<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 2000.
REGISTRATION NO. 333-35028
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 4
TO
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. ALLEN Z. SUSSMAN, 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. / /
------------------------------
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>
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>
SUBJECT TO COMPLETION, DATED JULY 19, 2000.
PROSPECTUS
[LOGO]
7,500,000 SHARES
COMMON STOCK
$ PER SHARE
---------
We are selling 7,500,000 shares of our common stock. The underwriters named
in this prospectus may purchase up to 1,125,000 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 $12.00 and $14.00 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 5.
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.......................................... 2
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 16
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.................................................. 40
Certain Transactions........................................ 49
Principal Stockholders...................................... 50
Description Of Capital Stock................................ 52
Shares Eligible For Future Sale............................. 55
Underwriters................................................ 57
Legal Matters............................................... 59
Experts..................................................... 59
Available Information....................................... 59
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 1930s.
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 amount of power wasted as heat, 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,
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 efficiency 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 efficiency
advantages are enabling manufacturers to provide higher quality, multi-channel
sound systems. Our audio electronics customers include Alpine Electronics,
Carver Corporation, Creative Technology Ltd., Matsushita/Panasonic and Sony
Corporation.
We believe the power efficiency and high signal quality of our amplifiers
also make 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 service providers to support more
subscribers. We do not expect to begin volume shipments of amplifiers for DSL
applications before the first quarter of 2001. 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 2002.
We provide our products in the form of semiconductor chips and modules which
contain multiple chips. We contract with STMicroelectronics Group and United
Microelectronics Corporation to manufacture our semiconductors 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. Information contained on our web site is not a part of
this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 7,500,000 shares
Common stock to be outstanding after this
offering................................... 28,411,241 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 June 30, 2000 and
does not include the following:
- 7,517,815 shares of common stock issuable as of June 30, 2000 upon the
exercise of outstanding stock options issued under our stock option plan
at a weighted average exercise price of $6.91 per share; and
- 121,250 shares of common stock issuable as of June 30, 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 filing 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.
3
<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 SIX MONTHS
DECEMBER 31, YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------- ----------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $ -- $ -- $ -- $ 180 $ 648 $ 104 $ 2,724
Cost of revenue................. -- -- -- 196 2,420 263 4,013
------ ------- ------- -------- -------- -------- --------
Gross profit (loss)............. -- -- -- (16) (1,772) (159) (1,289)
------ ------- ------- -------- -------- -------- --------
Operating expenses:
Research and development...... 17 1,111 2,055 5,409 11,429 5,524 6,869
Selling, general and
administrative.............. 211 599 1,062 5,096 6,056 3,029 3,961
Stock-based compensation...... -- -- 96 24,138 13,813 3,965 9,619
------ ------- ------- -------- -------- -------- --------
Total operating expenses........ 228 1,710 3,213 34,643 31,298 12,518 20,449
------ ------- ------- -------- -------- -------- --------
Loss from operations............ (228) (1,710) (3,213) (34,659) (33,070) (12,677) (21,738)
Interest income................. 40 193 442 1,002 1,368 801 423
------ ------- ------- -------- -------- -------- --------
Net loss........................ $ (188) $(1,517) $(2,771) $(33,657) $(31,702) $(11,876) $(21,315)
====== ======= ======= ======== ======== ======== ========
Basic and diluted net loss per
share......................... $(0.05) $ (0.17) $ (0.28) $ (3.32) $ (2.98) $ 1.14 $ (1.87)
Number of shares used to compute
basic and diluted net loss per
share......................... 4,098 8,850 9,844 10,143 10,624 10,440 11,380
Pro forma basic and diluted net
loss per share................ $ (1.61) $ (1.04)
Number of shares used to compute
pro forma basic and diluted
net loss per share............ 19,709 20,465
</TABLE>
The following table provides a summary of our balance sheet as of June 30,
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 7,500,000 shares of common
stock in this offering at the assumed initial public offering price of $13.00
per share and after deducting the underwriting discount and estimated offering
expenses payable by us. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, short-term investments and
restricted cash........................................... $ 9,206 $ 9,206 $ 98,231
Working capital............................................. 6,514 6,514 95,539
Total assets................................................ 16,660 16,660 105,685
Convertible preferred stock................................. 49,611 -- --
Total stockholders' equity (deficit)........................ (40,321) 9,290 98,315
</TABLE>
4
<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 June 30, 2000, we had an accumulated deficit of $91.2 million. We
incurred net losses of approximately $21.3 million in the six months ended
June 30, 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
relative 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, our
5
<PAGE>
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, the
purchasing agent for Sony Corporation, accounted for 78.0% of total revenue in
1999, and sales to Komatsu and to Creative Technology Ltd. accounted for 57.4%
and 7.8% of total revenue in the six months ended June 30, 2000. Moreover, sales
to our five largest customers represented approximately 90.7% of our total
revenue in the six months ended June 30, 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 CURRENTLY RELY ON SALES OF ONE PRODUCT FOR A SIGNIFICANT PORTION OF OUR
REVENUE, AND THE FAILURE OF THIS PRODUCT TO BE SUCCESSFUL IN THE FUTURE COULD
SUBSTANTIALLY REDUCE OUR SALES.
We currently rely on sales of our TA2020 digital audio amplifier to generate
a significant portion of our revenue. Sales of this product amounted to 33.2% of
our revenue in 1999 and 55.4% of our revenue in the six months ended June 30,
2000. We have developed additional products and plan to introduce more products
in the future but there can be no assurance that these products will be
commercially successful. Consequently, if our existing products are not
successful, our sales could decline substantially.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT FOR US TO PREDICT IF OR WHEN A SALE
WILL BE MADE AND TO FORECAST OUR REVENUE AND BUDGET EXPENSES, WHICH MAY CAUSE
FLUCTUATIONS IN OUR QUARTERLY RESULTS.
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. To have our
products selected for design into new products of current and potential
customers, commonly referred to as design wins, 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.
6
<PAGE>
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. To date we have not had any cancellations or deferrals by customers,
however, 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. Although we have not experienced customer refusals to accept
shipped products or difficulties in collecting accounts receivable, such
refusals or collection difficulties could result in significant charges against
income, which could seriously harm our revenues and our cash flow.
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 achieve 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 121 employees in June 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, our recent implementation
of a
7
<PAGE>
new management information system, 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.
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.
8
<PAGE>
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
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 shortages 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 their 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 MISS 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 in Taiwan, ST
Assembly Test Services Ltd. in Singapore, Amkor Technology, Inc. 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 their 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 CAUSE US TO LOSE OUR COMPETITIVE ADVANTAGE AND REDUCE
OUR GROSS MARGINS.
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 processes 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.
9
<PAGE>
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 92.1% of our total revenue in the
six months ended June 30, 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.
