclosure, this Lease shall not be terminated so long as Tenant is
not in default of its obligations under this Lease, but shall continue in effect
and Tenant and such Lender (or any party acquiring the Premises through such
foreclosure) shall each be bound to perform the respective obligations of Tenant
and Landlord with respect to the Premises arising after such foreclosure.
58. SIGNS CONTINUED: Notwithstanding anything to the contrary in Paragraph 42
and subject to Landlord's approval of Tenant's signage, Tenant shall be entitled
to use the top fifty percent (50%) of the existing monument sign in front of the
Building in which the Premises are located.
59. TAXES CONTINUED: Paragraph 12 ("Taxes") is modified by the following:
A. The amount of Real Property Taxes payable by Tenant hereunder shall
be prorated to reflect the dates of Lease Commencement and Lease Termination.
B. It is agreed that if any special assessments for capital
improvements are assessed, and if Landlord has the option to either pay the
entire assessment in cash or go to bond, and if Landlord elects to pay the
entire assessment in cash in lieu of going to bond, the entire portion of the
assessment assigned to Tenant's Leased Premises will be prorated over the same
period that the assessment would have been prorated had the assessment gone to
bond.
(This Space Left Blank Intentionally)
Page 15 Initial: [ILLEGIBLE]
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<PAGE>
Marriott 5
AMENDMENT NO. 1
TO LEASE
THIS AMENDMENT NO. 1 is made and entered into this 30th day of
December, 1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee
UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and RICHARD T.
PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY
SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and TRIPATH
TECHNOLOGY, INC., a California corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated October 16, 1997 Landlord
leased to Tenant approximately 23,440 PLUS OR MINUS square feet of that
certain 45,000 PLUS OR MINUS square foot building located at 3900 Freedom
Circle, Suite 200, Santa Clara, California, the details of which are more
particularly set forth in said October 16, 1997 Lease Agreement, and
B. WHEREAS, it is now the desire of the parties hereto to amend the
Lease by (i) confirming the December 1, 1997 Commencement Date and (ii)
increasing the square footage of the Premises due to a floor plan revision,
(iii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iv)
increasing the Security Deposit required under the Lease, (v) increasing
Tenant's non-exclusive parking spaces and (vi) amending Paragraph 44 ("Basic
Rent Offset") of said Lease Agreement as hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereinafter mutual promises, the
parties hereto do agree as follows:
1. COMMENCEMENT DATE: Due to Tenant's delay in providing Landlord with
Tenant's Interior Improvement plan, said Interior Improvements were not
completed in the Premises prior to the scheduled Lease Commencement Date of
December 1, 1997; however, as a result of Tenant's above mentioned delay in
providing said plans, it is hereby agreed by the parties that the Lease
commenced effective December 1, 1997, regardless of the status of the Interior
Improvements.
2. LEASED PREMISES SQUARE FOOTAGE: Due to floor plan revisions, it
is agreed between the parties that the square footage of the Leased Premises
shall be changed from 23,440 PLUS OR MINUS square feet to 23,673 PLUS OR
MINUS square feet of space. EXHIBIT B to the Lease shall be replaced by
EXHIBIT B to this Amendment which shows the configuration of the Leased
Premises as of the Lease Commencement Date.
3. BASIC RENT SCHEDULE: The Basic Rent schedule and Aggregate Rent, as
shown in Paragraphs 4(A) and 43 of the Lease Agreement, shall be amended as
follows:
On December 1, 1997, the sum of FIFTY THREE THOUSAND TWO HUNDRED SIXTY
FOUR AND 25/100 DOLLARS ($53,264.25) shall be due, and a like sum due on the
first day of each month thereafter, through and including November 1, 1998.
On December 1, 1998, the sum of FIFTY FOUR THOUSAND FOUR HUNDRED FORTY
SEVEN AND 90/100 DOLLARS ($54,447.90) shall be due, and a like sum due on the
first day of each month thereafter, through and including November 1, 1999.
On December 1, 1999, the sum of FIFTY FIVE THOUSAND SIX HUNDRED THIRTY
ONE AND 55/100 DOLLARS ($55,631.55) shall be due, and a like sum due on the
first day of each month thereafter, through and including November 1, 2000.
On December 1, 2000, the sum of FIFTY SIX THOUSAND EIGHT HUNDRED
FIFTEEN AND 20/100 DOLLARS, ($56,815.20) shall be due, and a like sum due on
the first day of each month
Initial: [ILLEGIBLE]
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<PAGE>
Marriott 5
thereafter, through and including November 1, 2001.
On December 1, 2001, the sum of FIFTY SEVEN THOUSAND NINE HUNDRED
NINETY EIGHT AND 85/100 DOLLARS ($57,998.85) shall be due, and a like sum due on
the first day of each month thereafter, through and including November 1, 2002.
As a result of the increase in square feet leased, the Aggregate Rental
shall be increased by $32,853.00, or from $3,305,040.00 to $3,337,893.00.
4. SECURITY DEPOSIT: Tenant's Security Deposit shall be increased by
$1,141.70, or from $114,856.00 to $115,997.70, payable upon Tenant's execution
of this Amendment No. 1.
5. INCREASED PARKING: Tenant's nonexclusive parking spaces shall be
increased by one space or from seventy spaces to seventy one spaces.
6. BASIC RENT OFFSET: The Maximum Offset schedule as shown in Lease
Paragraph 44 ("Basic Rent Offset") shall be amended as follows, to reflect the
increased Basic Rent due under the Lease:
<TABLE>
<CAPTION>
MONTHLY TOTAL
PAYMENT DURING
PERIOD DUE # OF MONTHS OFFSET PERIOD
- ------ --- ----------- -------------
<S> <C> <C> <C>
Peery/Arrillaga Lease $53,264.25 x 3 months = $159,792.75
12/01/97-02/28/98 (Basic Rent)
Koll Lease (50%) ($7,049.95) x 3 months = ($21,149.85)
12/01/97-02/28/98 (Basic Rent)
DUE PEERY/ARRILLAGA ---------- -----------
12/01/97-02/28/98 $46,214.30 $138,642.90
========== ===========
TOTAL MAXIMUM OFFSET ALLOWED: $21,149.85
==========
</TABLE>
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions
of said October 16, 1997 Lease Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
No. 1 to Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST TRIPATH TECHNOLOGY, INC.
