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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 2000
REGISTRATION NO. 333-31434
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 7
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TRITON NETWORK SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3663 59-3434350
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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8529 SOUTH PARK CIRCLE
ORLANDO, FLORIDA 32819
(407) 903-0900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KENNETH R. VINES
8529 SOUTH PARK CIRCLE
ORLANDO, FLORIDA 32819
(407) 903-0900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
MICHAEL J. DANAHER, ESQ. JOCELYN M. AREL, ESQ.
MARTIN J. WATERS, ESQ. KENNETH J. GORDON, ESQ.
DAVID B. CRAWFORD, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
WILSON SONSINI GOODRICH & ROSATI 125 HIGH STREET
PROFESSIONAL CORPORATION BOSTON, MA 02110
650 PAGE MILL ROAD (617) 248-7000
PALO ALTO, CA 94304
(650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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Common Stock $0.001 par value........................ $94,875,000 $25,047
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(1) Estimated pursuant to Rule 457(o) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee.
(2) $20,850 of the registration fee was paid in connection with the initial
filing on March 1, 2000.
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 HEREAFTER 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 SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED JULY 12, 2000
5,500,000 Shares
TRITON NETWORK SYSTEMS(TM) LOGO
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $13.00 and $15.00 per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "TNSI."
The underwriters have an option to purchase a maximum of 825,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND TRITON
PUBLIC COMMISSIONS NETWORK SYSTEMS
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Per Share............................................ $ $ $
Total................................................ $ $ $
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Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................. 4
RISK FACTORS........................ 8
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................ 18
USE OF PROCEEDS..................... 19
DIVIDEND POLICY..................... 19
CAPITALIZATION...................... 20
DILUTION............................ 21
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 24
BUSINESS............................ 30
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PAGE
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MANAGEMENT.......................... 46
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS...................... 56
PRINCIPAL STOCKHOLDERS.............. 58
DESCRIPTION OF CAPITAL STOCK........ 61
SHARES ELIGIBLE FOR FUTURE SALE..... 65
UNDERWRITING........................ 67
NOTICE TO CANADIAN RESIDENTS........ 70
LEGAL MATTERS....................... 71
EXPERTS............................. 71
ADDITIONAL INFORMATION.............. 71
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS........................ F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully.
TRITON NETWORK SYSTEMS, INC.
We provide high-speed, or broadband, wireless equipment that enables
communications service providers to deliver fast, cost-effective voice, video
and data services to their business customers. Our products, which we call
Invisible Fiber, combine the high transmission speeds and reliability of fiber
optic networks with the flexibility, low cost and rapid deployment of wireless
technologies. Our customers include Internet service providers offering high
speed Internet access for businesses as well as companies providing voice and
data communications services in competition with the incumbent carriers.
We design our products for deployment in a ring within a service area. This
ring configuration, which we call a consecutive point network, enables
communications traffic to flow around the network in either direction, reducing
service interruptions caused by interference with the wireless connection
between any two units. We currently offer two product lines: our product line
for Internet service providers, which we call our Invisible Fiber Internet
product line, and our product line for communications service providers, which
we call our Invisible Fiber SONET product line. Our Invisible Fiber SONET
product line uses SONET, or Synchronous Optical Networks, a standard for
transmission of high volume communications in fiber optic networks.
Our Invisible Fiber products and consecutive point network configuration
provide service providers several advantages including:
- High Speed Network Services. Our initial Invisible Fiber Internet
products transmit data at 100 million binary digits, or bits, per second,
or 100 Mbps, and our Invisible Fiber SONET products transmit data at 155
Mbps.
- High Reliability and Availability of Service. We design our products to
match the reliability achieved by fiber optic networks, including 99.999%
availability and error rates of under 1 per trillion bits transmitted.
This level of performance meets the stringent requirements of service
providers and is referred to as carrier class reliability.
- Rapid Deployment and Potential for Rapid Return on Investment. Our
Invisible Fiber units easily connect with network equipment and can be
installed in hours, enabling service providers to begin generating
revenues rapidly.
- High Density Deployment. Our proprietary technologies minimize radio
interference and enable service providers to install more Invisible Fiber
units in a service area than would be possible with conventional
broadband wireless technologies. This allows a service provider to
generate more revenues by maximizing the number of subscribers that may
be served in the area covered by the service provider's licensed radio
frequency.
- Highly Flexible. Our Invisible Fiber units enable service providers to
configure, expand and relocate their networks rapidly to meet changing
subscriber demands and to match capital outlays with subscriber growth.
We entered into three-year supply agreements with Advanced Radio Telecom
and CenturyTel in December 1999, and CAVU in April 2000. We are currently
engaged in field trials with other
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prospective customers. Advanced Radio Telecom and CAVU are purchasing our
products to provide broadband Internet services to businesses, and CenturyTel is
purchasing our products to provide telephony, Internet and data services to
businesses.
COMPANY INFORMATION
We were incorporated in Delaware in March 1997. Since then, we have
incurred significant losses in each period and year of our operation. At March
31, 2000, we had an accumulated deficit of approximately $62.5 million. We
recognized our first revenues of approximately $3.5 million in the three-month
period ended March 31, 2000. We expect to continue to incur substantial losses
for the foreseeable future.
Our principal executive offices are located at 8529 South Park Circle,
Orlando, Florida 32819 and our telephone number is (407) 903-0900. Information
contained on our web site is not a part of this prospectus.
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THE OFFERING
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Common stock offered....................... 5,500,000 shares
Common stock to be outstanding after this
offering................................. 33,830,932 shares
Use of proceeds............................ For general corporate purposes
Proposed Nasdaq National Market symbol..... TNSI
</TABLE>
The number of shares to be outstanding after this offering is based on
28,330,932 shares outstanding as of March 31, 2000, and excludes:
- 2,092,437 shares of common stock issuable upon exercise of options
outstanding as of March 31, 2000, at a weighted average exercise price of
$9.70 per share;
- 1,455,587 shares of common stock available for issuance at March 31,
2000, under our 1997 Stock Plan;
- 211,250 shares of common stock issuable upon exercise of warrants
outstanding as of March 31, 2000 at a weighted average exercise price of
$1.00 per share;
- the cashless exercise of outstanding warrants to purchase 126,250 shares
of common stock at an exercise price of $1.00 per share, resulting in a
net issuance of 117,232 shares of common stock;
- 28,571 shares of common stock at an assumed exercise price of $12.60 per
share, based on an initial offering price of our common stock of $14.00
per share, issuable upon exercise of a warrant issued to the lender under
our new capital equipment financing line;
- 250,000 shares of common stock available for issuance under our 2000
Employee Stock Purchase Plan immediately following the offering.
Except as otherwise indicated, all information in this prospectus assumes:
- the conversion of all shares of preferred stock into 21,556,469 shares of
common stock upon completion of this offering;
- the effectiveness of our amended and restated certificate of
incorporation;
- no exercise of the underwriters' over-allotment option; and
- a one-for-two reverse stock split which became effective on July 10,
2000.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)
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PERIOD FROM
MARCH 5, 1997 THREE MONTHS ENDED
(INCEPTION) THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------- -----------------------
1997 1998 1999 1999 2000
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(UNAUDITED)
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues................... $ -- $ -- $ -- $ -- $ 3,497
Loss from operations....... (2,558) (18,105) (32,766) (8,111) (11,354)
Net loss................... $ (2,475) $ (17,224) $ (31,854) $ (7,889) $ (10,935)
========== ========== ========== ========== ==========
Net loss per share -- basic
and diluted.............. $ (1.01) $ (5.07) $ (6.67) $ (1.84) $ (2.02)
========== ========== ========== ========== ==========
Shares used in per share
calculations -- basic and
diluted.................. 2,456,995 3,395,300 4,776,567 4,295,326 5,407,418
========== ========== ========== ========== ==========
Pro forma net loss per
share:
Net loss per
share -- basic and
diluted............... $ (1.64) $ (0.45)
========== ==========
Shares used in per share
calculations -- basic
and diluted........... 19,400,204 24,213,887
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MARCH 31, 2000
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- --------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 31,340 $ 31,340 $ 101,217
Working capital.................................... 32,055 32,055 101,932
Intangible assets.................................. 36,180 36,180 36,180
Total assets....................................... 94,816 94,816 164,694,036
Convertible preferred stock........................ 43 -- --
Total stockholders' equity......................... 79,686 79,686 149,563,636
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See note 7 of notes to consolidated financial statements for an explanation
of the determination of the number of shares used in computing net loss per
share data.
The pro forma consolidated balance sheet data reflect the conversion into
common stock of all outstanding convertible preferred stock upon the closing of
this offering. The pro forma as adjusted data reflect our receipt of the net
proceeds from the sale of the 5,500,000 shares of common stock offered by us at
an initial public offering price of $14.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
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RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider the risks described below carefully and all of the information
contained in this prospectus before deciding whether to purchase our common
stock.
RISKS RELATED TO OUR FINANCIAL RESULTS
WE RECOGNIZED OUR FIRST REVENUES IN THE THREE-MONTH PERIOD ENDED MARCH 31, 2000,
AND AS A RESULT, YOU MAY HAVE DIFFICULTY EVALUATING OUR BUSINESS AND ASSESSING
ITS FUTURE VIABILITY.
Our limited historical financial performance may make it difficult for you
to evaluate the success of our business to date and to assess its future
viability. Our company was founded in March 1997. We received orders from our
first customers in December 1999 and recorded our first revenues in the first
quarter of 2000. An investor in our common stock must consider the risks and
difficulties we may encounter as an early stage company in the new and rapidly
evolving market for broadband wireless equipment. We may not achieve our goal of
becoming a leading worldwide provider of broadband wireless equipment. In
addition, because we have only recently begun commercial shipment of our
products, we may have limited insight into trends that may emerge and affect our
business. If we fail to respond to such trends and execute our business
strategy, we may not be able to achieve and maintain profitability.
IF WE CONTINUE TO INCUR SUBSTANTIAL LOSSES AND NEGATIVE OPERATING CASH FLOWS WE
MAY NOT SUCCEED IN ACHIEVING OR MAINTAINING PROFITABILITY IN THE FUTURE AND THE
MARKET PRICE OF OUR COMMON STOCK MAY DECLINE AS A RESULT.
We may never achieve profitability. Our failure to achieve or maintain
profitability could cause the market price of our common stock to decline. Since
inception, we have incurred significant net losses, including net losses of $2.5
million in the period from inception through December 31, 1997, $17.2 million in
1998, $31.9 million in 1999 and $10.9 million for the three months ended March
31, 2000. As a result of ongoing operating losses, we had an accumulated deficit
of $62.5 million as of March 31, 2000. We anticipate that our expenses will
increase substantially in the foreseeable future and that we will continue to
incur substantial losses for the foreseeable future. We also expect to
experience negative operating cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. We will need to generate
significant revenues to achieve and maintain profitability.
DUE TO OUR LIMITED OPERATING HISTORY, THE FACT THAT WE COMPETE IN A NEW AND
RAPIDLY GROWING MARKET, AND THE FACT THAT A SIGNIFICANT PERCENTAGE OF OUR
EXPENSES ARE FIXED AND DO NOT VARY WITH REVENUES, OUR QUARTERLY OPERATING
RESULTS AND STOCK PRICE MAY FLUCTUATE.
We may not be able to forecast our quarterly shipments due to a variety of
factors, including our limited operating history and the fact that our customers
are not required to purchase specified numbers of Invisible Fiber units on a
quarterly basis. Accordingly, it is difficult to predict the quarterly revenues
that we will recognize. A significant percentage of our expenses, particularly
salaries and rent, do not vary with our revenues. If we experience a shortfall
in revenues in relation to our expenses, we may be unable to reduce our expenses
quickly enough to avoid lower than anticipated quarterly operating results. In
addition, our expenses have increased, and will continue to increase, with the
anticipated growth in our business. We do not know whether our revenues will
grow rapidly enough to absorb these costs. As a result, our quarterly operating
results could fluctuate, and such fluctuation could cause the market price of
our common stock to decline. We do not believe
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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 EXPECT TO RELY ON SALES OF OUR CURRENT INVISIBLE FIBER PRODUCTS FOR A
SIGNIFICANT PORTION OF OUR REVENUES, AND IF THESE PRODUCTS FAIL TO ACHIEVE
MARKET ACCEPTANCE WE MAY NEVER ACHIEVE PROFITABILITY.
If we are unable to sell sufficient quantities of our products at
acceptable prices, we may not achieve or maintain profitability. We expect to
derive a significant portion of our revenues for the foreseeable future from
sales of our 38 Gigahertz and the 28, 29 and 31 Gigahertz, or Local Multipoint
Distribution Service frequencies, Invisible Fiber Internet and SONET products.
The following factors, some of which are beyond our control, could affect demand
for, or pricing or market acceptance of these products:
- the adoption of broadband wireless solutions over competing technologies;
- the growth and changing requirements of the market for broadband wireless
equipment;
- the successful development of our relationships with service providers;
- the ability of service providers to obtain the financing, licensed radio
frequency and roof rights needed to deploy their networks;
- the performance, quality, price and total cost of ownership of our
products; and
- the performance, quality, price, total cost of ownership and availability
of competing products.
IF WE ARE NOT SUCCESSFUL IN DEVELOPING AND MARKETING NEW AND ENHANCED BROADBAND
WIRELESS PRODUCTS THAT KEEP PACE WITH TECHNOLOGY AND OUR CUSTOMERS' NEEDS, OUR
FUTURE SALES MAY SUFFER.
We may not be successful in developing and marketing, on a timely and
cost-effective basis, either enhancements to our products or new products that
respond to technological advances and satisfy increasingly sophisticated
customer needs. If we fail to introduce new products or to enhance existing
products, we may not be able to retain our current customers or sell our
products to new customers. In addition, if new industry standards emerge that we
do not anticipate or adapt to, our products could be rendered obsolete. The
market for our products is new and emerging, and is characterized by rapid
technological advances, changing customer needs, evolving industry standards and
a high degree of competition.
We are seeking to develop new versions of our products to support
additional frequency bands and higher transmission speeds and to develop
enhancements to our existing products. Developing new products and product
enhancements requires significant additional expenditures and research and
development resources.
WE CURRENTLY DEPEND ON THREE KEY CUSTOMERS FOR SUBSTANTIALLY ALL OF OUR SALES
AND THE LOSS OF ONE OR MORE OF THEM, OR ANY FUTURE CUSTOMER ON WHOM WE MAY
DEPEND FOR A SIGNIFICANT PORTION OF OUR SALES, COULD SIGNIFICANTLY REDUCE OUR
REVENUES.
We currently depend on Advanced Radio Telecom, CenturyTel and CAVU for
substantially all of our sales. Moreover, because we focus our sales efforts on
selected service providers, we anticipate our operating results will continue to
depend on sales to a small number of key customers for the foreseeable future.
The loss of one or more of our current customers, a reduction in sales to them
or the failure to sell our products to additional service providers would
significantly reduce our future revenues.
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LONG SALES CYCLES MAY CONSTRAIN REVENUE GROWTH.
Long sales cycles may restrict our ability to generate revenue growth. We
do not have enough historical experience selling our products to determine how
our sales cycle will affect our revenues. In obtaining our first three customers
we experienced sales cycles ranging from four to twelve months, and we expect
that our sales cycles will continue to be long and unpredictable. Because of the
cost and complexity of our products, most potential customers will need
substantial time to understand our technology and the benefits offered by our
products, including time for testing and evaluation. In addition, we believe a
typical customer is likely to initially purchase a small number of units and
then incrementally increase the size of the installation over time. A number of
factors affect the length of time the customer needs before it selects us as a
vendor or begins placing orders for shipment. These factors include:
- the customer's ability to obtain the financing and licensed radio
frequency needed to deploy its networks;
- the type and size of the customer and the nature of its internal decision
processes;
- the length of the customer's product testing and evaluation period;
- the time required by the customer to plan its network development;
- the time required by the customer to deploy its network, which may be
affected by the customer's ability to secure suitable roof rights;
- the size, breadth and configuration of the customer's network; and
- the customer's ability to obtain subscribers for its services.