Three of our manufacturers and eight of our customers are located in the
Pacific Rim region. Except for certain wafers that are manufactured in Italy,
all of the components in our products are manufactured in the Pacific Rim
region. Sales to customers located in the Pacific Rim region were 90.2% of our
total revenue in the six months ended June 30, 2000 and 89.8% of our total
revenue in the year ended December 31, 1999. 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.
10
<PAGE>
Moreover, any such disruptions could also cause significant decreases in our
sales to these customers until our customers resume normal purchasing volumes.
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 adopt our
technology.
WE CURRENTLY DEPEND ON HIGH-END CONSUMER AUDIO MARKETS WHICH ARE TYPICALLY
CHARACTERIZED BY AGGRESSIVE PRICING, FREQUENT NEW PRODUCT INTRODUCTIONS AND
INTENSE COMPETITION.
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 enhanced 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
11
<PAGE>
a digital wireless 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 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 may 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
substantial redesign, manufacturing and testing which would result in
significant expenditures of capital and resources. Despite testing conducted by
us, our suppliers and our customers, we cannot 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
market 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
12
<PAGE>
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 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 us 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. Some 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,
13
<PAGE>
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
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 our 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 38.1% of the outstanding common stock. In
particular, immediately following the offering, our founder, Dr. Adya Tripathi,
will beneficially own an aggregate of approximately 36.0% of the outstanding
common stock. Accordingly, such persons will have sufficient voting power to
control
14
<PAGE>
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
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 28,411,241
shares of common stock outstanding based upon shares outstanding as of June 30,
2000 and assuming no exercise of outstanding options after June 30, 2000. 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 June 30, 2000, there were
outstanding options and warrants to purchase 7,639,065 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, may 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.
15
<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."
USE OF PROCEEDS
We will receive estimated net proceeds of approximately $89.0 million from
the sale of shares of our common stock in this offering (or approximately $102.6
million if the underwriters' over-allotment option is exercised in full) at an
assumed initial public offering price of $13.00 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.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 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 7,500,000 shares of common stock in this offering at an assumed initial
public offering price of $13.00 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>
JUNE 30, 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, 11,826,675 shares issued and outstanding,
actual; 20,911,241 shares issued and outstanding, pro
forma; 28,411,241 shares issued and outstanding, pro
forma as adjusted....................................... 12 21 29
Additional paid-in capital................................ 63,397 112,999 202,016
Stockholder notes receivable.............................. -- -- --
Deferred stock-based compensation......................... (12,580) (12,580) (12,580)
Accumulated deficit....................................... (91,150) (91,150) (91,150)
-------- -------- --------
Total stockholders' equity (deficit)...................... (40,321) 9,290 98,315
-------- -------- --------
Total capitalization.................................... $ 9,290 $ 9,290 $ 98,315
======== ======== ========
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:
- 7,517,815 shares of common stock issuable as of June 30, 2000 upon the
exercise of outstanding stock options under our stock option plans at a
weighted average exercise price of $6.91 per share;
- 121,250 shares of common stock issuable as of June 30 upon the exercise of
outstanding warrants with a weighted average exercise price of $1.08 per
share;
- exercise by the underwriters of the over-allotment option.
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<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 June 30, 2000, we had a negative tangible book value
of $40.3 million, or $(3.41) per share. After giving effect to conversion of our
preferred stock to common stock and this offering at an assumed initial public
offering price of $13.00 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 June 30, 2000, would have been $98.3 million, or $3.46 per
share. This represents an immediate increase in net tangible book value to
existing stockholders of $6.87 per share and an immediate dilution to new
investors of $9.54 per share. The following table illustrates this per share
dilution:
<TABLE>
<CAPTION>
PER SHARE
---------
<S> <C> <C>
Assumed initial public offering price....................... $ 13.00
Net tangible book value per share before this offering.... $(3.41)
Increase in net tangible book value per share attributable
to this offering........................................ 6.87
------
Pro forma net tangible book value per share after this
offering.................................................. 3.46
-------
Dilution to new investors................................... $ 9.54
=======
</TABLE>
The following table summarizes on a pro forma as adjusted basis as of
June 30, 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 $13.00 per share and before deducting the
underwriting discount and commissions and estimated offering expenses.
<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....................... 11,826,675 41.6% $ 1.7 1.1% $0.14
Converting preferred stockholders........... 9,084,566 32.0 49.6 33.3 5.46
New investors............................... 7,500,000 26.4 97.5 65.6 13.00
---------- ------ ------ ------
Total..................................... 28,411,241 100.0% $148.8 100.0%
========== ====== ====== ======
</TABLE>
Based on the shares outstanding as of June 30, 2000, the existing
stockholders will hold 20,911,241 shares or 73.6% 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 and 2000 Stock
Plan and no exercise of warrants. As of June 30, 2000, there were outstanding
options to purchase 7,517,815 shares of common stock at a weighted average
exercise price of $6.91 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 June 30, 2000
would have been $150.4 million and the pro forma net tangible book value per
share would have been $4.17 per share, causing dilution to new investors of
$8.83.
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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 June 30, 2000 and the statement of operations data for
the six months ended June 30, 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 six
months ended June 30, 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
(INCEPTION) TO SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
-------------- ----------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ -- $ -- $ -- $ 180 $ 648 $ 104 $ 2,724
Cost of revenue......................... -- -- -- 196 2,420 263 4,013
------ ------- ------- -------- -------- -------- --------
Gross profit (loss)..................... -- -- -- (16) (1,772) (159) (1,289)
------ ------- ------- -------- -------- -------- --------
Operating expenses:
Research and development.............. 17 1,111 2,055 5,409 11,429 5,524 6,869
Selling, general and
administrative...................... 211 599 1,062 5,096 6,056 3,029 3,961
Stock-based compensation.............. -- -- 96 24,138 13,813 3,965 9,619
------ ------- ------- -------- -------- -------- --------
Total operating expenses................ 228 1,710 3,213 34,643 31,298 12,518 20,449
------ ------- ------- -------- -------- -------- --------
Loss from operations.................... (228) (1,710) (3,213) (34,659) (33,070) (12,677) (21,738)
Interest income......................... 40 193 442 1,002 1,368 801 423
------ ------- ------- -------- -------- -------- --------
Net loss................................ $ (188) $(1,517) $(2,771) $(33,657) $(31,702) $(11,876) $(21,315)
====== ======= ======= ======== ======== ======== ========
Basic and diluted net loss per share.... $(0.05) $ (0.17) $ (0.28) $ (3.32) $ (2.98) $ (1.14) $ (1.87)
====== ======= ======= ======== ======== ======== ========
Number of shares used to compute basic
and diluted net loss per share........ 4,098 8,850 9,844 10,143 10,624 10,440 11,380
====== ======= ======= ======== ======== ======== ========
Pro forma basic and diluted net loss per
share................................. $ (1.61) $ (1.04)
======== ========
Number of shares used to compute pro
forma basic and diluted net loss per
share................................. 19,709 20,465
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------------- ---------
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 $ 9,206
Working capital...................................... 1,911 3,667 15,952 34,029 17,081 6,514
Total assets......................................... 2,008 4,659 17,244 37,391 22,634 16,660
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) (40,321)
</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 $21.3 million in the six months ended
June 30, 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 from product sales upon shipment to original equipment
manufacturers and end users, net of sales returns and allowances. Our sales to
distributors are made under arrangements allowing for returns or credits under
certain circumstances and we defer recognition on sales to distributors until
products are resold by the distributor to the end user. 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 wafers, which are ultra-thin cross-sections of semiconductor material on
which integrated circuits are located, 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 estimated 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. Due to certain terms contained in these
non-recourse notes, the options are being accounted for on a variable basis, and
accordingly, the compensation costs associated with shares purchased with
non-recourse notes have been remeasured at each period end, and to the extent
the estimated fair market value of our stock has increased during the period, we
have recorded additional compensation expense. Total compensation expense
recognized up to June 30, 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
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
REVENUE. Revenue for the six months ended June 30, 2000 was $2.7 million,
an increase of $2.6 million from revenue of $104,000 in the six months ended
June 30, 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, accounted for
approximately 57.4%, of revenue in the six months ended June 30, 2000 and 23.8%,
of revenue in the six months ended June 30, 1999. Sales to our five largest
customers represented approximately 90.7% of revenue in the six months ended
June 30, 2000 and 91.9% of revenue in the six months ended June 30, 1999.