a California corporation
By /s/ John Arrillaga By /s/ Adya S. Tripathi
---------------------------- -------------------------------
John Arrillaga, Trustee Adya S. Tripathi, President
Date: 6/18/98 Date: 5/26/98
------------------------- ----------------------------
RICHARD T. PEERY SEPARATE
PROPERTY TRUST
By /s/ Richard T. Peery
----------------------------
Richard T. Peery, Trustee
Date: 6/17/98
-------------------------
<PAGE>
Marriott 5
AMENDMENT NO. 2
TO LEASE
THIS AMENDMENT NO. 2 is made and entered into this 21st day of
September, 1998, by and between JOHN ARRILLAGA, Trustee, or his Successor
Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and
RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77
(RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as
LANDLORD, and TRIPATH TECHNOLOGY, INC., a California corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated October 16, 1997 Landlord
leased to Tenant approximately 23,440 PLUS OR MINUS square feet of that
certain 45,000 PLUS OR MINUS square foot building located at 3900 Freedom
Circle, Suite 200, Santa Clara, California, the details of which are more
particularly set forth in said October 16, 1997 Lease Agreement, and
B. WHEREAS, said Lease was amended by Amendment No. 1 dated December
30, 1997 which (i) confirmed the December 1, 1997 Commencement Date and (ii)
increased the square footage of the Premises due to a floor plan revision,
(iii) amended the Basic Rent schedule and Aggregate Rent accordingly, (iv)
increased the Security Deposit required under the Lease, (v) increased
Tenant's non-exclusive parking spaces and (vi) amended Paragraph 44 ("Basic
Rent Offset") due to the change in the square feet leased, and
C. WHEREAS, it is now the desire of the parties hereto to amend the
Lease by (i) increasing the square footage of the Leased Premises by 12,110 +
square feet effective December 1, 1998, (ii) amending the Basic Rent schedule
and Aggregate Rent accordingly, (iv) increasing the Security Deposit required
under the Lease, (v) increasing Tenant's non-exclusive parking spaces, and (vi)
amending Paragraph 19 ("Assignment and Subletting") of said Lease Agreement as
hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereinafter mutual promises, the
parties hereto do agree as follows:
1. INCREASED PREMISES: Subject to Paragraph 3 below, effective
December 1, 1998, the size of the Leased Premises will be increased by 12,110
PLUS OR MINUS square feet, or from 23,673 PLUS OR MINUS square feet to 35,783
PLUS OR MINUS square feet of space. Total said Premises are more particularly
shown within the area outlined in Red on EXHIBIT A. The entire parcel, of
which the Leased Premises is a part, is shown within the area outlined in
Green on EXHIBIT A. The additional 12,110 PLUS OR MINUS square feet of space
is leased on an "as-is" basis, in its present condition and configuration, as
set forth in Blue on EXHIBIT B attached hereto, with the entire interior
leased Premises shown in Red on EXHIBIT B.
2. AMENDMENT SUBJECT TO LANDLORD'S OBTAINING TERMINATION AGREEMENT
WITH CURRENT TENANT FOR CURRENT TENANT'S SPACE: This Amendment is subject to
Landlord obtaining from Pictra Incorporated ("Pictra"), the current tenant
occupying the Premises leased hereunder, a Termination Agreement satisfactory
to Landlord on or before November 30, 1998. In the event Landlord is unable
to obtain said satisfactory Agreement on or before November 30, 1998, and/or
in the event Pictra fails to timely vacate the Premises and surrender same to
Landlord free and clear of its occupancy, this Amendment shall, at Landlord's
option: a) be rescinded, or b) the Commencement Date of the Increased
Premises hereof shall be modified to reflect the date Landlord so obtains
said satisfactory Termination Agreement and receives possession of the
Increased Premises free and clear of Pictra's occupancy; provided, however,
that said period of delay caused by Pictra shall not extend beyond December
31, 1998. In the event Landlord cannot deliver said Increased Premises by
January 1, 1999, this Amendment No. 2 shall be
Initial: [ILLEGIBLE]
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<PAGE>
Exhibit A is a map showing the layout of Marriott Business Park in
Santa Clara, CA.
Exhibit B is a floor plan layout for building Marriott 5 of Marriott
Business Park.
<PAGE>
EXHIBIT 10.4
TRIPATH TECHNOLOGY INC.
2000 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 2000 Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Tripath Technology Inc., a Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
<PAGE>
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in THE WALL
STREET JOURNAL or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
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<PAGE>
(s) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTIONED STOCK" means the Common Stock subject to an Option or
Stock Purchase Right.
(u) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(v) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "PLAN" means this 2000 Stock Plan.
(x) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(y) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(z) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(aa) "SECTION 16(b) " means Section 16(b) of the Exchange Act.
(bb) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(cc) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(dd) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ee) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 10,274,502 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full the unpurchased Shares
which were subject thereto shall become available for future grant or sale
under the Plan (unless the Plan has terminated); PROVIDED, however, that
Shares that have actually been issued under the Plan, whether upon exercise
of an Option or Right, shall not be returned to the Plan and shall not become
available for future distribution under
-3-
<PAGE>
the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. Different Committees
with respect to different groups of Service Providers may administer the Plan.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
-4-
<PAGE>
(vii) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of satisfying applicable foreign laws;
(viii) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(ix) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(x) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xi) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
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<PAGE>
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 200,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 500,000
Shares, which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code,
-6-
<PAGE>
the per Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares, provided Shares acquired from the
Company, (A) have been owned by the Optionee for more than six (6) months on the
date of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
-7-
<PAGE>
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with
the Option Agreement) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the Option is
exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Option Agreement
and the Plan. Shares issued upon exercise of an Option shall be issued in the
name of the Optionee or, if requested by the Optionee, in the name of the
Optionee and his or her spouse. Until the Shares are issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Shares are issued, except as provided in
Section 13 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months
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following the Optionee's termination. If, at the time of death, the Optionee is
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may be
exercised by the executor or administrator of the Optionee's estate or, if none,
by the person(s) entitled to exercise the Option under the Optionee's will or
the laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
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13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
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sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to
the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any
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liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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EXHIBIT 10.5
TRIPATH TECHNOLOGY INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Tripath Technology Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company or
any committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean Tripath Technology Inc. and any
Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the first Trading Day on or
after June 30 and December 31 of each year.
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(j) "FAIR MARKET VALUE" shall mean, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board; or
(iv) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after January 1 and July
1 of each year and terminating on the first Trading Day on or after the June 30
and December 31 Offering Period commencement date approximately twenty-four
months later; provided, however, that the first Offering Period under the Plan
shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the first Trading Day on or after June 30, 2002. The
duration and timing of Offering Periods may be changed pursuant to Section 4 of
this Plan.