A FAILURE TO ESTABLISH AND EXPAND RESELLER DISTRIBUTION CHANNELS AND TO CONTINUE
PROVIDING HIGH QUALITY CUSTOMER SUPPORT COULD RESTRICT GROWTH.
Our inability to effectively establish and expand our indirect distribution
channels could harm our ability to grow and increase revenue. Some prospective
customers may prefer to work with vendors that can supply all of the customer's
network needs, including not only broadband wireless solutions but also wireline
solutions and related equipment for the customer premise and the carrier's
central office. As our competitors forge relationships with large resellers that
offer more comprehensive product and service offerings, we may need to do the
same. If we are unable to develop relationships with significant resellers, or
if these resellers are not successful in their sales efforts, sales of our
products could decrease.
We may need to increase our customer service and support staff to support
new and existing customers and resellers. The design and installation of
networking products can be complex and our customers, particularly our Internet
service provider customers, may require a high level of sophisticated support
and services. Hiring highly trained customer service and support personnel is
very competitive in our industry due to the limited number of people available
with the necessary technical skills and understanding of our products. If we are
not successful in attracting and retaining such personnel it would be difficult
for us to execute our business plan effectively.
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WE RELY ON THE SERVICES OF OUR EXECUTIVE OFFICERS AND KEY ENGINEERING AND SALES
AND MARKETING PERSONNEL, NONE OF WHOM ARE BOUND BY EMPLOYMENT AGREEMENTS. THE
LOSS OF ANY OF THESE PERSONS COULD RESULT IN DELAYS IN PRODUCT DEVELOPMENT, LOSS
OF CUSTOMERS AND SALES AND DIVERSION OF MANAGEMENT RESOURCES, AND CAUSE OUR
BUSINESS TO SUFFER.
Our ability to implement our business strategy and our future success
depends largely on the continued services of our executive officers and other
key engineering, sales, marketing and support personnel who have critical
industry or customer experience and relationships. None of our key personnel is
bound by an employment agreement. We have no key man life insurance. The loss of
the technical knowledge and management and industry expertise of any of these
key personnel could result in delays in product development, loss of customers
and sales and diversion of management resources, which could produce lower than
anticipated operating results.
DUE TO THE INCLUSION OF EXCESS INFORMATION ABOUT TRITON AND A HYPERLINK TO OUR
WEB SITE IN THE PRESS RELEASE ANNOUNCING OUR FILING OF A REGISTRATION STATEMENT
IN CONNECTION WITH THIS OFFERING, WE MAY HAVE LIABILITY FOR A POSSIBLE VIOLATION
OF SECTION 5 OF THE SECURITIES ACT OF 1933.
Our press release announcing the offering contained excess information
about Triton and a hyperlink to our Web site, which, at the time, contained
statements about Triton not included in the prospectus. Because of the excess
information and the hyperlink, our press release may have constituted a
prospectus that did not meet the requirements of the Securities Act, in which
case the existence of the excess information or the hyperlink may have caused us
to violate Section 5 of the Securities Act. We urge all persons to read and base
their investment decision only on this preliminary prospectus dated July 12,
2000 and the final prospectus. If the excess information and the existence of
the hyperlink caused a violation of Section 5 of the Securities Act, we believe
that only purchasers in this offering that relied on the press release and
accessed the Web site through the hyperlink and relied on the now deleted
statements not included in the prospectus would have the right, for a period of
one year from the date of their purchase of common stock, to bring an action for
rescission or for damages resulting from their purchase of common stock. We
cannot assure you, however, that if such a violation occurred this right would
be limited to those purchasers. We do not believe that the inclusion of this
excess information or the hyperlink caused a violation of Section 5, and if any
such claim were asserted, we would contest the matter vigorously. Accordingly,
we do not believe that our exposure, if any, resulting from the press release
would be material to our results of operations or financial condition.
RISKS RELATED TO MARKET ACCEPTANCE OF OUR PRODUCTS
THE RATE OF MARKET ADOPTION OF OUR CONSECUTIVE BROADBAND WIRELESS TECHNOLOGY MAY
BE LIMITED BY LACK OF MARKET AWARENESS AND OTHER FACTORS.
Our consecutive point broadband wireless solutions compete with other
high-speed solutions such as digital subscriber lines, coaxial cable, fiber
optic cable, satellite and point-to-point and point-to-multipoint wireless
technologies. Many of these alternative technologies can take advantage of
existing installed infrastructure and have achieved significantly greater market
acceptance and penetration than broadband wireless technologies, including our
consecutive point broadband wireless technology. By comparison, since we are the
first company to offer a consecutive point wireless solution, we must undertake
substantial marketing efforts to make prospective customers aware of our
products and to persuade their engineering organizations to accept a new
technological approach. Moreover, current broadband wireless technology,
including our consecutive point broadband wireless technology, has inherent
technical limitations that may inhibit its widespread adoption in many areas,
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including reduced communication distance in bad weather and the need for
line-of-sight installation. We expect broadband wireless technologies, including
our consecutive point broadband wireless technology, to face increasing
competitive pressures from both current and future alternative technologies. In
light of these factors, many service providers may be reluctant to invest
heavily in consecutive point broadband wireless solutions and, accordingly, the
market for these solutions may fail to develop or may develop more slowly than
we expect. Either outcome would limit our sales opportunities and make it
difficult for us to achieve profitability.
THE BROADBAND WIRELESS INDUSTRY IS INTENSELY COMPETITIVE, AND OUR FAILURE TO
COMPETE EFFECTIVELY COULD HURT OUR SALES.
The market for broadband wireless equipment is rapidly evolving,
fragmented, highly competitive and subject to rapid technological change. A
number of large telecommunications equipment suppliers, such as Digital
Microwave Corporation, Harris Corporation and P-Com, Inc., as well as a number
of smaller companies have developed or are developing products that compete with
ours. Some of our competitors are substantially larger than we are, have longer
operating histories and have greater financial, sales, marketing, distribution,
technical, manufacturing and other resources. Some also have greater name
recognition and a larger installed base of customers than we have. In addition,
many of our competitors have well-established relationships with our current and
potential customers and have extensive knowledge of our target markets. As a
result, our competitors may be able to respond more quickly to evolving industry
standards and changes in customer requirements, or to devote greater resources
to the development, promotion and sale of their products than we can. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties to
increase their ability to gain market share rapidly. We also expect that
industry consolidation could increase competition. We expect to face increasing
competitive pressures from both current and future competitors. Increased
competition could result in reduced demand for our products, price reductions
and reduced gross margins for our products.
AS OUR CUSTOMERS ENTER NEW MARKETS, WE SOMETIMES HAVE TO ADAPT OUR PRODUCTS
RAPIDLY TO THE LICENSED FREQUENCY BANDS AND REGULATORY REQUIREMENTS THAT EXIST
IN THOSE MARKETS, AND WE MAY INCUR SIGNIFICANT COSTS MAKING THE NECESSARY
MODIFICATIONS.
Each of our products is designed for a specific range of frequency bands.
Because different governments license different portions of available radio
frequency for the broadband wireless market, and because service providers
license specific frequency bands, we sometimes have to adapt our products
rapidly to use different frequency bands. This design process can be difficult
and time-consuming, and could therefore increase our costs and cause delays in
the delivery of products to our customers.
RISKS RELATED TO OUR PRODUCT MANUFACTURING
IF WE ARE UNABLE TO MANUFACTURE SUFFICIENT QUANTITIES TO MEET EXISTING AND
FUTURE CUSTOMER DEMAND, WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We currently rely on third party manufacturers to produce some components
used in our products and our own manufacturing capabilities for final assembly
and testing of our products. Except for our agreement with Lockheed Martin
described below, we do not have long-term contracts with any of our third party
manufacturers. We have experienced and may in the future experience delays in
shipments from our manufacturers, which could in turn delay product shipments to
our
12
<PAGE> 13
customers. We may in the future experience other manufacturing problems, such as
inferior quality and insufficient quantities of components or finished product.
Such delays, quality problems and shortages could cause us to lose sales and
customers, and thereby harm our business and operating results. We intend to
introduce new products and product enhancements regularly, which will require us
to achieve volume production rapidly by coordinating our efforts with those of
our third party component manufacturers. We may need to find one or more new
manufacturers that can manufacture the components used in our products in higher
volumes and at lower costs. We may be unable to secure contract manufacturers
that meet our needs. Additionally, qualifying new manufacturers and commencing
volume production is expensive and time consuming. If we are required or choose
to change manufacturers, we may lose sales and our customer relationships may
suffer.
THE CURRENT MANUFACTURER OF THE TRANSMITTER AND RECEIVER, OR TRANSCEIVER MODULE,
USED IN OUR PRODUCTS IS NEARING CAPACITY. IF WE CANNOT BEGIN VOLUME
MANUFACTURING OF TRANSCEIVER MODULES AT OUR NEW MANUFACTURING FACILITY IN THE
SECOND HALF OF 2000, WE WILL NOT BE ABLE TO MEET DEMAND FOR OUR PRODUCTS FROM
EXISTING AND FUTURE CUSTOMERS, AND WE MAY LOSE SALES AND GENERATE LOWER THAN
ANTICIPATED REVENUES AS A RESULT.
In response to our current capacity constraints, we plan to begin volume
production of transceiver modules at our manufacturing facility in Orlando,
Florida in the second half of 2000. We may experience problems and delays in
connection with this and other manufacturing initiatives. If we cannot quickly
achieve volume production of transceiver modules or if we experience related
disruptions, capacity constraints or quality control problems, then product
shipments to our customers could be delayed. Such delays would negatively impact
our revenues, competitive position and reputation.
BECAUSE WE DEPEND ON SINGLE SOURCE AND LIMITED SOURCE SUPPLIERS OF COMPONENTS OF
OUR PRODUCTS INCLUDING TRANSCEIVER MODULES, SYNTHESIZERS AND HIGH-POWER
AMPLIFIERS, WE ARE SUSCEPTIBLE TO SUPPLY SHORTAGES FOR THESE COMPONENTS THAT
COULD ADVERSELY AFFECT OUR ABILITY TO MEET EXISTING AND FUTURE CUSTOMER DEMAND
FOR OUR PRODUCTS AND CAUSE US TO MAKE FEWER SHIPMENTS AND GENERATE LOWER THAN
ANTICIPATED REVENUES.
If we encounter shortages or delays in obtaining components for our
products in sufficient quantities when required, delivery of our products could
be delayed, resulting in customer dissatisfaction and decreased revenues. In
addition, our suppliers may enter into exclusive arrangements with our
competitors, stop selling their products or components to us at commercially
reasonable prices or refuse to sell their products or components to us at any
price, which could harm our results of operations. We currently purchase several
key components used in our products from single or limited sources and depend on
supply from these sources to meet our needs. We acquire these key components
through purchase orders and, other than our agreement with Lockheed Martin, have
no long-term commitments regarding supply or price from these suppliers. We have
entered into an agreement with Lockheed Martin to provide 3,200 transceiver
modules by the end of the first half of 2001. Lockheed Martin will be our
primary supplier of transceiver modules until we begin volume production at our
facility in the second half of 2000. Verticom is the only supplier of 38
Gigahertz synthesizers and their ability to meet our demand has been
inconsistent. In addition, Raytheon is the sole supplier of the high-power
amplifier used in our transceiver modules, and Polese is the sole supplier of
the housings used in our products. Additional single or limited source
components may be incorporated in our products in the future.
13
<PAGE> 14
IF WE FAIL TO FORECAST DEMAND FOR OUR PRODUCTS ACCURATELY, WE COULD LOSE SALES
AND INCUR INVENTORY LOSSES.
We have long lead times for many of the components we use, which often
requires that we order components based on our sales forecasts, rather than
actual customer orders. However, because our sales history is limited and
because our sales cycles have been long and varying, we may not be able to make
accurate sales forecasts. If we forecast incorrectly and overestimate our
component requirements, we may have excess inventory, which would increase our
costs and subject us to increased risk of obsolescence. If we underestimate our
component requirements, we may have inadequate inventory, which could interrupt
our manufacturing, delay delivery of our products to our customers and cause us
to lose sales.
RISKS RELATED TO OUR PRODUCTS
OUR PRODUCTS CONSIST OF SEVERAL HIGHLY TECHNICAL COMPONENTS, ANY OF WHICH COULD
CONTAIN DEFECTS WHICH INTERFERE WITH THE PERFORMANCE OF OUR PRODUCTS.
Despite testing by us and our customers, errors may be found in our
products after commencement of commercial shipments. We and our customers have
from time to time discovered errors in our products. In the future, there may be
additional errors and defects in our products. If errors are discovered, we may
not be able to successfully correct them in a timely manner or at all. Errors
and failures in our products could result in network outages for our customers,
a loss of or delay in market acceptance and damage to our reputation and our
ability to convince service providers of the benefits of our products. In
addition, we may need to make significant expenditures of capital resources in
order to eliminate errors and failures. Moreover, because our products are used
in critical communications networks, we may receive significant liability claims
if any products do not work properly. Our insurance policies and the limitations
on liability in our agreements with customers may not adequately limit our
exposure to such claims.
IF INTERFERENCE FROM OTHER RADIOS OPERATING IN A SERVICE AREA OR ADVERSE WEATHER
CONDITIONS CAUSE OUR PRODUCTS TO MALFUNCTION, OUR REPUTATION COULD BE HARMED AND
OUR SALES MAY DECREASE.
Many of our customers will provide service in large, densely populated
metropolitan areas where wireless traffic is heavy. If multiple wireless systems
are operating in these service areas concurrently with our products, the radio
frequency on which our products operate could become saturated, resulting in
signal interference. If that occurred, the quality or availability of our
customers' transmissions could decrease or our products could fail, causing
service delays and interruptions. Interference caused by severe weather
conditions could lead to similar failures. The ability of our products to
provide our customers with high quality and reliable transmissions at all times
and under a variety of adverse conditions is key to our success. If our products
fail we may suffer:
- the loss of or delay in market acceptance and sales of our products;
- cancellation of orders;
- diversion of development resources;
- injury to our reputation; and
- increased maintenance and warranty costs.
14
<PAGE> 15
LINE OF SITE RESTRICTIONS INHERENT IN OUR PRODUCTS COULD LIMIT DEPLOYMENT
OPTIONS AND HAVE A NEGATIVE IMPACT ON OUR REVENUES.
Our products require a direct line of sight, potentially limiting the
ability of service providers to deploy them in a cost-effective manner. Because
of line of sight limitations, service providers will often install broadband
wireless equipment on the rooftops of buildings and on other tall structures.
Service providers must generally secure roof rights from the owners of each
building or other structure on which the equipment is to be installed. The
inability to obtain roof rights easily and cost-effectively may cause potential
customers to choose not to install broadband wireless equipment, resulting in
fewer sales of our products and lower than expected revenues.
RISKS RELATED TO THE EXPANSION OF OUR BUSINESS
SINCE OUR INCEPTION IN MAY 1997, WE HAVE EXPERIENCED SIGNIFICANT AND RAPID
GROWTH THAT HAS PLACED, AND CONTINUES TO PLACE, A SIGNIFICANT STRAIN ON OUR
MANAGEMENT, OPERATING INFRASTRUCTURE AND RESOURCES. OUR FAILURE TO MANAGE THIS
GROWTH AND ANY FUTURE GROWTH COULD PREVENT US FROM ACHIEVING AND MAINTAINING
PROFITABILITY.
Our failure to manage the expansion of our business and operations could
slow our development and prevent us from achieving or maintaining profitability.
Our success will depend on our ability to manage our growth effectively, and in
particular, our success in:
- meeting the increasing product volume requirements of existing and future
customers; and
- enhancing our operational and financial control, human resources and
information systems.