GROSS PROFIT (LOSS). Gross loss for the six months ended June 30, 2000 was
$1.3 million (excluding stock-based compensation expense of $49,000) or 47.3% of
revenue, an increase of $1.1 million from gross loss of $159,000 or 152.9% of
revenue in the six months ended June 30, 1999. The gross loss for the six months
ended June 30, 2000 reflected a charge of $378,000 primarily associated with
inventory and accruals relating to price concessions made to Komatsu (for sales
to Sony Corporation) 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 six
months ended June 30, 2000 were $6.9 million (excluding stock-based compensation
expense of $5.1 million), an increase of $1.4 million from $5.5 million
(excluding stock-based compensation expense of $901,000) for the six months
ended June 30, 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 six months ended June 30, 2000 were
$4.0 million (excluding stock-based compensation expense of $4.5 million), an
increase of $1 million from $3.0 million (excluding stock-based compensation
expense of $3.1 million) for the six months ended June 30, 1999. This increase
was primarily due to the forgiveness of the stockholder notes receivable.
STOCK-BASED COMPENSATION. We recorded total stock-based compensation
expense of $4.0 million and $9.6 million in the six month periods ended
June 30, 1999 and 2000. The 2000 charge includes $800,000 resulting from the
increase in the estimated fair value of our stock relating to the stock
purchased by our President in 1997 and 1998 with non-recourse notes as we were
accounting for the options on a variable basis.
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 six months ended June 30, 2000 was
$423,000, a decrease of $378,000 from interest income of $801,000 in the six
months ended June 30, 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
21
<PAGE>
sales of our initial products and from the introduction of our TA2020 product in
the fourth quarter of 1999.
GROSS PROFIT (LOSS). Gross loss for 1999 was $1.8 million (excluding
stock-based compensation expense of $43,000), 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 (excluding stock-based compensation expense of $6.9 million), an
increase of $6.0 million or 111.3% from research and development expenses of
$5.4 million (excluding stock-based compensation expense of $2.8 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 (excluding
stock-based compensation expense of $96,000) 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 (excluding stock-based
compensation expense of $6.9 million), an increase of $1.0 million or 18.8% from
selling, general and administrative expenses of $5.1 million (excluding
stock-based compensation expense of $21,385,000) 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 ten quarters through June 30, 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 (in thousands, except per share data).
<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 1,487
-------- ------- ------- ------- ------- ------- -------- ------- --------
Gross profit (loss)........ 80 18 -- (114) 13 (172) (888) (725) (745)
-------- ------- ------- ------- ------- ------- -------- ------- --------
Operating expenses:
Research and
development............ 741 1,094 1,365 2,209 2,354 3,170 3,223 2,682 2,847
Selling, general and
administrative......... 749 930 1,579 1,838 1,456 1,573 1,427 1,600 1,231
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 10,320
-------- ------- ------- ------- ------- ------- -------- ------- --------
Loss from operations....... (14,942) (4,190) (8,195) (7,332) (6,696) (5,981) (12,184) (8,209) (11,065)
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) $(10,809)
======== ======= ======= ======= ======= ======= ======== ======= ========
Basic and diluted net loss
per share................ $ (1.47) $ (0.39) $ (0.79) $ (0.69) $ (0.62) $ (0.52) $ (1.11) $ (0.73) $ (0.98)
======== ======= ======= ======= ======= ======= ======== ======= ========
Number of shares used to
calculate net loss per
share.................... 10,011 10,186 10,186 10,186 10,188 10,692 10,738 10,878 11,047
======== ======= ======= ======= ======= ======= ======== ======= ========
<CAPTION>
JUNE 30,
2000
---------
<S> <C>
Revenue.................... $ 1,982
Cost of revenue............ 2,526
-------
Gross profit (loss)........ (544)
-------
Operating expenses:
Research and
development............ 4,022
Selling, general and
administrative......... 2,730
Stock-based
compensation........... 3,377
-------
Total operating expenses... 10,129
-------
Loss from operations....... (10,673)
Interest income............ 167
-------
Net loss................... (10,506)
=======
Basic and diluted net loss
per share................ $ (0.90)
=======
Number of shares used to
calculate net loss per
share.................... 11,712
=======
</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. The gross loss for the three months ended June 30,
1999, September 30, 1999, December 31, 1999, March 31, 2000, and June 30, 2000
reflected charges of $153,000, $491,000, $820,000, $345,000, and $33,000
respectively, primarily associated with inventory reserves and accruals relating
to a price concession made to Komatsu (for sales to Sony Corporation) in order
to accelerate the acceptance and introduction of a product in a new market
segment.
OPERATING EXPENSES. Research and development expenses increased in absolute
dollars throughout 1998 and through the third quarter of 1999, primarily due to
the addition of personnel to facilitate the development of new products and the
enhancement of existing products. The decrease in research and development
expenses that occurred during the fourth quarter of 1999 was primarily due to a
reduction in product development expenses. Sales, general and administrative
expenses increased in absolute dollars throughout 1998 reflecting higher
personnel related costs resulting from the hiring of sales and marketing
personnel. In addition, costs were incurred during the third and fourth quarters
of 1998 in connection with developing our website, related marketing information
and advertising designs. Sales, general and administrative expenses decreased
during the first quarter of 1999 primarily due to a
23
<PAGE>
reduction in website and related marketing expenses. The fluctuation in selling,
general and administrative expenses in each of the quarters following the first
quarter of 1999 was primarily due to changes in the number of personnel.