(l) "PLAN" shall mean this 2000 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month
period commencing on one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of
a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided however, that the Purchase Price may be adjusted by
the Board pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after January 1 and July 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the first Trading Day on or after
June 30, 2002. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of EXHIBIT A to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on
the first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is applicable,
unless sooner terminated by the participant as provided in Section 10 hereof.
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6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 10% of the Compensation
which he or she receives on each pay day during the Offering Period; provided,
however, that should a pay day occur on an Exercise Date, a participant shall
have the payroll deductions made on such day applied to his or her account under
the new Offering Period or Purchase Period, as the case may be.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the nature
and/or number of participation rate changes during any Offering Period. The
change in rate shall be effective with the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during any calendar year more than 2,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to
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the limitations set forth in Sections 3(b) and 12 hereof. The Board may, for
future Offering Periods, increase or decrease, in its absolute discretion, the
maximum number of shares of the Company's Common Stock an Employee may purchase
during each Purchase Period of such Offering Period. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the last day
of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any
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time by giving written notice to the Company in the form of EXHIBIT B to this
Plan. All of the participant's payroll deductions credited to his or her account
shall be paid to such participant promptly after receipt of notice of withdrawal
and such participant's option for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase of shares shall
be made for such Offering Period. If a participant withdraws from an Offering
Period, payroll deductions shall not resume at the beginning of the succeeding
Offering Period unless the participant delivers to the Company a new
subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
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(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that
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<PAGE>
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a
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<PAGE>
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
(c) In the event the Board determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock
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<PAGE>
on any Exercise Date in an Offering Period is lower than the Fair Market Value
of the Common Stock on the Enrollment Date of such Offering Period, then all
participants in such Offering Period shall be automatically withdrawn from such
Offering Period immediately after the exercise of their option on such Exercise
Date and automatically re-enrolled in the immediately following Offering Period.
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<PAGE>
EXHIBIT A
---------
TRIPATH TECHNOLOGY INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Tripath
Technology Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee
Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to [__]%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS
AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE
PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF
ANY, WHICH ARISE UPON THE
<PAGE>
DISPOSITION OF THE COMMON STOCK. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only
to the extent of an amount equal to the lesser of (1) the excess of the
fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)____________________________________________________
(First) (Middle) (Last)
_________________________ ____________________________________________
Relationship
____________________________________________
(Address)
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<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ____________________________________
Signature of Employee
____________________________________
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE>
EXHIBIT B
---------
TRIPATH TECHNOLOGY INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Tripath
Technology Inc. Employee Stock Purchase Plan which began on _____________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date:_______________________________
<PAGE>
EXHIBIT 10.6
SECOND AMENDED AND RESTATED
SHAREHOLDER RIGHTS AGREEMENT
This Second Amended and Restated Shareholder Rights Agreement (the
"Agreement") is made as of this 15th day of September, 1998 by and among Tripath
Technology Inc., a California corporation (the "Company"), the purchasers of
Series A Preferred Stock (the "Series A Purchasers") and Series B Preferred
Stock (the "Series B Purchasers") of the Company pursuant to that certain Series
A and Series B Preferred Stock Purchase Agreement dated August 1, 1995 (the
"Series A and Series B Agreement") between the Company and such purchasers, the
purchasers of the Series C Preferred Stock (the "Series C Purchasers") pursuant
to that certain Series C Preferred Stock Purchase Agreement dated August 20,
1997 (the "Series C Agreement") between the Company and such purchasers, the
purchasers of the Series D Preferred Stock (the "Series D Purchasers") pursuant
to that certain Series D Preferred Stock Purchase Agreement dated of even date
herewith (the "Series D Agreement") between the Company and such purchasers (the
Series A Purchasers, the Series B Purchasers, the Series C Purchasers and the
Series D Purchasers being collectively referred to herein as the "Purchasers")
and Adya S. Tripathi (the "Founder").
RECITALS
A. Pursuant to the Series A and Series B Agreement, the Series A
Purchasers and Series B Purchasers have purchased shares of Series A Preferred
Stock of the Company (the "Series A Preferred"), and shares of Series B
Preferred Stock of the Company (the "Series B Preferred"), respectively.
Pursuant to the Series C Agreement, the Series C Purchasers have purchased
shares of Series C Preferred Stock of the Company (the "Series C Preferred").
Pursuant to the Series D Agreement, the Series D Purchasers are purchasing as of
the date hereof shares of Series D Preferred Stock of the Company (the "Series D
Preferred") (the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred are hereinafter collectively referred to as the "Preferred
Stock"). Pursuant to that certain Common Stock Purchase Warrant issued by the
Company to Intel Corporation ("Intel") on August 20, 1997 (the "Intel Warrant"),
Intel, a Series C Purchaser, has the right to purchase shares of the Company's
Common Stock. In connection with the Series A and Series B Agreement and the
Series C Agreement, the Series A Purchasers, the Series B Purchasers, the Series
C Purchasers, Intel, the Founder and the Company entered into a First Amended
and Restated Shareholder Rights Agreement dated August 20, 1997 (the "Prior
Shareholder Agreement") setting forth their agreement and understandings with
respect to certain rights and privileges accompanying the shares of the Series A
Preferred, the Series B Preferred and the Series C Preferred.
B. The Series A Purchasers, the Series B Purchasers, the Series C
Purchasers, the Founder and the Company desire to amend and restate the Prior
Shareholder Agreement to include the Series D Purchasers as parties.
<PAGE>
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Purchasers, the Company and the Founder agree as
follows:
AGREEMENT
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
successor agency.
"DEMAND REGISTRABLE SECURITIES" shall mean (i) shares of the Company's
Common Stock issued or issuable upon the conversion of the Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred or issued upon
exercise of the Intel Warrant; (ii) any Common Stock of the Company or other
securities issued or issuable in respect of shares of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or the Intel Warrant;
and (iii) shares of the Company's Common Stock or other securities issued or
issuable upon any conversion of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred or the Intel Warrant upon any stock
split, stock dividend, recapitalization, or similar event; PROVIDED, HOWEVER,
that any shares described in clauses (i)-(iii) above which have been resold to
the public in accordance with the terms hereof shall cease to be Demand
Registrable Securities upon such resale.
"HOLDER" shall mean each Purchaser (including Intel as a Purchaser and
as holder of the Intel Warrants), the Founder and any transferee of Registrable
Securities who, pursuant to Section 15 below, is entitled to registration rights
hereunder.