FUTURE EXPANSION OF OUR INTERNATIONAL OPERATIONS WILL REQUIRE SIGNIFICANT
MANAGEMENT ATTENTION AND FINANCIAL RESOURCES, AND OUR EFFORTS TO EXPAND
INTERNATIONALLY MAY NOT SUCCEED.
We plan to increase our international sales activities significantly, but
we have limited experience in developing foreign language materials to support
our products and little direct experience marketing and distributing our
products internationally. We currently conduct limited, targeted sales
activities in Canada, Australia and Japan. To successfully expand international
sales, we must expand our international operations, recruit additional
international sales and support personnel, and expand our international
distribution channels. This expansion will require significant management
attention and financial resources, and may not be successful. Our success in
international markets may also depend on our ability to modify our existing
products and develop new products supporting frequency bands that are different
from those used by service providers in the United States.
ANY DIFFICULTIES WE ENCOUNTER IN INTEGRATING OUR RECENT ACQUISITION OF IBM'S
BROADBAND MODEM PRODUCT LINE, AND ANY FUTURE ACQUISITIONS, COULD DISRUPT OUR
ONGOING BUSINESS, DISTRACT OUR MANAGEMENT AND EMPLOYEES, INCREASE OUR EXPENSES
AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
We may encounter difficulty integrating the personnel we hired, and
operations, technology and software we acquired, from IBM. Any difficulties
could disrupt our ongoing business, distract our management and employees,
increase our expenses and adversely affect our results of operations.
15
<PAGE> 16
In the future, we may acquire, or invest in, complementary businesses,
products, or technologies. Acquisitions involve numerous risks, including:
- difficulties in integrating operations, technologies, products and
personnel;
- diversion of financial and management resources from existing operations;
- risks of entering new markets;
- potential loss of key employees; and
- inability to generate sufficient revenues to offset acquisition or
investment costs.
If we finance an acquisition by issuing additional equity securities, our
stockholders could experience dilution. In addition, acquisitions may involve
investment-related or other charges and amortization of acquired technology,
goodwill and other intangible assets.
COMPETITION FOR QUALIFIED ENGINEERING PERSONNEL WITH RADIO FREQUENCY EXPERTISE,
AS WELL AS SALES, MARKETING AND CUSTOMER SUPPORT PERSONNEL WITH SIGNIFICANT
TELECOMMUNICATIONS EQUIPMENT INDUSTRY EXPERIENCE, IS INTENSE, AND IF WE ARE NOT
SUCCESSFUL IN ATTRACTING AND RETAINING PERSONNEL, OUR ABILITY TO GROW OUR
BUSINESS MAY BE HARMED.
Our future performance depends on our ability to attract and retain highly
qualified sales, engineering personnel with radio frequency expertise, as well
as sales, marketing and customer support personnel with significant
telecommunications equipment industry experience. Competition for qualified
personnel in the telecommunications equipment industry is intense, and we may
not be successful in attracting and retaining such personnel. We are actively
searching for research and development engineers, sales and marketing and
customer service and support personnel, all of whom are in short supply. If we
do not succeed in retaining our personnel or in attracting new employees, our
business could suffer.
Competitors and others have in the past, and may in the future, attempt to
recruit our employees. We have in the past and may in the future attempt to
recruit employees from our competitors. Companies whose employees accept
positions with competitors frequently claim that the competitors have engaged in
unfair hiring practices. We have received such complaints in the past, and may
receive such complaints in the future as we seek to hire qualified personnel.
These complaints may result in material litigation and related disruption to our
operations.
OUR OFFICERS, DIRECTORS AND PERSONS OR ENTITIES AFFILIATED WITH OUR DIRECTORS
WILL RETAIN SIGNIFICANT CONTROL OVER US AFTER THE OFFERING, WHICH MAY LEAD TO
CONFLICTS WITH OTHER STOCKHOLDERS OVER CORPORATE GOVERNANCE ISSUES.
We anticipate that our officers, directors and individuals or entities
affiliated with our directors will beneficially own approximately 36.7% of our
outstanding common stock as a group after this offering closes. Acting together,
these stockholders would be able to significantly influence all matters that our
stockholders vote upon, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
delay, deter or prevent a change in our control and may make some transactions
more difficult or impossible to complete without the support of these
stockholders.
16
<PAGE> 17
FOLLOWING THIS OFFERING APPROXIMATELY 33,830,932 SHARES OF OUR COMMON STOCK WILL
BE OUTSTANDING AND FUTURE SALES OF THESE SHARES OF COMMON STOCK BY OUR EXISTING
STOCKHOLDERS COULD CAUSE OUR STOCK PRICE TO FALL.
If our stockholders sell substantial amounts of common stock in the public
market, the market price of our common stock could fall. The perception among
investors that these sales will occur could produce the same effect. After this
offering, we will have approximately 33,830,932 shares of common stock
outstanding. The shares we are selling in this offering will be freely tradable
in the public market. If we take into account the lock-up agreements executed by
our existing stockholders, the remaining shares of common stock outstanding
after this offering will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL SHARES
NUMBER OF SHARES OUTSTANDING DATE OF AVAILABILITY FOR SALE
---------------- ------------ --------------------------------
<S> <C> <C>
1,954,834....................... 6.9% _____________, 2000 (date of this prospectus)
to _____________, 2001 (180 days
after the date of this
prospectus)
23,599,666...................... 83.3% _____________, 2001 (180 days after the date
of this prospectus), in some
cases under Rule 144
2,776,432....................... 9.8% at various times after
_____________, 2001
</TABLE>
Our underwriters could waive the selling restrictions imposed by the
lock-up agreements at any time, which could accelerate the resale of outstanding
shares of common stock. In addition, some of our securityholders have rights to
require us to register their shares for resale in the public market.
17
<PAGE> 18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as may, will,
should, expects, plans, anticipates, believes, estimates, predicts, potential,
continue or the negative of these terms or other comparable terminology. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our or our industry's actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by the forward-
looking statements. Examples of these forward-looking statements include, but
are not limited to, statements regarding the following: the introduction and
development of new products; product improvements and new services; the success
of our technologies; increasing demand for broadband communications; potential
future acquisitions; growth in our research and development and general and
administrative expenses; the proceeds of this offering and our new capital
equipment financing, combined with our cash and cash equivalents, being
sufficient to fund our anticipated operating needs for the next 12 months; and
the lack of a material impact of the adoption of SFAS No. 133. These and
equivalent statements are only predictions. In evaluating such statements, you
should consider various factors, including the risks outlined under "Risk
Factors." These factors may cause actual events or results to differ materially
from those expressed or implied by any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
18
<PAGE> 19
USE OF PROCEEDS
We will receive net proceeds from this offering of approximately $69.9
million, assuming an initial public offering price of $14.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. If the underwriters exercise their over-allotment option in
full, our net proceeds will be approximately $80.6 million.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock and to facilitate future access
to public equity markets. As of the date of this prospectus, we have not
allocated the net proceeds of this offering for specific uses. We expect to use
the proceeds for general corporate purposes. We may also use a portion of the
net proceeds for acquisitions of businesses, products and technologies that
complement our business. We have no present plans, commitments, or current
negotiations with respect to any acquisitions.
Pending our use of the net proceeds of this offering, we intend to invest
the proceeds in interest-bearing, investment-grade non-government and government
securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
intend to retain future earnings, if any, for use in the operation and expansion
of our business, and we do not anticipate paying any cash dividends in the
foreseeable future.
19
<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the conversion of all shares of
preferred stock into 21,556,469 shares of common stock upon completion of
this offering; and
- on a pro forma as adjusted basis to give effect to the sale of 5,500,000
shares of common stock assuming an initial public offering price of
$14.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses.
You should read this table in conjunction with our consolidated financial
statements and accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Capital leases and notes payable, net of current portion... $ 3,431 $ 3,431 $ 3,431
Stockholders' equity:
Preferred stock, $0.001 par value: no shares authorized,
issued or outstanding, actual and pro forma; and
10,000,000 shares authorized and no shares issued or
outstanding pro forma as adjusted...................... -- -- --
Convertible preferred stock, $0.001 par value: issued in
series A, B and C; 21,602,500 total shares authorized,
21,556,469 shares issued and outstanding, actual; zero
shares authorized, issued or outstanding, pro forma and
pro forma as adjusted.................................. 43 -- --
Common stock, $0.001 par value: 33,250,000 shares
authorized and 6,774,463 issued and outstanding,
actual; 33,250,000 authorized and 28,330,932 issued and
outstanding, pro forma; 120,000,000 authorized and
33,830,932 issued and outstanding, pro forma as
adjusted............................................... 14 57 63
Additional paid-in capital............................... 144,153 144,153 214,026
Notes receivable from stockholders....................... (432) (432) (432)
Deferred compensation.................................... (1,606) (1,606) (1,606)
Accumulated deficit...................................... (62,487) (62,487) (62,487)
-------- -------- --------
Total stockholders' equity............................. 79,686 79,686 149,564
-------- -------- --------
Total capitalization.............................. $ 83,117 $ 83,117 $152,995
======== ======== ========
</TABLE>
The data in the table above excludes:
- 2,092,437 shares of common stock issuable upon exercise of options
outstanding as of March 31, 2000, at a weighted average exercise price of
$9.70 per share;
- 1,455,587 shares of common stock available for issuance at March 31,
2000, under our 1997 Stock Plan;
- 211,250 shares of common stock issuable upon exercise of warrants
outstanding as of March 31, 2000 at a weighted average exercise price of
$1.00 per share;
- the cashless exercise of outstanding warrants to purchase 126,250 shares
of common stock at an exercise price of $1.00 per share, resulting in a
net issuance of 117,232 shares of common stock;
- 28,571 shares of common stock at an assumed exercise price of $12.60 per
share, based on an assumed initial offering price of our common stock of
$14.00 per share, issuable upon exercise of warrants issued to the lender
under our capital equipment financing;
- 250,000 shares of common stock available for issuance under our 2000
Employee Stock Purchase Plan immediately following the offering.
20
<PAGE> 21
DILUTION
If you invest in our common stock, your ownership interest will be diluted
by the difference between the public offering price per share of our common
stock and the pro forma as adjusted net tangible book value per share of our
common stock immediately after this offering. Our pro forma net tangible book
value at March 31, 2000 was approximately $43,506,436, or $1.54 per share of
common stock. Pro forma net tangible book value per share represents the amount
of our total tangible assets less total liabilities, divided by the pro forma
number of shares of common stock outstanding at March 31, 2000 and assumes the
conversion of our currently outstanding shares of preferred stock into common
stock upon the closing of this offering. Dilution in pro forma net tangible book
value per share represents the difference between the amount per share paid by
investors in this offering and the pro forma net tangible book value per share
of our common stock immediately after the completion of this offering. After
giving effect to the sale of the 5.5 million shares of our common stock in this
offering assuming an initial public offering price of $14.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, our pro forma as adjusted net tangible book value at March
31, 2000 would have been $113,383,636, or $3.35 per share. This represents an
immediate increase in pro forma net tangible book value of $1.81 per share to
existing stockholders and an immediate dilution of $10.65 per share to new
investors, or approximately 76% of the assumed initial public offering price of
$14.00 per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma net tangible book value per share at March 31,
2000................................................... $1.54
Increase per share attributable to new investors.......... 1.81
-----
Pro forma as adjusted net tangible book value per share
after the offering........................................ 3.35
------
Dilution per share to new investors......................... $10.65
======
</TABLE>
The following table shows, on a pro forma basis at March 31, 2000, after
giving effect to the conversion of all outstanding shares of preferred stock
into common stock upon the closing of this offering, the total number of shares
of common stock purchased from us, the total consideration paid to us and the
average price per share paid to us by existing stockholders and by new investors
before deducting the estimated underwriting discounts and commissions and
estimated offering expenses, at an assumed initial public offering price of
$14.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 28,330,932 83.7% $151,250,417 66.3% $5.34
New investors............... 5,500,000 16.3 77,000,000 33.7 14.00
---------- ----- ------------ -----
Total..................... 33,830,932 100.0% $228,250,417 100.0%
========== ===== ============ =====
</TABLE>
The above tables and calculations exclude the following:
- 2,092,437 shares of common stock issuable upon exercise of options
outstanding as of March 31, 2000, at a weighted average exercise price of
$9.70 per share;
- 1,455,587 shares of common stock available for issuance at March 31,
2000, under our 1997 Stock Plan;
- 211,250 shares of common stock issuable upon exercise of warrants
outstanding as of March 31, 2000 at a weighted average exercise price of
$1.00 per share;
21
<PAGE> 22
- the cashless exercise of outstanding warrants to purchase 126,250 shares
of common stock at an exercise price of $1.00 per share, resulting in a
net issuance of 117,232 shares of common stock;
- 28,571 shares of common stock at an assumed exercise price of $12.60 per
share, based on an assumed initial public offering price of our common
stock of $14.00 per share, issuable upon exercise of warrants issued to
the lender under our capital equipment financing line;
- 250,000 additional shares of common stock available for issuance under
our 2000 Employee Stock Purchase Plan immediately following the offering.
To the extent any of these options or warrants are exercised, there will be
further dilution to new investors.
22
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes included
elsewhere in this prospectus. The consolidated statement of operations data for
the period from inception to December 31, 1997 and for the years ended December
31, 1998 and 1999 and the consolidated balance sheet data as of December 31,
1998 and 1999 were derived from the consolidated financial statements that have
been audited by Ernst & Young LLP, independent auditors, which are included
elsewhere in this prospectus. The consolidated balance sheet data as of December
31, 1997 are derived from our financial statements audited by Ernst & Young LLP,
independent auditors, that are not included in this prospectus. The consolidated
statement of operations data for the three months ended March 31, 1999 and March
31, 2000 and consolidated balance sheet data as of March 31, 2000 are unaudited.
In our opinion, all necessary adjustments, which consist only of normal
recurring adjustments, have been included to present fairly the unaudited
three-month results which should be read with the consolidated financial
statements and notes appearing elsewhere in this prospectus. Historical results
are not necessarily indicative of results that may be expected for any future
period.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1997 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------- ------------------------
1997 1998 1999 1999 2000
------------------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ -- $ -- $ -- $ 3,497
Cost of revenues...................................... -- 5,162
---------- ---------- ---------- ---------- ----------
Gross profit (loss)................................... -- (1,665)
Operating expenses:
Manufacturing and operations......................... -- 2,326 7,990 2,719 --
Research and development............................. 1,895 8,494 12,631 2,844 4,161
Selling and marketing................................ 162 2,445 6,111 1,613 3,338
General and administrative........................... 501 1,748 4,473 557 1,870
Royalty expense...................................... -- 2,800 -- -- --
Amortization of deferred compensation................ -- 292 1,561 378 320
---------- ---------- ---------- ---------- ----------
Total costs and expenses........................... 2,558 18,105 32,766 8,111 9,689
---------- ---------- ---------- ---------- ----------
Loss from operations.................................. (2,558) (18,105) (32,766) (8,111) (11,354)
Other income (expense):
Interest income...................................... 86 1,066 1,337 304 564
Interest expense..................................... -- (160) (426) (81) (135)
Other income (expense)............................... (3) (25) 1 (1) (10)
---------- ---------- ---------- ---------- ----------
Total other income (expense)....................... 83 881 912 222 419
---------- ---------- ---------- ---------- ----------
Net loss.............................................. $ (2,475) $ (17,224) $ (31,854) $ (7,889) $ (10,935)
========== ========== ========== ========== ==========
Net loss per share -- basic and diluted............... $ (1.01) $ (5.07) $ (6.67) $ (1.84) $ (2.02)
========== ========== ========== ========== ==========
Shares used in per share calculations -- basic and
diluted.............................................. 2,456,995 3,395,300 4,776,567 4,295,326 5,407,418
========== ========== ========== ========== ==========
Pro forma net loss per share:
Net loss per share -- basic and diluted.............. $ (1.64) $ (0.45)
========== ==========
Shares used in per share calculations -- basic and
diluted............................................ 19,400,204 24,213,887
========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------- MARCH 31,
1997 1998 1999 2000
------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $12,476 $21,328 $46,130 $31,340
Working capital............................................. 12,271 18,963 44,180 32,055
Intangible assets........................................... -- -- -- 36,180
Total assets................................................ 12,794 24,440 63,700 94,816
Convertible preferred stock................................. 14 23 38 43
Total stockholders' equity.................................. 12,506 20,424 51,333 79,686
</TABLE>
See Note 7 of notes to consolidated financial statements for an explanation
of the determination of the number of shares used in computing net loss per
share data.