Stock-based compensation fluctuates from period to period based on the number of
options granted and the estimated 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 under our control. Fluctuations have arisen in the past as a
result of changes in the number of our employees, changes in the level of
product development expenses, selling prices and pricing concessions, and
fluctuations in wafer costs. Fluctuations in wafer costs and reduction in
headcount due to employee resignations are generally outside of our control.
Other fluctuations may be caused by the volume of product sales, change in the
product mix; and the introduction of cost-reduced versions of our 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 June 30, 2000, we had $6.5 million in working capital and
$9.2 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 June 30, 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 six month periods ending June 30, 1999 and 2000 were
$2.2 million, $8.0 million, $17.4 million, $6.8 million and $8.1 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
24
<PAGE>
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.
We expect our future liquidity and capital requirements will fluctuate
depending on numerous factors, including the cost and timing of future product
development efforts, the timing of introductions of new products and
enhancements to existing products, market acceptance of our existing and new
products and the cost and timing of sales and marketing activities. We believe
that the net proceeds from this offering, together with cash generated by our
operations, if any, will be sufficient to meet our operating and capital
requirements for at least the next twelve months. However, we may need to raise
additional capital in future periods through public or private financings,
strategic relationships or other arrangements in order to fund our operations
and potential acquisitions, if any, until we achieve profitability, if ever.
Additional equity financing may be dilutive to the holders of our common stock,
and debt financing, if available, may involve restrictive covenants. However, we
cannot be certain that any such financing will be available on acceptable terms,
or at all. If we cannot raise additional capital when needed and on acceptable
terms, we may not be able to pursue our growth strategy.
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, as amended by SFAS No. 137 and 138,
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
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk of loss. Some of the securities that we
may invest in the future may be subject to market risk for changes in interest
rates. To mitigate this risk, we plan to maintain a portfolio of cash
equivalents and short term investments in a variety of securities, which may
include commercial paper, money market funds, government and non-government debt
securities. Currently, we are exposed to minimal market risks. We manage the
sensitivity of our results of operations to these risks by maintaining a
conservative 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 do not expect to introduce before 2002.
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 multi-channel
systems such as Dolby Pro Logic and Dolby Digital. The improvements in source
quality and the trend toward multi-channel 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 DVD/CD players, home theater systems, digital speaker
systems, Internet appliances such as MP3 players, and set top boxes which are
devices that enable televisions to receive digital broadcasting. According to
Forward Concepts, a market research firm, the demand for these products is
expected to grow from 13.7 million units in 1998 to 162.6 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.
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- Audiophile quality amplifiers, which are the highest performance
amplifiers that meet the requirements of audio experts, may weigh more
than 175 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. Dataquest 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.
- 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 stereos to reach approximately 58 million units in 2003 and
the Consumer Electronics Association estimates sales for aftermarket head units
(in-dash CD or cassette) exceeded 11 million units in 1999, while sales of
aftermarket amplifiers totalled 2.1 million units for the same period.
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.
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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
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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 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 companies' 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
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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 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 that 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 fixed power and
space 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 supplies, heat sinks and related electronics. In the
consumer audio market, the reduced system cost will enable manufacturers to
offer 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 broaden 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.
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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 performance while
using substantially less power than conventional products. We believe our
product features will enable DSL providers to increase port density and reduce
power costs. Within the wireless market, we are seeking to develop an RF Power
Amplifier solution for cellular phones. We do not expect to introduce a cellular
phone RF Power Amplifier before 2002.
ESTABLISH RELATIONSHIPS WITH INDUSTRY LEADERS
We believe that strategic relationships will be essential to our continued
growth and to the further development and acceptance of our technologies. One
element of our strategy is to work closely with leading companies such as Alpine
Electronics, 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.
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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.
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 TA2020 features a small
size coupled with enough power output to satisfy mid-range audio product
performance criteria. The TA2020 is helping to define new generations of
products where small size 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 TA2021 and TA2022 are currently being sampled and
evaluated by potential customers. 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 sample
introduction in the third and fourth quarters of 2000, respectively. These
products 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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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
OUTPUT OPERATING HARMONIC INTRODUCTION
PRODUCT (WATTS/CHANNEL) EFFICIENCY DISTORTION(1) APPLICATIONS DATE(2)
<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 Q3 1998
TA0103 250W >90% 0.04% THD Q3 1998
TA0104 500W >90% 0.02% THD Q3 1998
Home theater, automotive,
set-top boxes, gaming
consoles,
TA2021 100W >80% 0.05% THD Q2 2000
musical instrument
amplifiers,
TA2022 100W >80% 0.05% THD high-end receivers Q2 2000
TA3020 350W >80% 0.05% THD Q3 2000
TA3021 350W >80% 0.05% THD Q4 2000
</TABLE>
------------------------
(1) Total Harmonic Distortion, or THD, measures the change in a signal as it is
amplified, expressed as a percentage of a pure input signal. The more
accurate an amplifier is, the lower its THD will be.
(2) The Introduction Date is the date when samples are first delivered to
potential customers. Further design and manufacturing refinements may be
necessary before volume production begins. The time interval between the
introduction date and volume shipments may be as long as three calendar
quarters.
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 electronic 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 DSL service providers because the power budgeted for the
equipment in the telephone companies' central office is fixed.
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[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 subscriber than from the
subscriber to the central office. This means that typical users will be able to
download data faster than they can send data, which is suitable for most
residential users.
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.
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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>
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 circuit
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.
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.
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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 June 30, 2000, our
research and development staff consisted of 91 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 manufacture 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 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 STMicroelectronics agreed to
begin supplying us wafers. As a part of this agreement, we granted a
non-exclusive royalty bearing license to use our Mixed Signal Processors in low
power-output products of 25 watts or less per channel. STMicroelectronics has
not manufactured
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any products under this license. 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 manufactured 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 manufactured 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.
CUSTOMERS
End customers for our products are primarily manufacturers of audio
electronic components, communications infrastructure equipment and wireless
communications equipment. We have recognized at least $100,000 in revenue during
the twelve month period ended June 30, 2000 from each of the customers listed
below.
Creative Technology Ltd.
Komatsu Semiconductor Corporation
Macnica, Inc.
Raynet Technologies PTE Ltd.
Uniquest Corporation
Value Electronics Incorporated
The majority of sales are to Komatsu Semiconductor Corporation, a
distributor for Sony Corporation. For the year ended December 31, 1999 and for
the six month period ended June 30, 2000, our five largest customers accounted
for 80.8% and 90.7% of our revenue, respectively.