"REGISTRABLE SECURITIES" shall mean (i) shares of the Company's Common
Stock issued or issuable upon the conversion of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred or issued upon exercise of
the Intel Warrant; (ii) any Common Stock of the Company or other securities
issued or issuable in respect of shares of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred or the Intel Warrant; (iii)
all of the shares of Common Stock held by the Founder as of the date of this
Agreement and any additional shares issued to Founder by the Company after the
date hereof; and (iv) shares of the Company's Common Stock or other securities
issued or issuable upon any conversion of shares of Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred or the Intel Warrant or in
respect of the shares described in clause (iii) upon any stock split, stock
dividend, recapitalization, or similar event; PROVIDED, HOWEVER, that any shares
described in clauses (i)-(iv) above which have been resold to the public shall
cease to be Registrable Securities upon such resale.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
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<PAGE>
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 5, 6 and 9 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration.
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legend set forth in Section 3 hereof (or any similar
legend).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
2. RESTRICTIONS ON TRANSFERABILITY. The Restricted Securities shall not
be transferable except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. Each Holder of Restricted Securities will cause any proposed
transferee of the Restricted Securities held by such Holder to agree to take and
hold such Restricted Securities subject to the provisions and upon the
conditions specified in this Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing (i) the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred, (ii)
shares of the Company's Common Stock issued upon conversion of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred or upon
exercise of the Intel Warrant, (iii) the Common Stock issued to the Founder, and
(iv) any other securities issued in respect of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Intel Warrant, Common
Stock issued upon conversion of the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or exercise of the Intel Warrant or
Common Stock issued to the Founder or the Purchasers upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 4 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
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<PAGE>
4. NOTICE OF PROPOSED TRANSFERS. The Holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the Holder thereof
shall give written notice to the Company of such Holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if the Company so
requests, be accompanied (except in transactions in compliance with Rule 144) by
either (i) an unqualified written opinion of legal counsel who shall be
reasonably satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "No Action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the Holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the Holder to the
Company; PROVIDED, HOWEVER, that no opinion or No Action letter need be obtained
with respect to a transfer to (A) a partner, active or retired, of a Holder of
Restricted Securities, (B) the estate of any such partner, (C) an "affiliate" of
a Holder of Restricted Securities as that term is defined in Rule 405
promulgated by the Commission under the Securities Act, (D) to any officer,
director, principal shareholder, parent or subsidiary thereof, or non-profit
organization related thereto, where such Holder is a corporation or (E) the
spouse, children, grandchildren or spouse of such children or grandchildren of
any Holder or to trusts for the benefit of any Holder or such persons, if the
transferee agrees to be subject to the terms hereof. Each certificate evidencing
the Restricted Securities transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 3 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for the Company or in the written opinion of counsel retained by a Holder at
such Holder's expense and reasonably satisfactory to the Company such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
5. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If at any time after the earlier of (i)
August 20, 2000, or (ii) 180 days after the effective date of the first
registration statement filed by the Company covering the underwritten offering
of any of its securities to the general public, the Company shall receive from
any Holder or group of Holders holding at least 33-1/3% of the Demand
Registrable Securities a written request that the Company effect any
registration, qualification or compliance with respect to at least 25% of the
Demand Registrable Securities, or such lesser number of shares of Demand
Registrable Securities if the reasonably anticipated aggregate proceeds of such
offering (after deduction for Selling Expenses) exceed $7,500,000, the Company
will:
(x) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
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<PAGE>
(y) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Demand Registrable Securities as are specified in such
request, together with all or such portion of the Demand Registrable Securities
of any Holder or Holders joining in such request as are specified in a written
request received by the Company within 20 days after receipt of such written
notice from the Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 5:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) After the Company has effected two such registrations
pursuant to this Section 5(a), such registrations have been declared or ordered
effective and the securities offered pursuant to such registration have been
sold; or
(C) Within six months following the effective date of the
initial registration statement previously filed by the Company.
Subject to the foregoing clauses (A), (B) and (C), the Company shall file a
registration statement covering the Demand Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of any Holder or Holders. If, however, the Company shall furnish to the Holder
or Holders requesting a registration statement pursuant to this Section 5 a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after receipt of the request of the
Holder or Holders requesting such registration; provided, however, that the
Company may not utilize this right more than once in any twelve-month period.
(b) UNDERWRITING. If the Holders intend to distribute the Demand
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 5(a) and the Company shall include such information in the written
notice referred to in Section 5(a)(x). The right of any Holder to registration
pursuant to Section 5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Demand Registrable
Securities in the underwriting (unless otherwise mutually agreed
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<PAGE>
by a majority in interest of the Holders) to the extent provided herein. A
Holder may elect to include in such underwriting all or part of the Demand
Registrable Securities he holds.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Holders. Notwithstanding any other provision of this
Section 5, if the managing underwriter advises the Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then, subject to the provisions of Section 5(a), the Company shall
so advise all Holders and the number of shares of Demand Registrable Securities
and other securities that may be included in the registration and underwriting
shall be allocated among all Holders requesting inclusion in the registration in
proportion, as nearly as practicable, to the respective amounts of Demand
Registrable Securities and other securities held by such Holders at the time of
filing the registration statement, provided however, that the number of shares
of Restricted Securities to be included in such Underwriting shall not be
reduced unless all other securities are first entirely excluded from the
Underwriting. No Demand Registrable Securities and other securities excluded
from the underwriting by reason of the managing underwriter's marketing
limitation shall be included in such registration.
If any Holder of Demand Registrable Securities and other securities
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the managing underwriter and the
other Holders. The Demand Registrable Securities and/or other securities so
withdrawn shall also be withdrawn from registration; provided, however, that if
by the withdrawal of such Demand Registrable Securities a greater number of
Demand Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Demand Registrable
Securities in the registration the right to include additional Demand
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 5(b). If the registration does not become
effective due to the withdrawal of Demand Registrable Securities, then either
(1) the Holders requesting registration shall reimburse the Company for expenses
incurred in complying with the request or (2) the aborted registration shall be
treated as effected for purposes of Section 5(a)(B) except in the event that
such withdrawal is based upon material adverse information relating to the
Company that is different from the information known or available (upon request
from the Company or otherwise) to the Holders requesting registration at the
time of their request for registration under Section 5, in which event such
registration shall not be treated as a counted registration for purposes of
Section 5(a)(B) hereof, even though the Holders do not bear the Registration
Expenses for such registration.
6. COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If the Company shall determine to
register any of its securities, either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights, including the Company's initial public offering but excluding a
registration relating solely to employee benefit plans, the Company will:
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(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 15 days after receipt of such written notice from the
Company, by any Holder or Holders, PROVIDED THAT the Company may limit, to the
extent so advised by the underwriters, the amount of Registrable Securities to
be included in the registration by the Holders, by (1) up to 100% of the
Registrable Securities sought to be included in the case of the initial public
offering and (2) up to 80% of the Registrable Securities sought to be included
in the case of any subsequent public offering; and PROVIDED FURTHER that if
Registrable Securities are excluded entirely or partially from the registration,
no securities other than the securities being registered by the Company may be
included in the registration.