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<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our financial statements and the related notes included elsewhere in this
prospectus.
OVERVIEW
We provide broadband wireless equipment that enables communications service
providers to deliver high-speed, cost-effective voice, video and data services
to their business customers. We currently offer two product lines: our Invisible
Fiber Internet product line for Internet service providers and our Invisible
Fiber SONET product line for communications service providers.
From our inception in March 1997 through late 1999, our operations
consisted primarily of start-up activities, including raising capital,
recruiting personnel, conducting research and development, establishing the
market for our initial products and purchasing operating assets. In addition, we
developed our final product assembly and testing capabilities, entered into
manufacturing agreements with third-parties and developed our sales, marketing
and administrative organizations.
We began supplying our Invisible Fiber products for use in field trials
during the second half of 1999. Two customers placed orders with us in December
1999, and we first began recognizing revenues from sales of our products during
the first quarter of 2000. We sell our products through our direct sales force
to service providers in North America who have government licenses to provide
wireless services. In addition, we have a small direct sales force focused
solely on international customers.
Revenues. We recognize product revenues at the time of shipment provided no
significant obligations remain and collection is probable. We have supplied
products to potential customers for use in several field trials. We have not
recognized revenues from field trials since the customer can typically return
the product with no payment or further obligation to us.
Cost of Revenues. Cost of revenues consists of component and material
costs, direct labor, manufacturing, customer service and estimated warranty
costs.
Manufacturing and Operations. Historically, manufacturing and operations
consisted of procurement, assembly and support personnel, product, technical
assistance, training and documentation expenses, less amounts capitalized as
part of inventory. Concurrent with our recognition of revenues beginning in the
first quarter of 2000, we began classifying manufacturing and operations
expenses as cost of revenues.
Research and Development. Research and development expenses consist
primarily of compensation and related personnel costs, third party engineering
costs and prototype costs related to the design, development, testing and
enhancement of our products. We expense research and development costs as they
are incurred.
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries and related expenses for personnel engaged in sales, marketing and
related support functions, the costs associated with customer field trials that
we fund and promotional and other marketing expenses.
General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance, information
systems and human resources personnel, professional fees and other general
corporate expenses.
Deferred Compensation. In connection with the grant of certain stock
options to employees during the years ended December 31, 1998 and 1999, the
Company recorded deferred compensation of approximately $3.8 million
representing the difference between the deemed value of the common stock for
accounting purposes and the option exercise price of such options at the date of
grant. Such
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<PAGE> 25
amount is presented as a reduction of shareholders' equity and amortized as
charges to operations on an accelerated basis over the vesting period consistent
with the method described in Financial Accounting Standards Board Interpretation
No. 28.
Historically, we have incurred significant losses. As of March 31, 2000, we
had an accumulated deficit of approximately $62.5 million. We expect to incur
substantial losses for the foreseeable future. We also expect to incur
significant research and development, selling, marketing and general and
administrative expenses. As a result, we will need to generate significant
revenues to achieve and maintain profitability. We may never achieve
profitability.
RECENT ACQUISITION
On March 31, 2000, we completed our transaction with IBM to purchase assets
and hire employees associated with IBM's broadband modem product line in
exchange for 2.75 million shares of series C preferred stock. This IBM unit
developed and sold custom modems to us for use in our products. During 1999, the
majority of this unit's sales were to us, with minor sales to one other
customer. With the completion of this transaction, we have secured intellectual
property and engineering expertise for future modem development, and we believe
we will lower the cost of manufacturing our products.
The total value of the consideration for the transaction was approximately
$38.5 million, with approximately $2.3 million being allocated to net assets and
approximately $36.2 million to intangible assets, which consist of patent and
patent application licenses and patent disclosures. The allocation of purchase
price is preliminary and subject to adjustment. If the transaction had taken
place on January 1, 1999, on a pro forma basis, our revenue and net loss for
1999 would have increased by approximately $0.3 million and $10.6 million or
$2.22 per share, respectively. The pro forma revenue and net loss does not
purport to indicate what would have occurred if the purchase had actually
occurred on January 1, 1999 or to indicate the results that may occur in the
future. We plan to focus on further development of the modem technology we have
acquired from IBM to improve and enhance our products. We believe that future
research and development expenses of the broadband modem products group
subsequent to our acquisition of the group will be significantly higher than the
pro forma amount for 1999. Additionally, the intangible assets will be amortized
over five years, or approximately $7.2 million per year.
RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Revenues. Revenues were $3.5 million for the quarter ended March 31, 2000,
as we first began recognizing revenues from shipment of our products during this
quarter. We had no revenues in the quarter ended March 31, 1999. Substantially
all of our revenues were from product shipments to one customer.
Cost of Revenues. Concurrent with the recognition of revenues during the
quarter ended March 31, 2000, we began classifying manufacturing and operations
costs as cost of revenues. During the first quarter of 2000, cost of revenues
exceeded revenues by approximately $1.7 million. This was due primarily to
initial start up costs of our new transceiver module production operation,
excess capacity costs due to the low volume of shipments and reductions of
inventory to net realizable value. We believe that when the volume of shipments
increases, our transceiver module production operation begins volume production
and the planned redesign of product components to reduce cost occurs, our
product costs per unit will significantly improve. However, there can be no
assurance these cost improvements will be realized in the future.
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<PAGE> 26
Manufacturing and Operations. Manufacturing and operations expenses for the
quarter ended March 31, 1999, consisted primarily of personnel costs related to
the commencement of our final assembly and testing manufacturing efforts and the
establishment of our technical assistance center. In addition, the remaining
amounts were attributable to facilities, depreciation and production costs
related to our manufacturing facility and recently developed production process.
Concurrent with our recognition of revenues in the quarter ended March 31, 2000,
we began classifying manufacturing and operations expenses as cost of revenues.
Research and Development. Research and development expenses of $4.2 million
for the first quarter of 2000 were $1.3 million higher than the first quarter of
1999. This increase was due primarily to an increase in the number of
engineering personnel and depreciation related to development equipment
purchased. Personnel related costs and depreciation accounted for approximately
83% and 15%, respectively, of the increase. As a result of our acquisition of
the broadband modem product line at the end of the first quarter of 2000, we
expect our research and development expenses to increase significantly in future
quarters.
Selling and Marketing. Selling and marketing expenses of $3.3 million for
the first quarter of 2000 were $1.7 million higher than the first quarter of
1999. The increase was due to the establishment of a core sales and marketing
group and the increase of advertising, marketing and other costs associated with
sales and support activities. Personnel costs related to the establishment of
the sales and marketing group accounted for approximately 63% of the expense
increase. Advertising, marketing and other costs associated with sales and
support activities represented 26% of the increase.
General and Administrative. General and administrative expenses of $1.9
million for the first quarter of 2000 were $1.3 million higher than 1999. The
increase was due primarily to the development of the finance, human resources
and information technology groups, and, in the third quarter of 1999, the hiring
of our chief executive officer. Personnel related costs accounted for
approximately 40% of the increase. Depreciation and professional services costs
represented approximately 57% of the increase.
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND PERIOD MARCH 5, 1997 (INCEPTION) TO
DECEMBER 31, 1997
Revenues. We recognized no revenues through December 31, 1999.
Manufacturing and Operations. Manufacturing and operations expenses
increased $5.7 million in 1999 from $2.3 million in 1998 to $8.0 million in
1999. Approximately 52% of the increase was due to higher personnel costs
related to the commencement of our final assembly and testing manufacturing
efforts and the establishment of our technical assistance center. Approximately
25% of the remaining increase was attributable to facilities, depreciation and
production costs related to our manufacturing facility and recently developed
production process. The remainder of the increase was attributable to increases
in travel, supplies and professional and other service expenses. We had no
manufacturing and operating expenses in the period from inception through 1997.
Research and Development. Research and development expenses increased $4.1
million in 1999 from $8.5 million in 1998 to $12.6 million in 1999. The increase
was due to an increase in the number of engineering personnel and significant
third party contract engineering costs during 1999. Personnel related costs and
third party contract engineering expenses represented 30% and 47% of the
increase in 1999, respectively. Research and development increased $6.6 million
in 1998 from $1.9 million in the period from inception through 1997 to $8.5
million in 1998. Personnel related costs and third party contract engineering
expenses represented 32% and 56% of the increase in 1998, respectively.
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Selling and Marketing. Selling and marketing expenses increased $3.7
million in 1999 from $2.4 million in 1998 to $6.1 million in 1999. The increase
was due to the establishment of a core sales and marketing group and the
increase of advertising, marketing and other costs associated with sales and
support activities. Personnel costs related to the establishment of the sales
and marketing group and advertising, marketing and other costs accounted for 43%
and 41% of the expense increase in 1999, respectively. Selling and marketing
increased $2.2 million in 1998 from $0.2 million in the period from inception
through 1997 to $2.4 million in 1998. Personnel costs related to the
establishment of the sales and marketing group and advertising, marketing and
other costs accounted for 56% and 21% of the expense increase in 1998,
respectively.
General and Administrative. General and administrative expenses increased
$2.8 million in 1999 from $1.7 million in 1998 to $4.5 million in 1999. The
increase was due to the development of the finance, human resources and
information technology groups, and the hiring of our chief executive officer.
Personnel related costs accounted for 57% of the increase in 1999 and 29% of the
remaining increase consists of depreciation and amortization of fixed assets and
legal and accounting costs. General and administrative expenses increased $1.2
million in 1998 from $0.5 million in the period from inception through 1997 to
$1.7 million in 1998. Personnel related costs accounted for 65% of the increase
in 1998 and 34% of the remaining increase consists of depreciation and
amortization of fixed assets and legal and accounting costs.
Royalty Expense. In 1998, we issued a shareholder 1,600,000 shares of
common stock in satisfaction of an existing royalty agreement. As a result, we
recorded $2.8 million in royalty expenses in 1998, representing the fair market
value of the common stock at that time.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of approximately $97.7 million of convertible preferred stock as well as
through capital leases for capital equipment, furniture and software. During
1999, we raised approximately $61.0 million from private sales of convertible
preferred stock.
As of March 31, 2000, cash and cash equivalents were $31.3 million, a
decrease of $14.8 million from the end of 1999. As of December 31, 1999, cash
and cash equivalents and short-term investments were $46.1 million, an increase
of $24.8 million from cash and cash equivalents and short-term investments of
$21.3 million at the end of 1998. Cash and cash equivalents and short-term
investments increased $8.8 million in 1998 from $12.5 million at December 31,
1997. The increases in 1999 and 1998 were due primarily to the private sales of
convertible preferred stock.
For the quarter ended March 31, 2000, we used approximately $13.5 million
of cash from operations primarily due to our net loss of $10.6 million and
growth of receivables and inventory of $3.3 million. For the quarter ended March
31, 1999, we used approximately $6.2 million of cash primarily due to our net
loss of $7.5 million. During 1999, we used approximately $31.5 million of cash
in operations primarily due to our net loss of $30.3 million and a growth in
inventory of $7.2 million. We used approximately $12.1 million of cash for
operations in 1998 due primarily to the net loss of $14.5 million, partially
offset by an increase in payables.
For the quarter ended March 31, 2000 and March 31, 1999, our investing
activities included the purchase of approximately $3.0 million and $1.2 million,
respectively, of property and equipment. For the quarter ended March 31, 1999 we
purchased approximately $6.0 million in short-term investments. During 1999 and
1998, our investing activities included the purchase of approximately $4.5
million and $1.0 million, respectively, of property and equipment.
Cash provided by financing activities for the quarter ended March 31, 2000
and 1999 generated approximately $1.7 million and $10.9 million, respectively.
Financing activities for both periods
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included proceeds from financing our equipment purchases. Additionally, for the
1999 period financing activities included proceeds from sales of convertible
preferred stock. Cash provided by financing activities in 1999 and 1998
generated approximately $60.8 million and $22.0 million, respectively, primarily
from the private sales of convertible preferred stock.
On February 25, 2000, we entered into an agreement with a financial
institution to borrow up to $9.0 million in 2000 for capital equipment
purchases, furniture and software. Up to $5.0 million of the borrowings are
repayable over four years and will bear interest at an annual rate of 13.16% and
up to $4.0 million is repayable over three years with an annual rate of interest
of 10.4%. The current available borrowing base under this agreement is $7.0
million. An additional $2.0 million will be available upon completion of this
offering. The agreement includes no financial covenants and the specific
equipment, furniture and software purchased with the borrowings will serve as
security for the loans. Under the agreement, we issued warrants to purchase our
common stock in the amount of 4% of the currently available borrowing base, or
$280,000. The exercise price of these warrants is 90% of the price of our
initial public offering price per share. If we do not complete an initial public
offering prior to the first anniversary of the agreement the exercise price of
these warrants will be $10.00 per share. We have also issued an additional
$80,000 worth of warrants which will become exercisable only upon completion of
this offering. The exercise price of these warrants will be 90% of the price of
our initial public offering price per share. As of March 31, 2000, we had
utilized approximately $2.0 million of the available borrowings under this
agreement.
We are obligated to pay lease payments of approximately $10.0 million over
the lease periods of our operating leases, with $1.8 million due in 2000. The
lease obligations include approximately $6.6 million for a seven year lease for
our new manufacturing and office space we occupied in the first quarter of 2000.
In conjunction with this lease agreement, we secured a $1.1 million letter of
credit in 2000 in favor of the landlord with cash.
We expect our capital expenditures for the next twelve months will be
substantially above the $4.5 million spent in 1999. We anticipate capital
expenditures for the next twelve months will be in the range of $20 to $25
million, including amounts for production and test equipment to complete and
expand our new transceiver module factory, test equipment for expansion of our
final assembly and testing capacity, additional software tools and necessary
expenditures to support expected headcount growth. However, the timing and
extent of any future capital expenditures is dependent upon future business
growth.
We expect our cash requirements will increase significantly in 2000, as we
continue our research and development efforts, hire and expand our sales,
support, marketing and product development organizations, grow our
administrative support activities, and expand our leased facilities.
Additionally as our business volumes grow we anticipate a significant cash
requirement for working capital growth and capital expenditures. The amount and
timing of cash requirements will depend on market acceptance of our products and
the resources we devote to researching and developing, marketing, selling and
supporting our products. We believe that our current cash and cash equivalents
on hand, the net proceeds from this offering and availability under our new
capital equipment financing line should be sufficient to fund our operations for
at least the next 12 months. Thereafter, if current sources are not sufficient
to meet our needs, we may seek additional equity or debt financing. In addition,
any material acquisition of complementary businesses, products or technologies
or material joint venture could require us to obtain additional equity or debt
financing. There can be no assurance that such additional financing would be
available on acceptable terms, if at all. If we raise additional funds through
the issuance of equity securities, the percentage ownership of our stockholders
would be reduced. If we are unable to raise sufficient funds on acceptable terms
we may not succeed in executing our strategy and achieving our business
objectives. In particular, we could be forced to
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reduce personnel and limit our product development, manufacturing and sales and
marketing activities, forego attractive business opportunities and we may lose
the ability to respond to competitive pressures.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Management believes the adoption of SFAS No. 133 will not have a
material effect on our financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET INTEREST RATE SENSITIVITY
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. Some of the securities that we may invest
in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and investment grade non-government debt
securities. In general, money market funds are not subject to market risk
because the interest paid on such funds fluctuates with the prevailing interest
rate. As of March 31, 2000, all of our cash and cash equivalents were in money
market and checking funds.