We do not have formal long-term agreements with these customers relating to
the sale of our products, but rather sell our products to them on an
order-by-order basis.
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.
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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.
COMPETITION
We currently compete directly with audio amplifier and DSL line driver
suppliers. We currently estimate that we face competition by eight companies in
the audio amplifier market. Our principal competitors in this market include
National Semiconductor Corporation, Philips Electronics, Sanyo Semiconductor
Corporation, STMicroelectronics Group and Texas Instruments Incorporated. We
have been active in the audio amplifier market since our inception and we
believe that we maintain a strong competitive position.
In the DSL line driver market, we currently estimate that we compete with
the following four companies: Analog Devices, Inc., Elantec Semiconductor, Inc.,
Linear Technology Corporation, and Texas Instruments Incorporated. This is a new
market for us in which many of our competitors have longer operating histories.
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.
In each of these markets, we believe that our main competitive advantages
are our product capabilities, low power consumption, and level of integration.
However, many of our competitors are large public companies that have longer
operating histories and significantly greater resources than us. As a result,
these competitors may compete favorably on factors such as price, customer
support and reputation.
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 June 30, 2000, we had 121 full-time employees, including 91 employees
engaged in research and development, 15 engaged in sales and marketing and 15
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
June 30, 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............... 42 Chief Financial Officer, Vice President of Finance and
Administration
Serban C. Coss................. 51 Executive Vice President of Operations and Strategic
Alliances
Andreas H. Melder.............. 41 Vice President of Sales and Business Development
Neal J. Carney................. 44 Vice President of 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
Tsuyoshi 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.
SERBAN C. COSS has served as our Executive Vice President of Operations and
Strategic Alliances since June 2000. Prior to joining us, from 1988 to 2000,
Mr. Coss was Vice President of various business units at STMicroelectronics
Group. Mr. Coss also held positions at SGS Microelectronics, COMTEC Economation
Inc. and ICE. He received his M.S. in Electrical Engineering from the
Polytechnic Institute of Bucharest.
ANDREAS H. MELDER has served as our Vice President of Sales and Business
Development since June 2000, as 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 us, 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.
NEAL J. CARNEY has served as our Vice President of Marketing since
June 2000. Between 1990 and 2000, he held various management positions at
Agilent Technologies. He also held positions at
40
<PAGE>
Yokogawa Hewlett Packard Ltd. and Raytheon Data Systems. He received his B.S. in
Physics and his M.B.A. from Rensselaer Polytechnic Institute.
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 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 WavePhore, 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. As of June 30, 2000,
our advisory board members have been granted an aggregate of 265,000 options to
purchase common stock, at exercise
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<PAGE>
prices ranging from $1.50 to $12.00 per share, as compensation. The following
individuals are members of our advisory board:
<TABLE>
<CAPTION>
NAME DATE OF MEMBERSHIP
---- ------------------
<S> <C>
Dr. 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
Dr. Robert S. Pepper........................................ April 10, 2000
Dr. William J. Raduchel..................................... July 16, 1998
Arvind Sodhani.............................................. April 20, 2000
</TABLE>
DR. 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. 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.
DR. 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.
DR. 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.
ARVIND SODHANI is Vice President and Treasurer of Intel Corporation.
Mr. Sodhani is a member of the Board of Directors of The Nasdaq Stock Market,
Inc. Mr. Sodhani received an M.B.A. from the University of Michigan and a M.S.
from the University of London.
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 our internal accounting procedures and
financial management practices.
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<PAGE>
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.
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 June 30, 2000, our directors and officers, as a group, held options to
purchase a total of 2,741,000 shares of common stock, at exercise prices ranging
from $0.2034 to $12.00 per share. These options are scheduled to expire on
various dates between January 27, 2007 and June 30, 2011.
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<PAGE>
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 Business Development.......... 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 ended 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 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
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<PAGE>
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 -- $ 0 --
Paul Negus..................................... 175,000 -- $ 0 --
Alan J. Soucy.................................. -- -- -- --
Don Wile....................................... 50,000 -- $ 0 --
</TABLE>
The value, shown for in-the-money options represent the difference between
the respective exercise price of outstanding stock options, and $1.50, which is
the fair market value of the common stock as of December 31, 1999 as determined
in good faith by our board of directors.
EMPLOYEE BENEFIT PLANS
2000 STOCK PLAN
Our 2000 Stock Plan assumed all of our outstanding options issued under our
1995 Stock Option Plan effective upon our reincorporation in Delaware. The 2000
Stock Plan provides 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 June 30, 2000, a total of 11,000,000 shares of our common stock were
reserved for issuance pursuant to the 2000 Stock Plan. As of June 30, 2000,
2,459,175 shares had been issued pursuant to the
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<PAGE>
exercise of options and options to purchase 7,517,815 shares of common stock
were outstanding. 1,023,010 shares were available for future grant.
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.
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<PAGE>
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 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.
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<PAGE>
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, 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. 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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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of June 30, 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 June 30, 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:
- 20,911,241 shares of common stock outstanding as of June 30, 2000,
assuming conversion of all outstanding preferred stock into common stock,
and
- 7,500,000 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)............................... 10,226,667 48.9% 36.0%
OPTi, Inc......................................... 2,055,166 9.8 7.2
Sanyo Semiconductor Corp.......................... 1,966,666 9.4 6.9
John J. DiPietro(2)............................... 113,146 * *
Serban C. Coss.................................... 0 * *
Andreas H. Melder(3).............................. 56,875 * *
Neal J. Carney.................................... 0 * *
Paul Negus(4)..................................... 59,375 * *
Alan J. Soucy(5).................................. 54,167 * *
Don Wile(6)....................................... 131,667 * *
Tsuyoshi Taira(7)................................. 97,917 * *
Bernard T. Marren(8).............................. 21,250 * *
Charles Jungo(9).................................. 2,500 * *
Sohail Khan(10)................................... 13,438 * *
Directors and Executive Officers as a group
(12 persons).................................... 10,817,002 51.7% 38.1%
</TABLE>
------------------------
* Less than one percent (1%).
50
<PAGE>
(1) Includes 166,667 shares issuable upon exercise of stock options held by
Dr. Tripathi and includes 900,000 shares held in trust for the benefit of
Dr. Tripathi's minor children.
(2) Includes 98,396 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 21,042 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.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our certificate of incorporation that becomes effective upon the closing of
this offering authorizes the issuance of up to 100,000,000 shares of common
stock, $0.001 par value, and authorizes the issuance of 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description
summarizes the most important terms of our capital stock. Because it is only a
summary, it does not contain all of the information that may be important to
you. For a complete description, you should refer to our 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 June 30, 2000, there were 11,826,675 shares of common stock
outstanding that were held of record by 62 stockholders. As of June 30, 2000
there were also 7,517,815 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
As of June 30, 2000, there were 9,084,566 shares of preferred stock
outstanding. 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. Following
the closing of this offering, all preferential board voting rights granted to
holders of our preferred stock will be terminated. 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.