(b) In all registered public offerings, whether underwritten or not,
the amount of Registrable Securities of Holders which are included in such
registration, in accordance with the limitations set forth in Section 6(a)(ii)
above, shall be allocated to the Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities which would be
held by each of such Holders assuming conversion of all outstanding Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred as of
the date of the notice given pursuant to this Section 6.
7. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with up to two registrations pursuant to Section 5(a) and any
registration pursuant to Section 6 shall be borne by the Company. Registration
Expenses incurred in connection with any registration pursuant to Section 9
shall be borne by the Company and the Holders of the Registrable Securities
being so registered pro rata. All Selling Expenses relating to securities
registered by the Holders shall be borne by the Holders of such securities pro
rata on the basis of the number of shares so registered. The Company shall pay
the reasonable fees and expenses of one special counsel to the Holders in
connection with each registration hereunder, up to a maximum of $20,000.
8. REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Securities and Exchange Commission a
registration statement, and with the applicable state entity an appropriate
qualification or compliance application, and any necessary amendments or
supplements thereto, with respect to such Registrable Securities and to cause
such registration statement, qualifications or compliance application to become
effective;
(b) Keep such registration, qualification or compliance effective for
a period of 120 days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that such 120-day period shall be extended for
a period of time equal to the period the Holder refrains from selling any
securities included
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in such registration at the request of an underwriter of Common Stock (or other
securities) of the Company;
(c) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
(d) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(e) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or automated quotation system
on which similar securities issued by the Company are then listed; and
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
9. REGISTRATION ON FORM S-3. In addition to the rights set forth in
Section 5 and Section 6, if a Holder or Holders holding at least 25% of the
Registrable Securities request that the Company file a registration statement on
Form S-3 (or any successor thereto) for a public offering of shares of
Registrable Securities the reasonably anticipated aggregate price to the public
of which would exceed $1,000,000, and the Company is a registrant entitled to
use Form S-3 to register securities for such an offering, the Company shall use
its best efforts to cause such shares to be registered for the offering on such
form (or any successor thereto). A Holder or group of Holders is entitled to an
unlimited number of Form S-3 registrations; provided, however, that the Company
shall be required to file no more than one (1) such registration statement
during any 12-month period.
10. TERMINATION AND MODIFICATION OF REGISTRATION RIGHTS.
(a) The registration rights granted pursuant to this Agreement shall
terminate (i) as to all Holders on the fifth anniversary of the closing of the
Company's initial public offering and (ii) as to any Holder, at such time after
the Company's initial public offering as the Holder would be able to sell all of
the Registrable Securities held by such Holder under Rule 144 promulgated under
the Securities Act in any three-month period.
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(b) From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of not less than a majority of
the Demand Registrable Securities then held by Holders, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder to include such securities in any
registration filed under Sections 5, 6 or 9 hereof other than rights subordinate
to the rights of the Holders hereunder.
11. LOCKUP AGREEMENT. In consideration for the Company agreeing to its
obligations under this Agreement each Holder of Registrable Securities and each
transferee pursuant to Section 15 hereof agrees, in connection with the first
registration of the Company's securities, upon request of the Company and the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company and such
underwriters, for such period of time (not to exceed 180 days) from the
effective date of such registration as the Company and the underwriters may
specify; provided, that each other Holder and officer and director of the
Company is bound by and has entered a similar agreement; and provided, further,
that such obligations shall not apply to any registration of shares of capital
stock for any employee benefit plan on Form S-1 or Form S-8 or any successor
form or to any registration relating to a Commission Rule 145 transaction on
Form S-4 or any successor form. Each Holder agrees that the Company may instruct
its transfer agent to place stop transfer notations in its records to enforce
the provisions of this Section 11.
12. INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners and such Holder's legal
counsel and independent accountants, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such
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claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder or underwriter and stated
to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, legal counsel, independent accountants, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the obligations of such
Holders hereunder shall be limited to an amount equal to the gross proceeds
before expenses and commissions to each such Holder of Registrable Securities
sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 12 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement, except to the extent, but only to the
extent, that the Indemnifying Party's ability to defend against such claim or
litigation is impaired as a result of such failure to give notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
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(d) If the indemnification provided for in this Section 12 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
13. INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
14. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
(b) Use its best efforts to then file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements);
(c) Furnish to Holders of Registrable Securities forthwith upon
request, a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act and
the Securities Exchange Act of 1934 (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as a
Holder of Registrable Securities may reasonably request in availing itself of
any rule or regulation of the Commission allowing such Holder to sell any such
securities without registration.
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15. TRANSFER OF REGISTRATION RIGHTS. The right to cause the Company to
register securities granted the Purchasers and the Founder hereunder may be
assigned to (A) a transferee or assignee who acquires at least 200,000 shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or Common Stock held by the Founder or issued on conversion of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred or a
combination of such Series A Preferred, Series B Preferred, Series C Preferred
or Series D Preferred and Common Stock (adjusted for stock splits, reverse stock
splits or similar events after the date hereof) provided that the Company is
given written notice of such assignment prior to such assignment, or (B) the
transferee of all of the Purchaser's such shares of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred (or Common Stock issued on
conversion of the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred), if a Purchaser holds less than 200,000 shares of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred (or
Common Stock issued on conversion of the Series A Preferred, Series B Preferred,
Series C Preferred or Series D Preferred) provided that the Company is given
written notice of such assignment prior to such assignment and that the
transferee be reasonably acceptable to the Company. In addition, rights to cause
the Company to register securities may be freely assigned (a) to a partner,
active or retired, of a Purchaser, (b) to any affiliate (as that term is defined
in Rule 405 promulgated by the Commission under the Securities Act), or (c) to
the parents, spouse, children, grandchildren or spouse of such children or
grandchildren of any Purchaser or the Founder or to trusts for the benefit of
any Purchaser, the Founder or such persons.
16. COMPANY COVENANTS. The Company hereby covenants and agrees as follows:
16.1 ANNUAL AND QUARTERLY FINANCIAL INFORMATION. The Company will
furnish the following reports to each Purchaser for so long as such Purchaser is
a holder of any shares of Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred (or Common Stock issued upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred):
(a) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of cash flows of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles consistently applied and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited and certified by independent public
accountants of national standing selected by the Company.