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<PAGE> 30
BUSINESS
OVERVIEW
We provide broadband wireless equipment that enables communications service
providers to deliver high-speed, cost-effective voice, video and data services
to their business customers. Our Invisible Fiber products combine high
transmission speeds and the reliability of fiber optic networks with the
flexibility, low cost and rapid deployment of wireless technologies. Our
products meet the same carrier class standard of reliability used for fiber
optic networks, and can be seamlessly incorporated into existing fiber optic and
wireless networks or used to build new networks. Our products feature
proprietary technologies that enable service providers to install more units in
a service area than would be possible with conventional broadband wireless
technologies, permitting them to serve more users and generate more revenues.
We have designed our Invisible Fiber products for deployment in consecutive
point networks. In a consecutive point network, communications traffic can flow
in either direction around a ring of point-to-point wireless links, creating
multiple transmission paths and reducing the risk of service interruptions.
Consecutive point networks are scalable and flexible, allowing a service
provider to quickly reconfigure, divide or expand the ring of wireless links to
address changes in the size or geographic location of the service provider's
customer base. We currently offer two product lines: our Invisible Fiber
Internet product line for Internet service providers and our Invisible Fiber
SONET product line. SONET stands for synchronous optical network, a standard for
transmission of high-volume communications in fiber optic networks.
INDUSTRY BACKGROUND
GROWING DEMAND FOR BROADBAND COMMUNICATIONS
The amount of data being transmitted over the Internet and other
communications networks is increasing rapidly due to the growing number of users
accessing these networks and the increasing range of data-intensive activities
for which these networks are being used. Businesses are increasingly using the
Internet to extend their reach to customers and suppliers through applications
such as electronic commerce, supply chain management, web hosting, global
marketing and customer support. Businesses are also creating data networks among
corporate sites, remote offices and telecommuters in order to facilitate
employee communications, e-mail, file sharing, and research and analysis. A
growing number of businesses are using third party application service providers
to provide web hosting for mission-critical business systems. These
network-based business activities require quick and reliable transmission of
increasingly large amounts of data. As a result, broadband access is becoming
increasingly important to business customers.
DEREGULATION AND COMPETITION ARE DRIVING DEPLOYMENT OF BROADBAND ACCESS
TECHNOLOGIES
Global telecommunications deregulation is creating significant competition
among providers of advanced communications services, thereby accelerating the
deployment of broadband access technologies. In the United States, incumbent
carriers such as Ameritech, Bell Atlantic, BellSouth, GTE, Pacific Bell, SBC
Communications and US West were, until recently, the exclusive providers of the
wire line connections to subscribers. The Federal Telecommunications Act of 1996
intensified the competitive environment in the United States by requiring
incumbent carriers to lease portions of their networks, including the local
access portion that provides the final connection to subscribers, to competing
carriers. Additionally, telephone companies and cable operators are seeking to
expand their service offerings by entering each others' markets. Similar
deregulation and competition is occurring in many regions of the world. To
compete in this environment, many service providers seek to
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differentiate themselves and maximize revenue per subscriber by offering
high-speed internet access and integrated voice, video and data services, which
require broadband access.
TRADITIONAL NETWORK ACCESS SOLUTIONS ARE NOT SUITABLE FOR MANY BUSINESS
SUBSCRIBERS
In order to meet increasing demand for broadband access, many service
providers have used fiber optic cable to build high-speed data highways that
transmit data at speeds in multiples of 10 Gbps, or 10 billion bits per second.
These fiber optic data highways are called the network backbone because they
connect service providers' network operations centers across the nation. In
addition, many businesses have installed internal networks that operate at
speeds of up to 1 Gbps. A fiber optic network is a transmission medium on which
information is transmitted as light pulses along thin glass filaments, or fiber.
A bottleneck exists in the local access portion of existing
telecommunication networks, which provides the connection between the network
backbone and the subscribers. Subscribers have traditionally connected to the
network backbone over standard copper telephone lines which carry data at rates
of only up to 56.6 thousand bits per second, or 56.6 Kbps. At these speeds,
several minutes are often required to access a media-rich web site, and several
hours may be required to transfer or download large files. This bottleneck
frustrates subscribers, and limits the capability of service providers to
satisfy demand for broadband access.
Many business subscribers require higher speed network connections, and
have traditionally used copper-based T1 services in the United States and E1
services internationally. A T1 line is a telecommunications connection dedicated
to a subscriber that supports data transmission rates of up to 1.5 million bits
per second, or 1.5 Mbps; an E1 line supports data transmission rates of up to
2.0 Mbps. T1 and E1 services, however, cannot meet the increasing broadband
access requirements of many business subscribers. In addition, T1 and E1
services are costly and cumbersome access strategies for emerging service
providers, who must lease lines from incumbent carriers and forego control over
their network facilities.
EMERGING ACCESS SOLUTIONS HAVE LIMITATIONS
Because T1 and E1 services cannot satisfy the high-speed broadband access
requirements of business subscribers, a number of alternative access solutions
have been developed, including:
Digital Subscriber Line. Digital subscriber line, or DSL, technology
improves the data transmission rate of copper wire lines. Most DSL deployments
offer either symmetrical services or high-speed asymmetrical services.
Symmetrical services provide equal transmission speed to and from the
subscriber. The speed, however, does not meet the bandwidth requirements of most
business users. Asymmetrical services provide higher transmission speeds from
the network to the subscriber and lower speeds from the subscriber to the
network. This is suitable for most non-business users who typically need
bandwidth to download web pages, but not to transmit large amounts of data.
Moreover, new service providers who offer DSL services must lease existing
copper lines from incumbent carriers, increasing the cost of their DSL
deployment. Service providers who choose to install their own networks and avoid
paying access charges will not install copper wire lines.
Cable. Cable modems enable asymmetrical data services to be delivered over
a network originally designed to provide television service to residential
subscribers. Cable networks connect to the home using coaxial cable, which has
greater transmission capacity than copper lines used by telephone companies.
These networks, however, often require costly upgrades to support symmetrical
data services. In addition, cable does not currently serve as a broadband access
alternative for business subscribers.
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Point-to-Multipoint Wireless. Point-to-multipoint wireless technology
enables data to be transmitted between a central hub and multiple subscriber
locations deployed around the hub. The central hub connects subscribers in the
local access portion of the network to the service provider's network backbone.
Because point-to-multipoint solutions are wireless, they typically have lower
installation costs and shorter deployment times than wireline solutions. In
addition, they provide higher-speed symmetrical service than either DSL or
cable. However, many business subscribers require more bandwidth than can be
supported by existing point-to-multipoint wireless solutions. The technological
limitations of point-to-multipoint technology also limit the number of customers
that a service provider may serve within the area covered by its licensed radio
frequency.
Point-to-Point Wireless. Point-to-point wireless technology enables data to
be transmitted symmetrically to and from the local access portion of the network
using a radio link between a subscriber and the service provider that is
dedicated to the subscriber and not shared with other subscribers. This
architecture requires the installation of expensive equipment at each end of a
link for each new subscriber. As a result, point-to-point wireless systems are
difficult to scale, and they cannot be cost-effectively reconfigured or expanded
to accommodate changes in a service provider's customer base. For these reasons,
point-to-point wireless technology has generally not been adopted as a solution
for connecting subscribers to the network backbone.
Consecutive Point Wireless. Consecutive point wireless describes our unique
system design consisting of a series of point-to-point wireless connections, or
links, which are deployed in a ring within a service area. We discuss our
consecutive point wireless technology in more detail below.
Fiber. Fiber offers the highest data transmission rate of any access
solution, but deploying fiber is slow and costly. Building a wireline network in
a major metropolitan area requires digging up miles of city streets. Such
projects often require many months to obtain the necessary permits and several
more months to complete installation, and service cannot begin until
construction is completed. Construction costs for fiber networks in metropolitan
areas are extremely high, and rights of way, if available, often carry
additional governmental tariffs. Maintenance is also costly because fiber optic
cable sometimes must be dug up to be repaired. Fiber is not a flexible solution
because fiber lines cannot be easily redeployed if the customer relocates
outside of the fiber network. These problems have generally limited the use of
fiber as a solution for connecting subscribers to the network backbone.
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The chart below compares network-to-subscriber and subscriber-to-network
data transmission speeds in the backbone, local access and corporate networks
for various technologies, including our consecutive point network solution which
is described in the next section:
[BANDWIDTH CHART]
As a result of the limitations of conventional point-to-point and
point-to-multipoint wireless technologies and the costs and inefficiencies of
deploying fiber networks, a significant market opportunity exists for a
cost-effective, broadband wireless solution capable of efficiently serving
business customers.
THE TRITON NETWORK SYSTEMS SOLUTION
Our Invisible Fiber products offer service providers high transmission
speeds, the reliability of fiber optic networks and the flexibility, low cost
and rapid deployment of wireless technologies. We design and manufacture the
hardware and design the software used in our products.
We have designed our products to be deployed in a series of wireless
point-to-point connections, or links, forming a ring which we call a consecutive
point network. Each link consists of two Invisible Fiber units, both of which
transmit and receive broadband wireless traffic. The links in our wireless
networks connect a service provider's network backbone to a series of customer
buildings, as shown in the diagram below.
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THE TRITON NETWORK SYSTEMS CONSECUTIVE POINT NETWORK SOLUTION
[CHART]
We believe that our wireless solution overcomes the limitations and
inefficiencies inherent in other wireless technologies, and provides service
providers with the following key competitive advantages:
High Speed Network Service. Our products enable the delivery of
symmetrical, high-speed voice, video and data services. Our current Invisible
Fiber Internet product allows Internet service providers to provide their
customers Internet access at Fast Ethernet speed, which is an industry standard
for transmission speeds of 100 Mbps. Such speed allows business users to
download in seconds media-rich files that would require minutes to download
using a dedicated T1 line. Our current Invisible Fiber SONET products transmit
data at 155 Mbps, and offer the same capacity as 84 conventional T1 lines or in
international markets, 63 conventional E-1 lines. Such high speed facilitates
the adoption of emerging on-line business models such as the use of application
service providers.
High Reliability and Availability of Service. We design our products to
match carrier class reliability standards, including 99.999% availability and
error rates of less than one error per trillion bits transmitted. This enables
our customers to provide their subscribers the same high reliability and
availability offered by incumbent carriers. Our consecutive point networks
transmit communications in both directions around a ring of linked Invisible
Fiber units. If one transmission path is disrupted, signals immediately reroute
in the opposite direction around the ring and no interruption of service
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occurs. Other broadband wireless products are more vulnerable to service
interruptions because they have only one transmission path.
As a result, these transmissions may fail whenever the line of sight
between points in a wireless link is temporarily blocked by moving objects or
adverse weather conditions.
Rapid Deployment and Potential for Rapid Return on Investment. Service
providers can deploy our products and begin providing their subscribers with
broadband access in significantly less time and at a lower cost than they would
be able to do using fiber optic networks or point-to-point or
point-to-multipoint wireless networks. Service providers can install our
Invisible Fiber products on rooftops or sides of buildings in a matter of hours.
Each of our products uses the same communicating standards and physical
connections used in fiber optic networks so that service providers may easily
integrate our products into their networks. As a result, service providers can
rapidly add subscribers and generate revenue to offset the fixed costs
associated with entering new markets. Our solutions also use radio frequency
efficiently and maximize the reuse of a service provider's licensed radio
frequency. This enables service providers to reach more subscribers with their
licensed radio frequency, generating greater revenue by spreading the fixed cost
of the licensed frequency over a larger subscriber base. Lifecycle costs are
further reduced because carriers can easily redeploy and reuse our products as
customer needs change.
High Density Deployment. Our products enable service providers to maximize
the number of Invisible Fiber units that may be installed and the number of
subscribers that may be served in the area covered by the service provider's
licensed radio frequency. Our proprietary power control technology automatically
adjusts the power output of each unit to the minimum level necessary for
reliable transmission. In addition, our antenna design ensures that
transmissions between Invisible Fiber units travel along extremely narrow
pathways. These features minimize radio interference among Invisible Fiber units
and other wireless equipment operating in a service area. By minimizing radio
interference, we enable service providers to use their licensed radio
frequencies to support more customers within a service area.
We believe that no other broadband wireless products match our power
control capability. In particular, point-to-multipoint systems cannot do so
because the base station must transmit at power levels high enough to
communicate with the most hard-to-reach subscriber unit, which, due to geography
and weather, means the signal may be broadcast further than necessary in other
directions. The excess transmission power increases interference between
wireless links and reduces the number of customers that may be served by a
service provider within the service area covered by its licensed radio
frequencies.
Highly Flexible. We design our products to enable service providers to
quickly configure, expand and relocate their networks. Our consecutive point
architecture is scalable. Service providers can deploy Invisible Fiber units
incrementally as demand for their services increases, allowing them to match
capital outlays with subscriber growth. Additionally, our consecutive point
network can take any shape, including a ring or a mesh, allowing service
providers to connect both broadly dispersed subscribers as well as those in
dense service areas. If a ring reaches capacity, the service provider can easily
split the ring in two or add a ring by deploying a small number of additional
Invisible Fiber units without interrupting services to existing customers.
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THE TRITON NETWORK SYSTEMS STRATEGY
Our goal is to be a leading worldwide provider of broadband wireless
equipment. We recognized our first revenues in the period ended March 31, 2000.
We are currently shipping products to three significant customers. We plan to
achieve this goal by:
INCREASING SALES TO EXISTING CUSTOMERS
We recently entered into three-year contracts with Advanced Radio Telecom
(Nasdaq: ARTT), a provider of broadband Internet services to businesses not
served by fiber optic networks, CenturyTel (NYSE: CTL), a large regional
diversified communications company, and CAVU, a provider of high speed Internet
connectivity to businesses. We believe that our customers will undertake
large-scale deployments of our products. Our sales and engineering personnel
work closely with our customers to ensure that they are using our solutions to
maximum benefit, and to promote the use of our solutions in additional locations
and applications. We intend to build upon the recent acceptance of our products
to become a leading provider of broadband wireless access equipment to these and
other service providers. We intend to increase our visibility as a provider of
broadband wireless access equipment and believe that our increased visibility
will generate additional sales.
EXPANDING OUR CUSTOMER BASE
We plan to increase sales of our products to new customers. Our products
provide capabilities not previously available from wireless vendors. We will
continue to inform potential customers about the competitive advantages offered
by our consecutive point network solution and our Invisible Fiber products. We
believe it is important to take a targeted approach to the implementation of our
sales strategy, and we have identified a number of key accounts as having the
potential for large-scale deployment of our products. We assign each key account
to a single manager, who is responsible for managing the overall customer
relationship. Our key account managers work closely with our current and
potential customers to coordinate network design, ensure successful installation
and provide continuous customer support.
MAINTAINING AND EXTENDING PRODUCT AND TECHNOLOGY LEADERSHIP
We believe that we are currently the technology leader in developing
broadband wireless solutions for consecutive point networks. Our Invisible Fiber
Internet and Invisible Fiber SONET products can achieve fully dedicated 100 Mbps
and 155 Mbps/622 Mbps data rates, respectively. No other broadband wireless
solution known to us can achieve comparable data rates across a network, while
maintaining carrier class reliability. We intend to maintain and extend our
technology leadership through continued research and development and, where
appropriate, acquisitions of complimentary businesses, products and
technologies, such as our acquisition of broadband modem technology from IBM. We
will continue to develop products that address the competitive demands of
service providers and enable them to deploy differentiated, profitable services
to their subscribers. In this regard, we are enhancing the performance of our
existing products and developing new products that operate at different
frequency bands and higher bandwidths.