52
<PAGE>
WARRANTS TO PURCHASE COMMON STOCK
As of June 30, 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
53
<PAGE>
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 ChaseMellon
Shareholder Services.
LISTING
We have applied to have our common stock included for quotation on the
Nasdaq National Market under the symbol "TRPH."
54
<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 28,411,241 outstanding
shares of common stock. We expect to have outstanding options and warrants to
purchase 7,639,065 shares of common stock, assuming no additional option or
warrant grants after June 30, 2000.
The 7,500,000 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 20,911,241 outstanding shares and
7,639,065 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............................... 25,759,502
----------
After 180 days post-effective date.......................... 2,790,804
----------
</TABLE>
LOCK-UP AGREEMENTS
Our officers and directors and substantially all of 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.
55
<PAGE>
OPTIONS AND WARRANTS
Concurrently with this offering, 500,000 shares of the common stock will be
reserved for issuance pursuant to our 2000 Employee Stock Purchase Plan. An
aggregate of 4,763,511 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, 112,250
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 209,007
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.
56
<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..................................................... 7,500,000
=========
</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 1,125,000 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 substantially all of our other
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
57
<PAGE>
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.
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
58
<PAGE>
may be effected on the Nasdaq National Market or otherwise and, if commenced,
may be discontinued at any time.
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.
59
<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 July 19, 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
------------------- JUNE 30, JUNE 30,
1998 1999 2000 2000
-------- -------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 21,975 $ 9,568 $ 5,174
Short-term investments........................... 10,980 6,835 3,032
Restricted cash.................................. 1,000 1,000 1,000
Accounts receivable, net......................... 19 414 749
Inventories...................................... 68 2,301 1,762
Prepaid expenses and other current assets........ 1,194 248 2,167
-------- -------- --------
Total current assets........................... 35,236 20,366 13,884
Property and equipment, net........................ 1,971 2,093 2,601
Other assets....................................... 184 175 175
-------- -------- --------
Total assets................................. $ 37,391 $ 22,634 $ 16,660
======== ======== ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 686 $ 746 $ 2,557
Accrued expenses................................. 521 1,592 4,310
Deferred distributor revenue..................... -- 947 503
-------- -------- --------
Total current liabilities...................... 1,207 3,285 7,370
-------- -------- --------
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
11,826,675 (unaudited) shares issued and
outstanding actual; 60,000,000 shares
authorized, 20,911,241 shares issued and
outstanding pro forma (unaudited).............. 11 11 12 21
Additional paid-in capital....................... 39,757 50,854 63,397 112,999
Stockholder notes receivable..................... (2,236) (726) -- --
Deferred stock-based compensation................ (12,826) (10,566) (12,580) (12,580)
Accumulated deficit.............................. (38,133) (69,835) (91,150) (91,150)
-------- -------- -------- --------
Total stockholders' equity (deficit)........... (13,427) (30,262) (40,321) $ 9,290
-------- -------- -------- ========
Total liabilities, convertible preferred
stock and stockholders' equity (deficit)... $ 37,391 $ 22,634 $ 16,660
======== ======== ========
</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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $ -- $ 180 $ 648 $ 104 $ 2,724
Cost of revenue............................. -- 196 2,420 263 4,013
------- -------- -------- -------- --------
Gross profit (loss) (exclusive of
stock-based compensation of $43 and $49 in
1999 and for the six months ended June 30,
2000)..................................... -- (16) (1,772) (159) (1,289)
------- -------- -------- -------- --------
Operating expenses:
Research and development (exclusive of
stock-based compensation of $96, $2,753,
$6,891, $901 and $5,064 for 1997, 1998
and 1999 and for the six months ended
June 30, 1999 and 2000,
respectively)........................... 2,055 5,409 11,429 5,524 6,869
Selling, general and administrative
(exclusive of stock-based compensation
of $0, $21,385, $6,879, $3,064 and
$4,506 for 1997, 1998, 1999 and the six
months ended June 30, 1999 and 2000).... 1,062 5,096 6,056 3,029 3,961
Stock-based compensation.................. 96 24,138 13,813 3,965 9,619
------- -------- -------- -------- --------
Total operating expenses.............. 3,213 34,643 31,298 12,518 20,449
------- -------- -------- -------- --------
Loss from operations........................ (3,213) (34,659) (33,070) (12,677) (21,738)
Interest income............................. 442 1,002 1,368 801 423
------- -------- -------- -------- --------
Net loss.................................... $(2,771) $(33,657) $(31,702) $(11,876) $(21,315)
======= ======== ======== ======== ========
Basic and diluted net loss per share........ $ (0.28) $ (3.32) $ (2.98) $ (1.14) $ (1.87)
======= ======== ======== ======== ========
Number of shares used to compute basic and
diluted net loss per share................ 9,844 10,143 10,624 10,440 11,380
======= ======== ======== ======== ========
Pro forma basic and diluted net loss per
share (unaudited)......................... $ (1.61) $ (1.04)
======== ========
Number of shares used to compute pro forma
basic and diluted net loss per share
(unaudited)............................... 19,709 20,465
======== ========
</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).................. 910 1 872 -- -- -- 873
Issuance of common stock upon
exercise of warrants
(unaudited).................. 18 -- 26 -- -- -- 26
Deferred stock-based
compensation (unaudited)..... -- -- 11,633 -- (11,633) -- --
Amortization of deferred
stock-based compensation
(unaudited).................. -- -- -- -- 9,619 -- 9,619
Interest on stockholder notes
receivable (unaudited)....... -- -- 12 (12) -- -- --
Forgiveness of stockholder
notes receivable and related
interest receivable
(unaudited).................. 738 738
Net loss (unaudited)........... -- -- -- -- -- (21,315) (21,315)
------ --- ------- -------- -------- -------- --------
BALANCE AT JUNE 30, 2000
(UNAUDITED).................. 11,827 $12 $63,397 $ -- $(12,580) $(91,150) $(40,321)
====== === ======= ======== ======== ======== ========
</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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
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) $(11,876) $(21,315)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................. 343 577 938 457 466
Allowance for doubtful accounts................ -- -- 30 -- 20
Stock-based compensation....................... 96 24,138 13,813 3,965 9,619
Amortization of warrants....................... 187 222 182 130 --
Forgiveness of stockholder notes receivable.... -- -- -- -- 738
Changes in assets and liabilities:
Accounts receivable.......................... -- (19) (425) (259) (355)
Inventories.................................. -- (68) (2,233) (299) 539
Prepaid expenses and other assets............ (173) (72) (87) 932 (1,919)
Accounts payable............................. (10) 500 60 (274) 1,811
Accrued expenses............................. 79 419 1,071 421 2,718
Deferred distributor revenue................. -- -- 947 48 (444)
------- -------- -------- -------- --------
Net cash used in operating activities...... (2,249) (7,960) (17,406) (6,755) (8,122)
------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments................. (2,946) (8,999) (5,011) (4,011) --
Sales of short-term investments.................... -- 965 9,156 6,050 3,803