(b) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company and in
any event within 45 days thereafter, an unaudited consolidated balance sheet of
the Company and its subsidiaries, if any, as of the end of each such quarterly
period, and unaudited consolidated statements of income and unaudited
consolidated statements of cash flows of the Company and its subsidiaries for
such period and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in each case in comparative form the figures for the corresponding periods of
the
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previous fiscal year, all in reasonable detail and signed, subject to changes
resulting from year-end audit adjustments, by the principal financial or
accounting officer of the Company.
16.2 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION. The rights to
receive information pursuant to Section 16.1 may be assigned or otherwise
conveyed by any Purchaser or subsequent transferee to any transferee of shares
of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred (or Common Stock issued upon conversion thereof).
16.3 PROPRIETARY INFORMATION AGREEMENT. The Company will require each
person employed by the Company, whether at present or in the future, to execute
a Proprietary Information Agreement in a form approved by the Company's Board of
Directors as a condition of such employment.
16.4 CONFIDENTIALITY AGREEMENT. Each Purchaser and any successor or
assign of such Purchaser, who receives from the Company or its agents, directly
or indirectly, any information which the Company has not made generally
available to the public, pursuant to the preparation and execution of this
Agreement or disclosure in connection therewith or pursuant to the provisions of
this Section 16, acknowledges and agrees that such information is confidential
and for its use only in connection with evaluating its investment in the
Company, and further agrees that it will not disseminate such information to any
person other than its accountant, investment advisor or attorney and that such
dissemination shall be only for purposes of evaluating its investment.
16.5 TERMINATION OF COVENANTS. Notwithstanding anything to the
contrary set forth herein, the covenants set forth in this Section 16 (except
for those set forth in Section 16.4 which shall survive) shall terminate and be
of no further force or effect after the date upon which the first registration
statement filed by the Company under the Securities Act in connection with an
underwritten public offering of its securities first becomes effective.
17. RIGHTS OF FIRST OFFER. The Company hereby grants to each Series A
Purchaser, Series B Purchaser, Series C Purchaser and Series D Purchaser (an
"Eligible Purchaser") the right of first offer to purchase, pro rata, all (or
any part) of "New Securities" (as defined in this Section 17) that the Company
may, from time to time propose to sell and issue. Such pro rata share, for
purposes of this right of first offer, is the ratio of (X) the number of shares
of Common Stock then owned by such Series A Purchaser, Series B Purchaser,
Series C Purchaser or Series D Purchaser or issuable upon the conversion of the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred then owned by such Series A Purchaser, Series B Purchaser, Series C
Purchaser or Series D Purchaser (including shares issuable upon exercise of
options or warrants held by such Series A Purchaser, Series B Purchaser, Series
C Purchaser or Series D Purchaser), to (Y) the total number of shares of Common
Stock then outstanding, after giving effect to the conversion of all outstanding
convertible securities (including the Preferred Stock) and the exercise of all
outstanding options. This right of first offer shall be subject to the following
provisions:
(a) "NEW SECURITIES" shall mean any Common Stock and Preferred Stock
of the Company whether or not authorized on the date hereof, and rights,
options, or warrants to purchase
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Common Stock or Preferred Stock and securities of any type whatsoever that are,
or may become, convertible into Common Stock or Preferred Stock; provided,
however, that "New Securities" does not include the following:
(i) shares of Common Stock, or options to purchase
shares of Common Stock, issued or granted to officers, directors and employees
of, or consultants to, the Company pursuant to a stock grant, employee
restricted stock purchase agreement, option plan or purchase plan or other stock
incentive program or issuance approved by the Board of Directors;
(ii) shares of Series D Preferred being issued or which
may become issuable pursuant to the Series D Agreement;
(iii) shares of Common Stock issuable upon conversion of
the Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred;
(iv) securities of the Company offered to the public in a
firmly underwritten public offering pursuant to a registration statement filed
under the Securities Act;
(v) securities of the Company offered to the public in
any other public offering pursuant to a registration statement filed under the
Securities Act with an aggregate offering price to the public of at least
$7,500,000;
(vi) securities of the Company issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization whereby the Company
owns more than fifty percent (50%) of the voting power of such other
corporation;
(vii) securities of the Company issued to vendors or
customers or in connection with equipment lease financing transactions or bank
financing transactions the principal purpose of which is not to raise equity
funding;
(viii) securities of the Company issued to corporate
partners or in connection with other strategic alliances if the Board of
Directors unanimously determines that such transactions are not principally for
the purpose of raising equity funding; or
(ix) shares of Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, or recapitalization by the
Company.
(b) In the event that Company proposes to undertake an issuance
of New Securities, it shall give each Eligible Purchaser written notice of its
intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Eligible Purchaser
shall have ten (10) business days after receipt of such notice to agree to
purchase its pro rata share of such New Securities at the price and upon the
terms specified in the notice by giving written
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notice to the Company and stating therein the quantity of New Securities to be
purchased. If any Eligible Purchaser fails to agree to purchase its full pro
rata share within such ten (10) business day period, the Company will give the
Eligible Purchasers who did so agree (the "Electing Purchasers") notice of the
number of shares which were not subscribed for. Such notice may be by telephone
if followed by written confirmation within two days. The Electing Purchasers
shall have ten (10) business days from the date of such notice to agree to
purchase pro rata all of the New Securities not purchased by such non-purchasing
Eligible Purchasers.
(c) In the event that Eligible Purchasers fail to exercise in
full the right of first offer within the ten (10) business plus ten (10)
business day period specified above, the Company shall have one hundred twenty
(120) days thereafter to sell (or enter into an agreement pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within sixty
(60) days from the date of said agreement) the New Securities respecting which
the rights of the Eligible Purchasers were not exercised at a price and upon
terms no more favorable to the purchasers thereof than specified in the
Company's notice. In the event the Company has not sold the New Securities
within such one hundred twenty (120) day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days from the date
of such agreement) the Company shall not thereafter issue or sell any New
Securities, without first offering such New Securities to the Eligible
Purchasers in the manner provided above.
(d) The right of first offer granted under this Section 17
shall expire upon the earlier of (i) five years from the date hereof, or (ii)
the first sale of Common Stock to the public that is effected pursuant to a
registration statement filed with, and declared effective by, the Commission
under the Securities Act, covering the offer and sale of Common Stock with an
aggregate offering price to the public of not less than $7,500,000.
(e) This right of first offer is nonassignable except to any
transferee to whom registration rights may be transferred pursuant to Section 15
of this Agreement.