CONTINUING TO PURSUE INTERNATIONAL MARKET OPPORTUNITIES
We believe that there is a significant market opportunity for our products
in international markets where government authorities have granted or have
indicated that they intend to license radio frequency to wireless service
providers. We employ a focused approach in our international expansion
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and we are currently targeting Canada, Australia and Japan. We have obtained
regulatory approval to deploy our products in Canada and Japan, with Australia
pending, and have formulated a sales and marketing strategy for each market. To
support our international expansion, we may enter into strategic relationships
and joint ventures with third-parties. In this regard, in February 2000 we
entered into a value-added reseller agreement with CommVerge Solutions to resell
our products.
PRODUCTS AND TECHNOLOGY
KEY TECHNICAL FEATURES
We currently offer two product lines: our Invisible Fiber Internet product
line for Internet service providers and our Invisible Fiber SONET product line
for communications service providers who offer voice and data services. Both
product lines use our proprietary technology. Key technical features common to
our products include:
- 99.999% Availability at 1 Bit per Trillion Error Rate. We have designed
all of our products to maintain a connection between links 99.999% of the
time, corresponding to approximately five minutes of down time per year,
with bit error rates of one bit per trillion or better, even under
adverse weather conditions. This means that only one error bit occurs for
every approximately 2.8 hours of operation of our current Invisible Fiber
Internet products, and for every approximately 1.7 hours of operation of
our current Invisible Fiber SONET products. Bit error rate is a
measurement of transmission quality expressed as a ratio of the average
number of bits containing errors in the total number of bits transmitted.
Our bit error rate performance is equivalent to those typically found in
fiber optic networks. Our consecutive point network design allows
communications traffic to travel in two directions, which minimizes
service interruptions.
- High Bandwidth Data Rate. Our current Invisible Fiber SONET products
transmit data at speeds of 155 Mbps and our Invisible Fiber Internet
products transmit data at speeds of 100 Mbps. This provides service
providers the capacity needed to support broadband applications, such as
simultaneous voice, video and data services.
- 50 Decibels Power Control. Our proprietary power control technology
dynamically modifies our products' transmitter output to minimize the
power employed while maintaining bit error rates of one bit per trillion
or better. Each Invisible Fiber unit in a link constantly measures the
signal of the other unit in that link in order to compensate for
interference caused by adverse weather conditions and radio frequency
sources. Each Invisible Fiber unit automatically reduces its power to the
minimum level required for reliable transmission, enabling dense urban
deployments of our products and maximizing reuse of the licensed radio
frequency of our customers. Our products feature 50 decibels of power
control range, which means the maximum power strength is 100,000 times
the minimum power strength. This power control range is up to 1,000 times
greater than is typically found in conventional broadband wireless
equipment.
- Narrow Beam Transmission Technology. Our products use advanced antennas
to transmit signals along extremely narrow, direct pathways. By so
confining transmissions, we minimize interference among Invisible Fiber
units and are able to deliver a high quality, reliable and secure signal,
while significantly extending the distance between transmitters and
receivers. This further enables dense urban deployments and flexible
network configurations.
- High System Gain. Our products can transmit up to two watts of power,
while maintaining less than approximately 5 decibels of system noise.
These capabilities yield system gain for our products of between 162 and
177 decibels. System gain is a measurement of the overall
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transmission and reception performance of a radio link. Higher system
gain means a better ability to maintain transmission quality and overcome
interference created by adverse weather conditions or other wireless
equipment operating in a service area.
- Standard Network Management Protocol Software. We support our products
with a full suite of network management tools designed to be easily
integrated with our customers' overall network platforms. This allows
customers to monitor network performance and troubleshoot difficulties
remotely from multiple locations using different industry standard
computing platforms.
- Single Outdoor Unit. Each Invisible Fiber unit is a single self-contained
outdoor unit, not separate indoor and outdoor units connected via coaxial
cable, a configuration that is typical of other broadband wireless
systems. Because our products do not have an indoor unit, service
providers avoid the expense of leasing equipment space inside the
buildings they use to install our products. Within a building, fiber
optic cable connects our products directly to a customer's network. Fiber
is more flexible than coaxial cable and it can be installed and operated
over longer distances, making network connections easier and more
cost-effective and enabling corporate campuses to use our products to
complement existing fiber networks. The use of fiber also eliminates the
possibility that a voltage surge caused by lightning striking one of our
units will damage a customer's equipment or interrupt service.
- Standard Fiber Optic Cable Connection. A standard fiber optic cable
connection is imbedded in each of our products. This enables service
providers to connect their equipment to our products using standard fiber
optic cable and equipment. This capability allows service providers to
easily install our equipment in their networks and eliminates the need
for expensive connection equipment at each point in their networks.
- Innovative External Packaging and Ease of Installation. Our products are
designed to blend with the architectural design of the sites to which
they are fixed. The antenna and all other components of the radio are
packaged inside the unit's compact, streamlined, paint-ready housing. Our
patent-pending mounting hardware permits direct mounting of units to a
pole or the wall of a building. These design features provide advantages
to operators when they pursue roof rights and make installation and
maintenance of our products quick and inexpensive.
INVISIBLE FIBER INTERNET PRODUCT LINE
Our Invisible Fiber Internet products enable service providers to offer
their subscribers reliable Internet access at higher speeds than all other
technologies except dedicated fiber and at cost levels comparable to or better
than those associated with other technologies. We have designed these products
to support high-bandwidth data applications over the Internet, such as large
file transfers, video conferencing, live video streaming and electronic
commerce, as well as business networking among local area networks, metropolitan
area networks and wide area networks. We currently offer Invisible Fiber
Internet products for the 38 Gigahertz frequency and the 28, 29 and 31
Gigahertz, or Local Multipoint Distribution Service, frequencies and we are
developing additional products for other frequencies above 20 Gigahertz.
We have designed our Invisible Fiber Internet products for deployment in
consecutive point networks in large metropolitan areas. Each Invisible Fiber
Internet unit contains a transmitter, a receiver, a modem and our proprietary
network interface card. Each Invisible Fiber Internet unit forwards data without
regard to content. Our current Invisible Fiber Internet products are able to
examine incoming data from the network to determine if data is addressed to
customers at that location. The unit delivers traffic to the local customers and
inserts traffic from these customers into
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the transmission stream. Non-local traffic is switched through the unit and
forwarded across the consecutive point network bypassing the local building
where the unit is located. This switching functionality ensures that only data
destined for a specific location will be transmitted to that location's local
network, thereby reducing bandwidth consumption on the local network and
improving response times.
Our current Invisible Fiber Internet products use a 100 Megahertz channel
pair, consisting of a 50 Megahertz transmit channel and a 50 Megahertz receive
channel, to carry data at a rate of approximately 120 Mbps in each direction
over a link. The user's traffic accounts for 100 Mbps of the total data rate.
Error correction and our proprietary power control and radio network management
technologies account for the remaining 20 Mbps. This is a differentiating
feature of our current Invisible Fiber Internet products, as we deliver a fully
dedicated 100 Mbps for use by service providers.
INVISIBLE FIBER SONET PRODUCT LINE
Our Invisible Fiber SONET products enable service providers who offer voice
and data services to build and extend networks more quickly and cost-effectively
than they would be able to using fiber. We have designed our products so that
they can be connected directly and transparently to standard telecommunications
equipment. This enables rapid installation of our products into existing
networks. We currently offer Invisible Fiber SONET products for the 38 Gigahertz
frequency and the Local Multipoint Distribution Service frequencies. In
addition, we are developing additional products for other frequencies above 20
Gigahertz.
Each Invisible Fiber SONET unit consists of a transmitter, a receiver, a
modem and our proprietary network interface card. Each unit forwards data
without regard to content. Our Invisible Fiber SONET units utilize proprietary
technology to maintain high-quality synchronization timing signals.
Synchronization ensures lower bit error rates and high availability. Our high
quality synchronization enables more efficient deployment of a large network.
Because our synchronization capabilities are embedded in our Invisible Fiber
SONET units, our customers do not have to rely on costly external
synchronization solutions.
Our current Invisible Fiber SONET products use a 100 Megahertz channel
pair, consisting of a 50 Megahertz transmit channel and a 50 Megahertz receive
channel, to carry data at a rate of approximately 190 Mbps in each link. The
users network traffic accounts for 155 Mbps of the total data rate. Error
correction and our proprietary power control and radio network management
technologies account for the remaining 35 Mbps. This is a differentiating
feature of our Invisible Fiber SONET products, as we deliver a fully dedicated
155 Mbps for use by service providers.
We recently introduced a new higher speed Invisible Fiber SONET product
which will carry data at an approximate rate of 691 Mbps. The core network
traffic accounts for 622 Mbps of the total data rate. Product development is not
yet completed. In particular, certain components have not yet been completed or
tested. As a result, we cannot be certain about the timing of the product
introduction or the performance of the final product.
CUSTOMERS AND MARKETS
We target service providers worldwide that have licensed radio frequency
suitable for high-speed services or are planning to acquire such a license to
deliver high-speed services to subscribers.
Our targeted customers are typically planning to commence large scale
deployments of wireless broadband equipment during the next two years. We have
entered into contracts with Advanced
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Radio Telecom, CenturyTel and CAVU for our Invisible Fiber Internet and SONET
products. In addition, we are currently conducting evaluation trials with
potential new customers.
Advanced Radio Telecom. Advanced Radio Telecom holds an estimated 333
licenses in the 38 Gigahertz frequency band for 194 markets in the United
States, including 49 of the 50 largest markets. In December 1999, we entered
into a three-year agreement with Advanced Radio Telecom. Under this agreement,
Advanced Radio Telecom has agreed to purchase 2,000 38 Gigahertz Invisible Fiber
Internet units for delivery before December 31, 2000.
CenturyTel. CenturyTel provides local exchange telephone services and
cellular telephone services to an estimated 2 million customers in twenty
states. CenturyTel holds approximately 36 licenses for the Local Multipoint
Distribution Service frequencies. In December 1999, we entered into a three-year
agreement with CenturyTel. Under this agreement, CenturyTel has agreed to
purchase 1,000 of our Local Multipoint Distribution Service Invisible Fiber
Internet or SONET units over a three-year period. CenturyTel is obligated to
purchase 500 of these units by December 31, 2000.
CAVU. CAVU offers Internet connectivity at 100 Mbps to business customers
in selected markets across the United States. In April 2000, we entered into a
three-year agreement with CAVU. Under this agreement, CAVU has agreed to
purchase 1,000 of our Local Multipoint Distribution Service Invisible Fiber
Internet or SONET and 38 Gigahertz Invisible Fiber Internet or SONET units over
a three-year period, of which 500 are to be delivered by December 31, 2000 and
another 500 units by June 30, 2001.
SALES AND MARKETING
Direct Sales. We currently utilize a direct sales force to serve customers
in the U.S. As of March 31, 2000, our U.S. sales force consisted of 14 employees
each of whom has significant experience in the telecommunications industry. We
may consider entering into relationships for the resale of our products in the
U.S.
We sell our products directly to international customers. As of March 31,
2000, our international sales team consisted of 3 employees with an average of
22 years of international telecommunications industry experience. We intend to
expand our international direct selling efforts principally in Canada, Australia
and Japan. We have already received regulatory approval to market our products
in each of these markets. We are currently developing products for additional
markets and expect to increase our sales force as we gain regulatory approvals
in these markets. In addition, we recently entered into an agreement with
CommVerge Solutions, a value added reseller of communications solutions, under
which CommVerge Solutions will resell our products.
Key Account Management. We rely on key account management teams to drive
sales to those domestic and international customers who have the greatest
potential for large-scale network deployments of our products. Once we identify
a key account, we organize a key account management team to oversee and
coordinate all aspects of our relationship with the customer. Each key account
management team consists of a vice president who reports directly to our chief
executive officer, an account manager, technical support personnel, including
engineers, and a program manager. The account manager focuses on understanding
the customer's business needs and positioning our products as solutions for
those needs, and is responsible for coordinating order flow, revenue, new
market/product penetration and management of competitive risks. The account
manager ensures that technical support personnel are available as necessary to
address the customer's technical questions and to assist with product
evaluations and demonstrations and the integration of our products into the
customer's network. The technical support personnel are available to assist the
customer in the design, architecture, planning and deployment of the customer's
network. The program manager is responsible for executing contracts with the
customer, developing appropriate
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project schedules and working with manufacturing to ensure that our products are
shipped to the customer on time and to the correct locations.
As the number of our key accounts increases, we intend to deploy key
account teams to customer locations. We believe that this will enable our key
account teams to build closer relationships with their key accounts and capture
additional sales of our products by positioning themselves to assist customers
in the design, planning and deployment of the customer's network. We believe
that this focused sales approach will enable us to maximize new market and new
product sales to service providers, generating higher sales with lower
corresponding costs.
Marketing Efforts. The principal goal of our marketing program is to inform
existing and potential customers about the capabilities and benefits of our
products and consecutive point networks. We are also committed to developing and
enhancing brand awareness of our company and products. Our marketing efforts
include advertising, public relations, participation in and organization of
industry trade shows and conferences, and our web site.
CUSTOMER SERVICE AND SUPPORT
We are committed to providing our customers with high levels of service and
support. We support our products with documentation and training courses
tailored to our customers' various needs and operate a technical assistance
center located in Orlando, Florida. Our sales and network field engineering
services personnel work closely with customers, third party contractors and
others to coordinate network design, ensure successful installation and provide
continuous customer support. As of March 31, 2000, our customer service and
support team consisted of 11 full-time and 5 part-time employees, who provide
technical assistance and customer support 24 hours a day, 7 days a week.
Our network operations control center gives us and our customers the
capability to remotely monitor the in-network performance of our products and
diagnose and address problems that may arise. We assist our customers in
utilizing our network operations control software within their own internal
network operations control centers.
MANUFACTURING AND OPERATIONS
We currently purchase the majority of the components used in our products
from third parties, who manufacture the components based on our proprietary
designs and specifications. We assemble these components at our manufacturing
facility in Orlando, Florida and conduct extensive testing of the finished
products. Our proprietary test procedures require skilled technicians and
customized equipment.
The technology underlying our transceiver module was developed by Lockheed
Martin for use in advanced radar systems. We currently purchase transceiver
modules from Lockheed Martin on a cost-plus basis, which means Lockheed Martin's
actual cost incurred plus a fixed percentage fee. We have developed an internal
manufacturing capability for transceiver modules in order to meet anticipated
demand for our products. We have substantially completed construction of a new
manufacturing facility adjacent to our current facility, and we expect volume
production of transceiver modules to begin in the second half of 2000. However,
we will continue to rely on Lockheed Martin as an additional source of
transceiver modules even after our manufacturing operations achieve volume
production. In addition, Verticom is currently the sole supplier of the
synthesizers used in our products, Raytheon is the sole supplier of the
high-power amplifier used in our transceiver modules, and Polese is the sole
supplier of the housings used in our products. Additional single or limited
source components may be incorporated in our products in the future.
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We are working with additional vendors to establish multiple sources for
each component. We seek to outsource manufacturing whenever it is cost effective
to do so and there is no risk of compromising our proprietary technologies and
processes.
RESEARCH AND DEVELOPMENT
We have organized the components used in our products into proprietary
modules that are designed to incorporate the flexibility we will need to develop
future generations of products without significant design changes. Our
proprietary software, which is common to all our products, can be used, with
minor modification, to extend our product lines. We are pursuing several
development projects, including:
- adapting our products to additional frequency bands;
- increasing data transmission speeds;
- continuing to improve our power control technology;
- continuing to improve the ease of deployment of our products;
- minimizing production costs; and
- developing additional software functionality.
As of March 31, 2000, our multi-disciplinary research and development team
consisted of 85 employees with an average twelve years of experience, including
engineers and scientists whose specialties include microwave engineering,
millimeter-wave engineering, electrical engineering, mechanical engineering,
systems engineering, computer science and materials science. We extend our
research and development capabilities through relationships with the third party
contractors that manufacture components used in our products.