Restricted cash.................................... (1,000) -- -- -- --
Purchase of property and equipment................. (445) (1,694) (1,060) (733) (974)
------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities............................... (4,391) (9,728) 3,085 1,306 2,829
------- -------- -------- -------- --------
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 20 899
Proceeds from payment of stockholder note
receivable....................................... -- -- 845 -- --
------- -------- -------- -------- --------
Net cash provided by financing
activities............................... 14,990 27,484 1,914 20 899
------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents........................................ 8,350 9,796 (12,407) (5,429) (4,394)
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 $ 16,546 $ 5,174
======= ======== ======== ======== ========
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 $ 53 $ 12
</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
The Company recognizes revenue from product sales upon shipment to original
equipment manufacturers and end users, net of sales returns and allowances. The
Company's sales to distributors are made under arrangements allowing limited
rights of return, generally under product warranty provisions, stock rotation
rights, and price protection on products unsold by the distributor. In addition,
the distributor may request special pricing and allowances which may be granted
subject to approval by the Company. As a result of these returns rights and
potential pricing adjustments, the Company defers recognition on sales to
distributors until products are resold by the distributor 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,
------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents:
Cash.......................................... $ -- $ 304 $ 134
Money market funds............................ 1,298 217 24
Commercial paper.............................. 13,932 -- --
Commercial bonds and notes.................... 6,745 9,047 5,016
------- ------ ------
$21,975 $9,568 $5,174
======= ====== ======
Short-term investments:
U.S. Government bonds and notes............... $ 3,045 $ -- $ --
Commercial paper.............................. -- 1,005 1,026
Commercial bonds and notes.................... 7,935 5,830 2,006
------- ------ ------
$10,980 $6,835 $3,032
======= ====== ======
</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.......................... -- -- 50% -- 54%
Customer B.......................... -- -- 11% -- 16%
Customer C.......................... -- -- 11% -- --
Customer D.......................... -- 56% -- -- --
Customer E.......................... -- 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.
INVENTORY PURCHASE COMMITMENTS
The Company accrues for estimated losses on non-cancelable purchase orders.
The estimated losses result from anticipated future sale of products for sales
prices less than the estimated cost to manufacture. Inventory purchase
commitment losses totaled $943,000 and $230,000 (unaudited) for the year ended
December 31, 1999 and six months ended June 30, 2000, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are charged to expense as incurred.
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 six-month periods ended June 30,
1999 and 2000 (unaudited).
F-9
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 AND GEOGRAPHIC INFORMATION
The Company has determined that it has one reportable business segment: the
design, license, and marketing of integrated circuits.
The following is a geographic breakdown of the Company's sales by shipping
destination for the following periods:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1997 1998 1999 1999 2000
---------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States.................................. $ -- $153 $ 35 $ 3 $ 215
Japan.......................................... -- 5 351 29 1,654
Singapore...................................... -- -- 21 -- 685
Korea.......................................... -- 1 143 52 79
Rest of world.................................. -- 21 98 20 91
---------- ---- ---- ---- ------
$ -- $180 $648 $104 $2,724
========== ==== ==== ==== ======
</TABLE>
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. SFAS No. 133, as amended
by SFAS No. 137 and SFAS No. 138, will be effective for fiscal years beginning
after June 15, 2000.
F-10
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss.................................. $(2,771) $(33,657) $(31,702) $(11,876) $(21,315)
======= ======== ======== ======== ========
Denominator:
Weighted average common stock............. 9,844 10,143 10,624 10,440 11,380
======= ======== ======== ======== ========
Net loss per share:
Basic and diluted......................... $ (0.28) $ (3.32) $ (2.98) $ (1.14) $ (1.87)
======= ======== ======== ======== ========
</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, JUNE 30,
------------------------------ -------------------
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 3,661 7,518
Common stock warrants.................... 102 130 139 130 121
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
six months ended June 30, 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>
SIX MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
<S> <C> <C>
Numerator:
Net loss......................................... $(31,702) $(21,315)
======== ========
Denominator:
Weighted average shares.......................... 10,624 11,380
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 20,465
======== ========
Pro forma net loss per share:
Basic and diluted................................ $ (1.61) $ (1.04)
======== ========
</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 June 30, 2000.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying balance sheet as of June 30, 2000, the statements of
operations and of cash flow for the six months ended June 30, 1999 and 2000 and
the statement of stockholders' equity (deficit) for the six months ended
June 30, 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 six months ended June 30, 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,
------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable........................... $ 19 $ 444 $ 799
Less: allowance for doubtful accounts......... -- (30) (50)
------- ------- -------
19 414 749
======= ======= =======
INVENTORIES:
Raw materials................................. $ 68 $ 1,197 $ 389
Work-in-process............................... -- 164 703
Finished goods................................ -- 20 357
Inventory held by distributors................ -- 920 313
------- ------- -------
$ 68 $ 2,301 $ 1,762
======= ======= =======
PROPERTY AND EQUIPMENT, NET:
Furniture and fixtures........................ $ 720 $ 1,149 $ 1,213
Computer equipment............................ 2,259 2,782 3,264
Production equipment.......................... -- 94 520
Leasehold improvements........................ 69 83 85
------- ------- -------
3,048 4,108 5,082
Less: accumulated depreciation and
amortization................................ (1,077) (2,015) (2,481)
------- ------- -------
$ 1,971 $ 2,093 $ 2,601
======= ======= =======
ACCRUED EXPENSES:
Accrued compensation and related benefits..... $ 206 $ 342 $ 328
Accrued rent.................................. 297 273 248
Inventory purchase commitments................ -- 943 1,173
Other accrued expenses........................ 18 34 2,561
------- ------- -------
$ 521 $ 1,592 $ 4,310
======= ======= =======
</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
June 30, 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 certain dilutive issuances. 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 June 30, 2000 (unaudited), there were 11,186,349 and 10,899,022 and
11,826,675 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, JUNE 30,
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....................................... 139 121
Options under stock option plan............................. 3,767 7,518
------ ------
14,118 17,851
====== ======
</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,
immediately exercisable and non forfeitable 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, immediately exercisable and non forfeitable 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, immediately exercisable and non forfeitable 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.