18. ELECTION OF DIRECTORS. So long as OPTi, Inc. ("OPTi") and SANYO
Semiconductor Corporation ("Sanyo") each hold 500,000 shares of Series A
Preferred or Series B Preferred (or any combination thereof), OPTi and Sanyo
will each vote all of their shares of Preferred Stock and Common Stock issued
upon conversion of the Preferred Stock for the election to the Board of
Directors of (i) one nominee designated by OPTi and reasonably satisfactory to
the Founder (but only for so long as Founder is a director) and (ii) one nominee
designated by Sanyo reasonably satisfactory to the Founder (but only for so long
as the Founder is a director). The obligations under this Section 18 shall
terminate upon the first sale of Common Stock to the public that is effected
pursuant to a registration statement filed with, and declared effective by, the
Commission under the Securities Act, covering the offer and sale of Common Stock
with an aggregate offering price to the public of not less than $7,500,000.
19. OBSERVER RIGHTS. As long as Cisco Systems, Inc. ("Cisco") owns not
less than five percent (5%) of the shares of the Series D Preferred Stock it is
purchasing hereunder (or an equivalent amount of Common Stock issued upon
conversion thereof) and until such time as the Company completes its initial
public offering, the Company shall invite a representative of Cisco to attend
all
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meetings of its Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices, minutes,
consents, and other materials that it provides to its directors; PROVIDED,
HOWEVER, that such representative shall agree in writing to hold in confidence
and trust and to act in a fiduciary manner with respect to all information so
provided; and, provided further, that the Company reserves the right to withhold
any information and to exclude such representative from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between the Company and its
counsel or would result in disclosure of trade secrets to such representative.
20. CONFIDENTIALITY. For a period of three years from the date hereof,
the Founder and each Purchaser shall not disclose to any third party or to the
public in general the terms and conditions of the Series D Preferred Stock
Purchase Agreement and each of the documents entered into in connection
therewith, including their existence, except (a) to the extent the discloser
concludes in good faith and upon advice of counsel that such disclosure is
required by applicable law, regulation or regulatory authority, and (b) to the
discloser's directors, shareholders, auditors, accountants, lenders, bankers,
underwriters, attorneys and bona fide prospective equity investors, provided
that any such persons agree in writing to be bound by substantially similar
confidentiality provisions. In the event of any disclosure authorized by the
preceding sentence, the disclosing party shall use reasonable efforts to obtain
confidential treatment of the information and materials so disclosed.
21. ADDITIONAL PARTIES. The parties hereto agree that additional
holders of securities of the Company may, with the consent only of the Company,
be added as parties to this Agreement with respect to any or all securities of
the Company held by them, and shall thereupon be deemed for all purposes
"Purchasers" hereunder; provided, however, that from and after the date of this
Agreement, the Company shall not without the prior written consent of each
Purchaser, enter into any agreement with any holder or prospective holder of any
securities of the Company providing for the grant to such holder of rights
superior to those granted herein. Any such additional party shall execute a
counterpart of this Agreement, and upon execution by such additional party and
by the Company, shall be considered a Purchaser for purposes of this Agreement.
Upon such execution, all shares of Common Stock of the Company issuable upon
conversion of any securities held by such additional party shall be deemed for
all purposes "Registrable Securities" hereunder.
22. GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, without giving effect to the conflicts of
laws principles thereof.
23. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.
24. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by registered or certified
-16-
<PAGE>
mail, postage prepaid, addressed (a) if to a Purchaser, to such Purchaser's
address set forth on Exhibit A to the Series A and Series B Agreement, Series C
Agreement or Series D Agreement or at such other address as such Purchaser shall
have furnished to the Company in writing, (b) if to any other holder of any
Registrable Securities, to such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Registrable
Securities who has so furnished an address to the Company, (c) if to the
Company, to its address set forth on the signature page of this Agreement to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Holders or (d) if to the Founder, to the address set
forth on the signature page of this Agreement, or such other address as the
Founder shall have furnished to the Holders.
25. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Purchasers
and the Founder, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together constitute one
instrument.
26. AMENDMENT. Any provision of this Agreement may be amended, waived
or modified upon the written consent of the (i) Company, (ii) holders of a
majority of the Demand Registrable Securities and (iii) the Founder (excluding
for all purposes in such computation any Common Stock resold to the public),
PROVIDED that any such amendment, waiver or modification applies by its terms to
each holder. Any Purchaser or the Founder may waive any of his or its rights or
the Company's obligations hereunder without obtaining the consent of any other
person.
27. DELAY OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any Purchaser, upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
such holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
28. SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
29. WAIVER OF PRIOR SHAREHOLDER AGREEMENT. The Series A Purchasers,
Series B Purchasers, Series C Purchasers and the Founder irrevocably waive all
of their rights under the Prior Shareholder Agreement (including the rights
contained in Section 17 thereof) in exchange for the rights contained herein.
-17-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Second Amended and
Restated Shareholder Rights Agreement as of the date set forth above.
"COMPANY"
TRIPATH TECHNOLOGY INC.,
a California corporation
By: /s/ ADYA S. TRIPATHI, PRESIDENT
---------------------------------------
Adya S. Tripathi, President
"FOUNDER"
By: /s/ ADYA S. TRIPATHI
---------------------------------------
Adya S. Tripathi
2855 Glen Keats Court
San Jose, CA 95148
"SERIES D PURCHASERS"
H&Q TRIPATH INVESTORS, L.P.
By: H&Q VENTURE ASSOCIATES, L.P., ITS GENERAL PARTNER
Name: JACKIE BERTERRETCHE
---------------------------------------
By: /s/ JACKIE BERTERRETCHE
---------------------------------------
Title: CHIEF FINANCIAL OFFICER
---------------------------------------
TI VENTURES, L.P.
By: H&Q VENTURE ASSOCIATES, L.P., ITS GENERAL PARTNER
Name: JACKIE BERTERRETCHE
---------------------------------------
By: /s/ JACKIE BERTERRETCHE
---------------------------------------
Title: CHIEF FINANCIAL OFFICER
---------------------------------------
Name: CISCO SYSTEMS, INC.
---------------------------------------
By: /s/ JUDITH ESTRIN
---------------------------------------
Title: CHIEF TECHNOLOGY OFFICER
---------------------------------------
Name: A. BECHTOLSHEIM
---------------------------------------
By: /s/ A. BECHTOLSHEIM
---------------------------------------
Title: SELF
---------------------------------------
Name: MEDICAL-TECHNICAL GASES, INC., 20 HALL ST., MEDFORD, MA 02155
--------------------------------------------------------------
By: /s/
---------------------------------------
Title: PRES/TREAS
---------------------------------------
Name: DHUNN-CARR LLC PROFIT SHARING PLAN FOR RAHUL VENDRA SINGH
----------------------------------------------------------
By: /s/ RAHUL VENDRA SINGH
---------------------------------------
Title: TRUSTEE
---------------------------------------
SANYO SEMICONDUCTOR CORPORATION
By: /s/
---------------------------------------
Title:
---------------------------------------
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
CMC MAGNETICS CORPORATION
By: /s/
---------------------------------------
Title:
---------------------------------------
DIRECT INTERNATIONAL LTD.