During 1997, 1998, and 1999, we expensed $1,894,644, $8,494,207 and
$12,631,231, respectively, in research and development expenses.
COMPETITION
The market for broadband wireless equipment is rapidly evolving,
fragmented, highly competitive and subject to rapid technological change. A
number of large telecommunications equipment suppliers, such as Digital
Microwave Corporation, Harris Corporation and P-Com Inc., as well as a number of
smaller companies have developed or are developing products that compete with
ours. Some of our competitors are substantially larger than we are, have longer
operating histories and have greater financial, sales, marketing, distribution,
technical, manufacturing and other resources. Some also have greater name
recognition and a larger installed base of customers than we have. In addition,
many of our competitors have well-established relationships with our current and
potential customers and have extensive knowledge of our target markets. As a
result, our competitors may be able to respond more quickly to evolving industry
standards and changes in customer requirements, or to devote greater resources
to the development, promotion and sale of their products than we can. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties to
increase their ability to gain market share rapidly. We also expect that
industry consolidation could increase competition. We expect to face increasing
competitive pressures from both current and future competitors. Increased
competition could result in reduced demand for our products, price reductions
and reduced gross margins for our products, any of which could seriously harm
our business.
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The rapid technological developments within the broadband wireless
equipment industry result in frequent changes to our group of competitors. The
principal competitive factors in our market include:
- product availability;
- relationships with network service providers;
- product performance, features and inter-operability;
- product development and enhancement;
- price;
- ability to manufacture and distribute products; and
- technical support and customer service.
Although we believe that our products compete favorably on these factors,
our market is relatively new and is developing rapidly. We may not be able to
maintain our competitive position against current and potential competitors,
especially those with significantly greater financial, marketing, services,
technical and other resources.
Our broadband wireless solutions also compete with other high-speed
solutions such as digital subscriber lines, coaxial cable, fiber optic cable,
satellite and point-to-multipoint and point-to-point wireless technologies. Many
of these alternative technologies utilize existing installed infrastructure and
have achieved significantly greater market acceptance and penetration than
broadband wireless access technologies. We expect to face increasing competitive
pressures from both current and future technologies in the broadband access
market.
INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent upon our
internally developed technology and the proprietary technology we license from
Lockheed Martin. To protect our proprietary technology, we generally limit
access to our technology, treat portions of our technology as trade secrets and
obtain confidentiality or non-disclosure agreements from persons with access to
our technology. All of our employees have signed our standard confidentiality
agreement. This agreement prohibits the employees from disclosing our
confidential information, technology developments, and business practices and
from disclosing any confidential information entrusted to us by other parties.
All of our consultants who have access to our confidential information have
signed an agreement requiring them to keep confidential and not disclose our
non-public, confidential information.
To date, we have filed twenty-two U.S., three Patent Cooperation Treaty and
two foreign patent applications. We cannot assure you that any of our patent
applications will result in issued patents or that any patents, if issued, will
provide us with competitive advantages. We have also applied for federal
trademark registration of Triton Network Systems, Invisible Fiber, Consecutive
Point and our logo. This prospectus also contains other trademarks, service
marks and trade names that are the property of other parties. We also claim
common law protections for other marks we use in our business. We have received
a notice from another company with a similar name demanding that we change our
name. We cannot assure you that we will be able to continue to use our name. In
addition, we cannot assure you that any of our trademark applications will be
granted. We do not conduct comprehensive patent searches to determine whether
the technology used in our products infringes any patents. If we were to
discover that any of our products violated the intellectual property rights of a
third party, we might be unable to redesign our product to avoid violating their
rights, and
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we might be unable to obtain a license on commercially reasonable terms to use
their intellectual property. Moreover, we may be prevented from continuing to
sell that product, which could cause us to lose sales.
Our intellectual property rights, and our ability to enforce those rights,
may be inadequate to prevent others from using our technology or substantially
similar technology they may independently develop. The use of that technology by
others could eliminate any competitive advantage we have, cause us to lose sales
and otherwise harm our business. A significant portion of our proprietary
technology is know-how, and employees with know-how may depart before
transferring their know-how to other employees. Moreover, the laws of other
countries where we market our products may afford even less protection for our
intellectual property. If we resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be burdensome and costly,
even if we were to prevail.
Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the broadband
access market have extensive patent portfolios with respect to
telecommunications technology. Disputes in this area are frequent and subject to
inherent uncertainties. We cannot assure you that we will not be involved in
such a dispute, nor can we assure you that such a dispute will not result in
litigation or that an adverse result or judgment will not adversely affect our
financial condition.
From time to time, other third parties, including leading companies, have
asserted against others and may assert against us exclusive patent, copyright,
trademark and other intellectual property rights to technologies and related
standards that are important to us. Third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products. Any of these claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management personnel,
or require us to develop non-infringing technology or enter into royalty or
license agreements. These royalty or license agreements, if required, may not be
available on acceptable terms, if at all. If there is a successful claim of
infringement or if we fail to develop non-infringing technology or license the
proprietary rights on a timely basis, our business would be harmed.
EMPLOYEES
As of March 31, 2000 we had a total of 229 employees in our operations, all
of whom were based in the United States, including 85 in research and
development, 32 in selling and marketing, 80 in manufacturing and operations and
32 in finance and administration. We are not party to any collective bargaining
agreement. We believe that our relations with our employees are good.
FACILITIES
Our corporate headquarters are located in Orlando, Florida and comprise
approximately 37,000 square feet. The lease for our headquarters expires in
February 2007. We currently lease approximately 75,000 square feet of
manufacturing and engineering space located in Orlando, Florida. The lease for
this facility expires in February 2007. Additionally, with our acquisition of
IBM's broadband modem product line, we sublease approximately 17,000 square feet
of engineering space located near San Diego. This lease expires in March 2001
and we have an option to renew it for an additional six months thereafter. We
believe that our existing facilities are adequate to meet our current
requirements and that suitable additional space will be available as needed.
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LEGAL PROCEEDINGS
We have received notice from Triton International, Inc. demanding that we
change our name because the similarity in the names of our respective companies
will likely cause confusion in the telecommunications marketplace. We have
responded to the notice by indicating that given the differences between their
and our product offerings and customer base, we do not perceive that the name
similarity would present confusion. In August 1999, we brought a cause of action
in the United States District Court for the Middle District of Florida, Orlando
Division, establishing jurisdiction in Florida and seeking a declaratory
judgment that our use of our name does not infringe the trademark rights of
Triton International, Inc. In September 1999, Triton International, Inc.
responded by filing a counterclaim alleging that our use of our name and related
service marks constitute service mark infringement, false designation of origin,
unfair competition and deceptive practices.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to our executive
officers and directors as of March 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Howard "Skip" Speaks................. 52 President, Chief Executive Officer and Director
Kenneth R. Vines..................... 55 Senior Vice President and Chief Financial Officer
Michael A. Clark..................... 39 Vice President of Engineering
Douglas R.B. Campbell................ 43 Vice President of Sales and Marketing
Philip C. Gulliford.................. 41 Vice President of Advanced Technology
Mark I. Johnson...................... 46 Chief Operating Officer
Robert P. Goodman.................... 39 Chairman of the Board
Stanley R. Arthur.................... 64 Director
Bandel L. Carano..................... 38 Director
James F. Gibbons..................... 68 Director
Arjun Gupta.......................... 39 Director
James Wei............................ 32 Director
</TABLE>
Howard "Skip" Speaks has served as our President and Chief Executive
Officer and as a member of our board of directors since September 1999. Prior to
joining us he held various positions at Ericsson, a telecommunications company,
from August 1986 through September 1999, most recently as Executive Vice
President and General Manager of the network operators group. Mr. Speaks
received his B.S. degree in civil engineering from the West Virginia Institute
of Technology.
Kenneth R. Vines has served as our Senior Vice President and Chief
Financial Officer since October 1998. Prior to joining us he was Vice President
of Finance for DSC Communications, a telecommunications equipment and software
development company, from July 1986 through September 1998. Mr. Vines received
his B.B.A. degree from the University of Texas at Arlington and his M.B.A.
degree from North Texas State University.
Michael A. Clark, one of our founders, has served as our Vice President of
Engineering since April 1997. Prior to joining us he was a Hardware Engineering
Manager at Texas Instruments, a semiconductor company, from June 1983 through
March 1997. Mr. Clark received his B.S. degree in electrical engineering from
the Lawrence Institute of Technology and his M.S. degree in electrical
engineering from the University of Texas at Arlington.
Douglas R.B. Campbell has served as our Vice President of Sales and
Marketing since March 1999. Prior to joining us he was employed at Nortel
Networks, a provider of communications products and services, as Vice President,
Account Management (Asia) from April 1997 through March 1999 and as Assistant
Vice President, Broadband Networks Business from December 1994 through April
1997. Mr. Campbell received his Bachelor of Engineering Physics degree from the
Royal Military College of Canada and his M.B.A. degree from the University of
Lausanne.
Philip C. Gulliford, one of our founders, has served as Vice President of
Advanced Technology since April 1997. Prior to joining us he was Director of
Engineering at Phoenix Wireless Group, a wireless local loop company, from April
1993 through February 1997. Mr. Gulliford received his B.S. degree in physics
and electronics from Brunel University in London.
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<PAGE> 47
Mark I. Johnson has served as our Chief Operating Officer since June 2000.
Prior to joining us he was Vice President of Manufacturing at ADC
Telecommunications, a provider of telecommunications equipment, software and
integration services, from June 1993 through May 2000. Mr. Johnson received his
B.S. degree in Information Technology and his M.S. degree in Operations
Management from Connecticut State University. Mr. Johnson also completed the
Advanced Management program at Harvard Business School.
Robert P. Goodman is Chairman of the board of directors and has served as a
director since January 1998. He is a general partner at Bessemer Venture
Partners, a venture capital firm. Prior to joining Bessemer he was a managing
member of Cove Road Associates, a venture capital firm, from March 1998 through
December 1999. Prior to that, he was Chairman and Chief Executive Officer of
Celcore, a developer and supplier of cellular telephone switching and
infrastructure equipment, from June 1993 through December 1997. Mr. Goodman
received his B.A. degree in Latin American studies from Brown University and his
M.B.A. degree from Columbia University.
Stanley R. Arthur has served on our board of directors since March 2000. He
has been President of Lockheed Martin Missiles and Fire Control-Orlando, a
defense contractor, since July 1999. Prior to that, Mr. Arthur was Vice
President for Washington Operations for the Lockheed Martin Electronics Sector
from September 1996 through July 1999. From July 1995 to September 1996 Mr.
Arthur was Vice President for Naval Systems for Lockheed Martin Tactical
Systems. From 1957 to 1995 Mr. Arthur held a number of commands with the U.S.
Navy, most recently as Vice Chief of Naval Operations. Mr. Arthur received his
B.S. degree in Aeronautics from the Miami University. Mr. Arthur also earned his
B.S. degree in aeronautical engineering from the U.S. Navy Postgraduate School,
and received his masters degree in administration from George Washington
University.
Bandel L. Carano has served on our board of directors since November 1997.
He has been a general partner of Oak Investment Partners, a venture capital
firm, since 1985. Mr. Carano serves as a member of the investment advisory board
of the Stanford University Engineering Venture Fund. Mr. Carano received his
B.S. and M.S. degrees from Stanford University. Mr. Carano also serves as a
director of Advanced Radio Telecom, Metawave, Virata and WFI.
James F. Gibbons, Ph.D. has served on our board of directors since November
1997. He has been a professor of electrical engineering since 1957 and Special
Counsel to the President for Industry Relations at Stanford University since
July 1996. Dr. Gibbons was Dean of the School of Engineering at Stanford
University from September 1984 to June 1996. Dr. Gibbons received his B.S.
degree in electrical engineering from Northwestern University and his M.S. and
Ph.D. degrees in electrical engineering from Stanford University. He currently
serves as a director of Cisco Systems, Lockheed Martin and El Paso Energy.
Arjun Gupta has served on our board of directors since May 1998. He has
been the managing partner of TeleSoft Partners, a venture capital firm, since
January 1997. From August 1994 to December 1996 Mr. Gupta was a Vice President
of The Chatterjee Group, an investment advisory company. Mr. Gupta received his
B.A. degree in economics from St. Stephen's College, Delhi University, his B.S.
and M.S. degrees in computer science from Washington State University and an
M.B.A. degree from Stanford University.
James Wei has served on our board of directors since November 1997. He has
been a general partner at Worldview Technology Partners, a venture capital firm,
since April 1996. Prior to that, Mr. Wei was a Fund Manager at JAFCO Co., Ltd.,
a venture capital firm, from October 1991 through April 1996. Mr. Wei received
his B.S. degree in systems design engineering from the University of Waterloo in
Ontario, Canada.
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<PAGE> 48
BOARD OF DIRECTORS
We currently have seven members on our board of directors and one vacant
position. Each director holds office until his or her term expires or until his
or her successor is duly elected and qualified. Upon completion of this
offering, our amended and restated certificate of incorporation and amended and
restated bylaws will provide for a classified board of directors. In accordance
with the terms of our amended and restated certificate, our board of directors
will be divided into three classes whose terms will expire at different times.
The three classes will be comprised of the following directors:
- Class I consists of three directors who will serve until the annual
meeting of stockholders to be held in 2001. These directors are Messrs.
Arthur and Speaks and one position is vacant.
- Class II consists of three directors who will serve until the annual
meeting of stockholders to be held in 2002. These directors are Messrs.
Gibbons, Gupta and Wei.
- Class III consists of two directors who will serve until the annual
meeting of stockholders to be held in 2003. These directors are Messrs.
Carano and Goodman.
At each annual meeting of stockholders beginning with the 2001 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.
COMMITTEES
Our board of directors has an executive committee, an audit committee and a
compensation committee. The executive committee consists of directors Carano,
Goodman and Speaks. The executive committee may act on behalf of the board of
directors between meetings. The audit committee consists of directors Arthur,
Gupta and Wei. The audit committee reviews our internal accounting procedures,
consults with and reviews the services provided by our independent accountants
and makes recommendations to the board of directors regarding the selection of
independent accountants. The compensation committee consists of directors
Carano, Goodman and Gupta. The compensation committee reviews and recommends to
the board of directors the salaries, incentive compensation and benefits of our
officers and employees and administers our stock plans and employee benefit
plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the executive committee
of our board of directors performed the functions now delegated to the
compensation committee. No member of our compensation committee has served as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
In September 1999, we granted options to purchase 50,000 shares of common
stock to Mr. Goodman in consideration of his services as a member of our board
of directors. In October 1999, our stockholders approved grants of options to
purchase 10,000 shares of common stock vesting
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<PAGE> 49
annually in equal installments over four years to each of our non-employee
directors, other than Mr. Goodman. In October 1999, the stockholders also
approved guidelines for future grants of stock options under our 1997 Stock Plan
to non-employee directors. These guidelines provide that non-employee directors,
other than Mr. Goodman, will receive 10,000 shares vesting annually in equal
installments over four years which are to be granted as of the effective date of
this offering. In addition, all non-employee directors will receive 5,000 shares
vesting annually in equal installments over four years which are to be granted
on the date of each annual meeting of stockholders meeting following the
effective date of this offering.
EXECUTIVE OFFICERS
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed.