The Notes have been accounted for in accordance with EITF 95-16 "Accounting
for Stock Compensation Arrangements with Employer Loan Features Under APB
Opinion No. 25." Due to certain terms of the Notes, the options are being
accounted for as variable options, with compensation costs associated with
shares purchased with non-recourse notes being recorded at each period end. To
the extent the estimated fair value of the Company's stock has increased during
the period, additional compensation expense has been recorded.
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 estimated 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
F-16
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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
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)................. 5,000 -- --
Granted (unaudited).................................... (5,108) 5,108 9.60
Canceled (unaudited)................................... 447 (447) 1.95
Exercised (unaudited).................................. -- (910) 0.94
------ ------
Balance at June 30, 2000 (unaudited)................... 1,024 7,518 6.91
====== ======
</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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Estimated fair value........... $0.46 $9.47 $ 9.70 $9.69 $5.69
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss:
As reported............... $(2,771) $(33,657) $(31,702) $(11,876) $(21,315)
======= ======== ======== ======== ========
Pro forma................. $(2,789) $(34,109) $(32,162) $(11,947) $(23,391)
======= ======== ======== ======== ========
Basic and diluted net loss
per share:
As reported............... $ (0.28) $ (3.32) $ (2.98) $ (1.14) $ (1.87)
======= ======== ======== ======== ========
Pro forma................. $ (0.28) $ (3.36) $ (3.03) $ (1.14) $ (2.06)
======= ======== ======== ======== ========
</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, for each of the periods presented, deferred
stock-based compensation recorded and the amortization of deferred stock-based
compensation (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1997 1998 1999 1999 2000
--------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred stock-based compensation.................. $ -- $35,070 $10,959 $6,778 $10,662
Amortization of deferred stock-based
compensation..................................... -- 22,970 12,587 3,536 8,775
</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, for each of the
F-19
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
periods presented, the fair values of the options granted, deferred stock-based
compensation recorded and the related amortization recorded (in thousands,
except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -----------------------
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 $ -- $10.66
Deferred stock-based compensation................... 96 1,894 594 28 971
Amortization of deferred stock-based compensation... 96 1,168 1,226 429 844
</TABLE>
Unamortized deferred stock-based compensation at December 31, 1998,
December 31, 1999 and June 30, 2000 was $12,226,000, $10,566,000 and
$12,580,000, respectively.
Stock-based compensation attributable to individuals that worked in the
following functions is as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Manufacturing/operations (cost of revenues)......... $-- $ -- $ 43 $ -- $ 49
Research and development............................ 96 2,753 6,891 901 5,064
Selling, general and administrative................. -- 21,385 6,879 3,064 4,506
--- ------- ------- ------ ------
Total stock-based compensation.................... $96 $24,138 $13,813 $3,965 $9,619
=== ======= ======= ====== ======
</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.
F-20
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------ -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Rent expense............................ $187 $953 $1,084 $524 $654
</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>
F-21
<PAGE>
TRIPATH TECHNOLOGY INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 EVENTS:
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-22
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
7,500,000 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........................................ $ 31,878
NASD filing fee............................................. 15,500
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving costs................................ 350,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 450,000
Blue Sky fees and expenses.................................. 3,000
Transfer Agent and Registrar fees........................... 20,000
Miscellaneous expenses...................................... 184,622
----------
Total..................................................... $1,650,000
==========
</TABLE>
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.
(2) In January 2000, we sold an aggregate of 17,000 shares of our common stock
at a price of $12.00 per share to four consultants in consideration of past
services rendered for an aggregate value of $204,000.
II-1
<PAGE>
PREFERRED STOCK:
(1) In August 1995, we sold an aggregate of 2,000,000 shares of our Series A
preferred stock at a price of $1.00 per share to two corporate accredited
investors for an aggregate purchase price of $1,000,000.
(2) In September 1995, we sold an aggregate of 70,000 shares of our Series A
preferred stock at a price of $1.00 per share to an institutional and two
individual accredited investors for an aggregate purchase price of $70,000.
(3) In December 1995, we sold an aggregate of 130,000 shares of our Series A
preferred stock at a price of $1.00 per share to a corporate accredited
investor and two individual accredited 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 corporate accredited investor for a purchase
price of $999,999.
(5) In August 1997, we sold an aggregate of 1,497,250 shares of our Series C
preferred stock at a price of $10.00 per share to several institutional
investors, two corporate accredited investors and one individual accredited
investor for an aggregate purchase price of $14,972,500.
(6) In September 1998, we sold an aggregate of 1,266,668 shares of our Series D
preferred stock at a price of $12.00 per share to two institutional
investors, one corporate accredited investor and one individual accredited
investor for an aggregate purchase price of $15,200,016.
(7) In December 1998, we sold an aggregate of 1,108,998 shares of our Series D
preferred stock at a price of $12.00 per share to several institutional
investors, one corporate accredited investor and five individual accredited
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 June 30, 2000, we granted stock options to acquire an
aggregate of 9,838,064 shares of our common stock at prices ranging from
$0.0003 to $12.00 per share to employees, consultants and directors pursuant
to our 1995 Stock Plan (all of which were assumed by our 2000 Stock Plan).
(2) From inception through June 30, 2000, we issued an aggregate of 2,459,175
shares of our common stock to employees, consultants and directors pursuant
to the exercise of stock options granted under our 1995 Stock Plan, for an
aggregate consideration of $1,580,565.
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 or Section 4(2) of the Securities Act.
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 a corporate accredited
investor.
(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 an individual accredited
investor.
(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 an individual accredited
investor.
II-2
<PAGE>
(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 a corporate accredited
investor.
(5) In March 2000, we sold an aggregate of 17,500 shares of our common stock at
a price of $1.5000 per share to two individual accredited investors for an
aggregate purchase price of $26,250, upon the exercise of outstanding
warrants.
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 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 Form of Bylaws of the Registrant (Delaware)
*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
27.1 Financial Data Schedules
</TABLE>
------------------------
* Previously filed
+ Amended herewith
(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.
II-3
<PAGE>
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 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 19th day of July, 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>
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 July 19, 2000
------------------------------------ (Principal Executive Officer)
Dr. Adya S. Tripathi
/s/ JOHN J. DIPIETRO Chief Financial Officer (Principal July 19, 2000
------------------------------------ Financial and Accounting Officer)
John J. DiPietro
* Director July 19, 2000
------------------------------------
Tsuyoshi Taira
* Director July 19, 2000
------------------------------------
Bernard T. Marren
* Director July 19, 2000
------------------------------------
Charles Jungo
* Director July 19, 2000
------------------------------------
Sohail Khan
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DR. ADYA S. TRIPATHI
------------------------------- Attorney-in-fact July 19, 2000
Dr. Adya S. Tripathi
</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 Form of Bylaws of the Registrant (Delaware)
*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
27.1 Financial Data Schedules
</TABLE>
------------------------
* Previously filed
+ Amended herewith