By: /s/
---------------------------------------
Title:
---------------------------------------
/s/ JEREMY WANG
- ---------------------------------------------
Jeremy Wang
/s/ CHYONG WEN CHANG
- ---------------------------------------------
Chyong Wen Chang
/s/ HON-JANE CHIU
- ---------------------------------------------
Hon-Jane Chiu
/s/ HANG-CHIEN HSU
- ---------------------------------------------
Hang-Chien Hsu
/s/ ROBERT T. CLARKSON
- ---------------------------------------------
Robert T. Clarkson
/s/ TOR R. BRAHAM
- ---------------------------------------------
Tor R. Braham
/s/ JOHN DIPIETRO
- ---------------------------------------------
John DiPietro
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
WS INVESTMENT COMPANY 95B
By: /s/ JIM TERRANOVA
---------------------------------------
Title: ADMINISTRATOR
---------------------------------------
UNITED MICROELECTRONICS CORPORATION
By: /s/ ROBERT TSAO
---------------------------------------
Title: CHAIRMAN
---------------------------------------
WK TECHNOLOGY FUND
By: /s/ WEN CHANG KO
---------------------------------------
Title:
---------------------------------------
WK TECHNOLOGY FUND II
By: /s/ WEN CHANG KO
---------------------------------------
Title:
---------------------------------------
WK TECHNOLOGY FUND III
By: /s/ WEN CHANG KO
---------------------------------------
Title:
---------------------------------------
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
WK TECHNOLOGY FUND IV
By: /s/ WEN CHANG KO
---------------------------------------
Title:
---------------------------------------
WK GLOBAL FUND LIMITED
By: /s/ WEN CHANG KO
---------------------------------------
Title:
---------------------------------------
INTEL CORPORATION
By: /s/
---------------------------------------
Title:
---------------------------------------
/s/ LO-HOU CHEW
- ---------------------------------------------
Lo-Hou Chew
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
INTERNATIONAL NETWORK CAPITAL CORP.
By: /s/
---------------------------------------
Title:
---------------------------------------
INTERNATIONAL NETWORK CAPITAL LDC
By: /s/
---------------------------------------
Title:
---------------------------------------
/s/ STEEL SU
- ---------------------------------------------
Steel Su
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
OPTI, INC.
By: /s/ BERNARD T. MARREN
---------------------------------------
Title: PRESIDENT AND CEO
---------------------------------------
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
SHORELINE ASSOCIATES II, LLC
By: /s/
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
/s/ ROBERT DOW
- ---------------------------------------------
Robert Dow
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
/s/ SONNY GULATI
- ---------------------------------------------
Sonny Gulati
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
/s/ KAILASH JOSHI
- ---------------------------------------------
Kailash Joshi
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
THE GOLDMAN SACHS GROUP, L.P.
By: The Goldman Sachs Corporation
General Partner
By: /s/ JOSEPH H. GLEBERMAN
---------------------------------------------
Name: JOSEPH H. GLEBERMAN
Title: EXECUTIVE VICE PRESIDENT
STONE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
General Partner
By: /s/ KATHERINE B. ENQUIST
---------------------------------------------
Name: KATHERINE B. ENQUIST
Title: VICE PRESIDENT
BRIDGE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
Managing General Partner
By: /s/ KATHERINE B. ENQUIST
---------------------------------------------
Name: KATHERINE B. ENQUIST
Title: VICE PRESIDENT
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
DHUNN-CARR HEDGE FUND LP
By: /s/ RAHUL VENDRA SINGH
---------------------------------------------
Name: RAHUL VENDRA SINGH
--------------------------------------------
Title:
-------------------------------------------
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
FREDERICK M. GEIBEL AND
MARGARET M. GEIBEL AS
COMMUNITY PROPERTY
/s/ FREDERICK M. GEIBEL
- -------------------------------------------------
Frederick M. Geibel
/s/ MARGARET M. GEIBEL
- -------------------------------------------------
Margaret M. Geibel
/s/ FREDERICK M. GEIBEL
- -------------------------------------------------
Frederick M. Geibel as Custodian for
Gregory R. Geibel UTMA/CA until age 21
/s/ FREDERICK M. GEIBEL
- -------------------------------------------------
Frederick M. Geibel as Custodian for
Eric M. Geibel UTMA/CA until age 21
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
MORGAN STANLEY DEAN WITTER
EQUITY FUNDING, INC.
By: /s/ DAVID POWERS
---------------------------------------------
Name: DAVID POWERS
--------------------------------------------
Title: PRESIDENT
-------------------------------------------
[SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT]
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The reincorporation as described in Note 11 to the financial statements has
not been consummated at April 18, 2000. When it has been consummated, we will be
in a position to furnish the following consent:
"We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 18, 2000, except as
to Note 11 which is as of , 2000, relating to the financial statements
of Tripath Technology Inc., which appears in such Prospectus. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
San Jose, California
April 18, 2000"
/s/ PRICEWATERHOUSECOOPERS LLC
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C> <C> <C>
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<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-2000 JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-2000 DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 8,648 10,568 22,975 13,179
<SECURITIES> 4,827 6,835 10,980 2,946
<RECEIVABLES> 340 444 19 0
<ALLOWANCES> (50) (30) 0 0
<INVENTORY> 1,299 1,381 68 0
<CURRENT-ASSETS> 15,532 19,446 35,236 16,240
<PP&E> 4,435 4,108 3,048 1,354
<DEPRECIATION> (2,240) (2,015) (1,077) (500)
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<BONDS> 0 0 0 0
0 0 0 0
49,611 49,611 49,611 21,128
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<OTHER-SE> (34,320) (30,273) (13,438) (4,182)
<TOTAL-LIABILITY-AND-EQUITY> 18,018 21,714 37,391 17,256
<SALES> 742 648 180 0
<TOTAL-REVENUES> 742 648 180 0
<CGS> (1,263) (2,420) (196) 0
<TOTAL-COSTS> (10,389) (31,298) (34,643) (3,213)
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<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> (10,654) (31,702) (33,657) (2,771)
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<NET-INCOME> (10,654) (31,702) (33,657) (2,771)
<EPS-BASIC> (0.96) (2.98) (3.32) (0.28)
<EPS-DILUTED> (0.96) (2.98) (3.32) (0.28)
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