COMPENSATION
The following table sets forth all compensation accrued during the year
ended December 31, 1999 to our President and Chief Executive Officer, our former
President and Chief Executive Officer, and each of our four other most highly
compensated officers whose compensation exceeded $100,000 for the period. In
accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include perquisites and other
personal benefits received by the executive officers named in the table below
which do not exceed the lesser of $50,000 or 10% of the total salary and bonus
reported for these officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION($) SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OTHER OPTIONS(#) COMPENSATION
---------------------------- -------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Howard "Skip" Speaks(1).......... $ 92,273 $ 60,000 $ 274,050 625,000 --
President and Chief Executive
Officer
Brian J. Andrew(2)............... 150,517 -- -- 50,000 --
Former President and Chief
Executive Officer
Kenneth R. Vines................. 150,000 6,000 72,951(3) 50,000 --
Senior Vice President and Chief
Financial Officer
Douglas R.B. Campbell(4)......... 106,250 5,000 39,855(3) 150,000 --
Vice President of Sales and
Marketing
Michael A. Clark(5).............. 140,625 5,000 -- 50,000 --
Vice President of Engineering
Philip C. Gulliford.............. 130,000 5,000 -- -- --
Vice President of Advanced
Technology
</TABLE>
-------------------------
(1) Mr. Speaks joined us in September 1999. His annual salary is $290,000. Other
annual compensation listed includes a signing bonus Mr. Speaks earned in
1999 in the amount of
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<PAGE> 50
$250,000, reimbursement for relocation expenses and temporary housing
expenses for which we reimbursed Mr. Speaks in 1999.
(2) Mr. Andrew served as our President and Chief Executive Officer during 1999
and as a director until March 2000. Presently, Mr. Andrew serves as a
consultant to us.
(3) Represents reimbursement for relocation expenses.
(4) Mr. Campbell joined us in March 1999. His annual salary in 1999 was
$150,000.
(5) In June 1999, Mr. Clark's annual salary increased to $150,000.
OPTION GRANTS IN 1999
The following table sets forth information concerning grants of stock
options to each of the executive officers named in the table above during 1999.
All options granted to these executive officers in 1999 were granted under our
1997 Stock Plan. Except as otherwise noted, one-quarter of the shares subject to
each option vest and become exercisable on the first anniversary of the vesting
commencement date, and an additional one-forty-eighth of the shares subject to
each option vest each month thereafter. In addition, options granted to these
executive officers may be exercised prior to vesting if the individual
exercising options enters into a restricted stock purchase agreement providing
that the shares acquired may be repurchased by us in the event that the
individual ceases to be employed by us. We will pay a per share repurchase price
equal to the exercise price per share paid by the individual. Shares shall be
released from our repurchase option at the same times and in the same amounts as
shares would have become vested and exercisable under the provisions of the
individual's option agreement with us. The percent of the total options granted
figures set forth below are based on an aggregate of 1,391,575 options granted
to employees during 1999. All options were granted at a fair market value as
determined by our board of directors on the date of grant.
Potential realizable value represents hypothetical gains that could be
achieved for the options if exercised at the end of the option term assuming
that the assumed $14.00 per share initial public offering price of our common
stock appreciates at a rate of 5% and 10% over the option term. The assumed 5%
and 10% rates of stock price appreciation are provided in accordance with rules
of the Securities and Exchange Commission and do not represent our estimate or
projection of our future common stock price.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF PERCENT OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM($)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------------
NAME GRANTED DURING PERIOD(%) PER SHARE($) DATE 5% 10%
---- ---------- ---------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Howard "Skip"
Speaks............. 500,000(1) 35.9 5.00 8/15/09 8,903,000 15,658,000
125,000(1)(2) 9.0 5.00 8/15/09 2,225,750 3,914,500
Brian J. Andrew...... 50,000(3) 3.6 5.00 7/1/09 890,300 1,565,800
Kenneth R. Vines..... 50,000(1) 3.6 10.00 12/17/09 640,300 1,315,800
Douglas R.B.
Campbell........... 125,000(1) 9.0 1.00 3/16/09 2,725,750 4,414,500
25,000(1) 1.8 2.00 4/29/09 520,150 857,900
Michael A. Clark..... 50,000(1) 3.6 5.00 7/1/09 890,300 1,565,800
Philip C.
Gulliford.......... -- -- -- -- -- --
</TABLE>
-------------------------
(1) These options are subject to acceleration provisions more fully described in
the section "Employment Agreements and Change of Control Provisions" below.
(2) These options shall vest in full on September 7, 2005 but are subject to
accelerated vesting in the event that specified corporate financial targets
are achieved.
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<PAGE> 51
(3) These options vest fully on August 1, 2001 and are subject to acceleration
provisions more fully described in the section "Employment Agreements and
Change of Control Provisions" below.
AGGREGATED OPTION EXERCISES IN 1999 AND VALUES AT DECEMBER 31, 1999
The following table sets forth information concerning stock options held by
the executive officers named in the summary compensation table at December 31,
1999. All stock options have been reported as exercisable because our 1997 Stock
Plan allows options to be exercised prior to vesting if the individual
exercising options enters into a restricted stock purchase agreement. The value
realized upon exercise and the value of unexercised in-the-money options is
based on an estimated fair market value per share minus the actual exercise
prices. All options were granted under our 1997 Stock Plan. Except as otherwise
noted, these options vest over four years and otherwise generally conform to the
terms of our 1997 Stock Plan. The shares acquired by Mr. Campbell remain subject
to a right of repurchase in favor of us which is more fully described in the
section "Option Grants in 1999" above.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999(#) AT DECEMBER 31, 1999($)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard "Skip" Speaks..... -- -- 625,000 -- 3,125,000 --
Brian J. Andrew.......... -- -- 50,000 -- 250,000 --
Kenneth R. Vines......... -- -- 50,000 -- -- --
Douglas R.B. Campbell.... 150,000 -- -- -- -- --
Michael A. Clark......... -- 112,500 -- 843,750 --
Philip C. Gulliford...... -- -- -- -- -- --
</TABLE>
EMPLOYMENT ARRANGEMENTS
In August 1999, we issued an employment offer letter to Mr. Speaks that
provides that if he is terminated without cause or involuntarily terminated by
us he will receive twelve months salary and benefits and six months of
accelerated vesting of his stock options. These severance benefits will cease if
Mr. Speaks is employed by another company within twelve months of his
termination. Additionally, if Mr. Speaks is terminated without cause or
involuntarily terminated by us, dies or becomes disabled within six months of
the commencement of his employment, a total of 50,000 options shall become
immediately vested.
Also, we have entered into a stock option agreement under our 1997 Stock
Plan with Mr. Speaks that includes a provision providing that all options and
shares of restricted stock granted thereunder will accelerate and become fully
vested in the event of our merger with or into another corporation or a sale of
substantially all of our assets, a change of control. Mr. Speaks has agreed that
for one year after a change of control he will not directly or indirectly engage
in the financing, operation, management or control of any business that competes
with us.
In September 1999, we entered into an agreement with Mr. Andrew that
provided that he would be an employee of ours through the earlier to occur of
May 1, 2000 or the effective date of our initial public offering and that
thereafter he would be retained by us as a consultant. By agreement with us in
January 2000, Mr. Andrew resigned from his position as an employee to become
Chief Executive Officer of CAVU. Mr. Andrew resigned from our board of directors
in March 2000. Mr. Andrew is currently a consultant to us. Mr. Andrew's options
and shares will vest, and his shares of common stock will be released from our
repurchase right, immediately upon completion of the offering. If we terminate
Mr. Andrew's services as a consultant, all options and shares of restricted
stock held by him will be immediately vested and exercisable. In addition, if
there is a change of control within six
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<PAGE> 52
months of Mr. Andrew becoming a consultant to us, he will continue to receive a
consulting fee for the balance of this six month period.
In September 1998, we issued an employment offer letter to Mr. Vines that
provides that in the event that he is terminated without cause he will receive
six months salary and 25% of his annual bonus. Mr. Vines' options and shares of
restricted stock will continue to vest during this six month period. These
severance benefits will cease if Mr. Vines is employed by another company within
six months of his termination. Also, Mr. Vines would receive six months salary,
benefits and bonus in the event that he is terminated without cause within one
year of a change in control. We have entered into stock option agreements under
our 1997 Stock Plan with Mr. Vines that include a provision providing that the
options and shares of restricted stock granted thereunder, excluding 50,000
shares subject to an option granted in 1999, will accelerate and become fully
vested upon a change in control.
We have entered into stock option agreements under our 1997 Stock Plan with
each of Mr. Vines, Mr. Campbell and Mr. Clark that include a provision providing
that options and shares of restricted stock granted thereunder will accelerate
and become fully vested upon a change in control, unless the successor
corporation assumes the options or restricted stock or substitutes equivalent
securities for them. Additionally, these agreements provide that if an optionee
is terminated within twelve months of a change of control all assumed or
substituted options and shares of restricted stock will accelerate and become
fully vested. These provisions apply only to the options granted to Mr. Vines in
1999.
In July 1999, we entered into an amendment to the original employment offer
letters of Mr. Campbell and Mr. Clark. These amendments provide that in the
event of their termination without cause they will receive six months salary and
25% of their annual bonus. The options and shares of restricted stock held by
Mr. Campbell and Mr. Clark will continue to vest during this six month period.
These severance benefits will cease if they are employed by another company
within six months of their termination. Also, Mr. Campbell and Mr. Clark would
receive six months salary, benefits and bonus in the event that they are
terminated without cause within one year of a change in control.
In May 2000, we issued an employment offer letter to Mr. Johnson that
provides that if he is terminated without cause by Triton at any time, or by
Triton or a successor within the twelve months following a change of control, he
will receive six months salary, enhanced monthly severance payments based on 25%
of his then annual target bonus, and a prorated portion of such bonus. Mr.
Johnson's stock options will continue to vest during the severance period and
they will accelerate and become fully vested if he is terminated without cause
within the twelve months following a change of control.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation to be filed upon
completion of this offering limits the liability of our directors to the maximum
extent permitted by Delaware law. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, except liability associated with any of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
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<PAGE> 53
The limitation of our director's liability does not apply to liabilities
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our amended and restated certificate of incorporation and amended and
restated bylaws also provide that we shall indemnify our directors and executive
officers and may indemnify our other officers, employees and agents to the
fullest extent permitted by law. We believe that indemnification under our
amended and restated bylaws covers at least negligence and gross negligence on
the part of indemnified parties. Our amended and restated 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 our amended and restated bylaws would permit indemnification.
We intend to enter into indemnification agreements with each of our
officers and directors containing provisions that require us to, among other
things, indemnify such officers and directors against liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to cover our directors and officers under any of
our liability insurance policies applicable to our directors and officers. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
STOCK PLANS
1997 STOCK PLAN
Our 1997 Stock Plan was approved by our board of directors and stockholders
in 1997 and was subsequently amended in October 1997, April 1998, September 1998
and February 2000. As of March 31, 2000, we had authorized a total of 5,270,000
shares of our common stock for issuance under the plan. The 1997 Stock Plan
provides for the granting to our employees of incentive stock options within the
meaning of Section 422 of the United States tax code, and for the granting to
employees, non-employee directors and consultants of non-statutory stock options
and stock purchase rights. Unless terminated sooner, the 1997 Stock Plan will
terminate automatically in 2007.
Our 1997 Stock Plan is administered by the compensation committee of our
board of directors. Our board of directors determines 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 vesting and the form
of consideration payable upon such exercise. In addition, the board of directors
has the authority to amend, suspend or terminate the plan, provided that no such
action may affect any share of common stock previously issued and sold or any
option previously granted and then outstanding under the plan. The board of
directors has the exclusive authority to interpret and apply the provisions of
the 1997 Stock Plan.
Options and stock purchase rights granted under our 1997 Stock Plan are not
generally transferable by the optionee, and each option and stock purchase right
is exercisable during the lifetime of the optionee only by the optionee. Options
granted under the 1997 Stock Plan must generally be exercised within three
months of the end of the optionee's status as our employee or consultant, or
within twelve months after his or her termination by death or disability, but in
no event later than the expiration of the option's ten year term. In the case of
stock purchase rights, unless the board of directors determines otherwise, the
agreement evidencing the grant shall provide that we have a repurchase option
exercisable upon the voluntary or involuntary termination of his or her
employment for any reason (including death or disability). In this event, the
purchase price per share will be equal to the original price paid per share and
may be paid by cancellation of his or her outstanding indebtedness to us, if
any. Our repurchase option shall lapse at a rate determined by the board of
directors. The exercise price of any incentive stock options granted under the
1997 Stock
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<PAGE> 54
Plan and any non-statutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
United States tax code, must be at least equal to the fair market value of our
common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and
the term of such incentive stock option must not exceed five years. The term of
all other options granted under the 1997 Stock Plan may not exceed ten years.
Our 1997 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, each option or
right will accelerate and become vested unless the successor corporation assumes
or substitutes an equivalent option in its place. If the outstanding options or
rights are not assumed or substituted, the option or stock purchase right will
vest in full. Following the assumption or substitution of the options or stock
purchase rights, our 1997 Stock Plan provides for full acceleration of vesting
in the event that the successor corporation in a change of control merger,
defined below, terminates a holder of an option or stock purchase right as a
result of an involuntary termination, defined below, in the twelve month period
following a change of control merger.
A change in control merger is defined as our merger with or into another
corporation or sale of substantially all of our assets in which our shareholders
immediately prior to such transaction hold less than 50% of the outstanding
equity securities of the successor corporation (or a parent or subsidiary of the
successor corporation) subsequent to the completion of the transaction. An
involuntary termination is defined as a termination not effected for disability
or for cause. Cause is defined as:
- any act of personal dishonesty taken by the holder in connection with his
or her responsibilities as a service provider and intended to result in
substantial personal enrichment to the holder;
- the holder's conviction of a felony, a willful act by the holder which
constitutes gross misconduct and which is injurious to the successor
corporation; or
- continued violations by the holder of the holder's obligations to the
successor corporation which are demonstrably willful and deliberate on
the holder's part, following delivery to the holder of a written demand
for performance from the successor corporation which describes the basis
for the successor corporation's belief that the holder has not
substantially performed his duties.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan was adopted by our board of directors
in February 2000. A total of 250,000 shares of common stock have been reserved
for issuance under our 2000 Employee Stock Purchase Plan.
Our 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the United States tax code, contains a twelve month offering
period with consecutive six month purchase periods. The offering periods
generally start on the first trading day on or after August 1, and February 1,
of each year, except for the first offering period which commences on the first
trading day on or after the effective date of this offering.
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, any employee who immediately after
grant owns stock possessing 5% or more of the total combined voting power or
value of all classes of our capital stock may not be granted an option to
purchase stock under this plan. Employees' participation in this plan and any
other stock purchase plans may not exceed an aggregate $25,000 per calendar
year. The 2000 Employee Stock Purchase Plan permits
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<PAGE> 55
participants to purchase common stock through payroll deductions of up to 10% of
the participant's compensation. Compensation is defined as the participant's
base straight time gross earnings and commissions but is exclusive of payments
for overtime, shift premium payments, incentive compensation, incentive
payments, bonuses and other compensation. The maximum number of shares a
participant may purchase during a single purchase period is 625 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 Employee Stock Purchase Plan is generally 85% of the
lower of the fair market value of the common stock at the beginning of the
offering period or at the end of the purchase period. Participants may end their
participation at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with us.
Rights granted under the 2000 Employee Stock Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan. The 2000 Employee Stock
Purchase Plan provides that, in the event of our merger with or into another
corporation or a sale of substantially all our assets, each outstanding option
may be assumed or substituted for by the successor corporation. 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. The 2000 Employee Stock Purchase Plan will terminate automatically in
2010, unless terminated earlier. The board of directors has the authority to
amend or terminate the purchase plan, except that no such action may adversely
affect any outstanding rights to purchase stock under the purchase plan. The
board of directors has the exclusive authority to interpret and apply the
provisions of the purchase plan.
401(k) PLAN
In October 1998, we adopted the Triton Network Systems 401(k) Savings Plan.
The Triton Network Systems 401(k) Savings Plan is intended to qualify under
Section 401(k) of the United States tax code, so that contributions to the
Triton Network Systems 401(k) Savings Plan by employees or by us and the
investment earnings thereon are not taxable to employees until withdrawn. If the
Triton Network Systems 401(k) Savings Plan qualifies under Section 401(k) of the
United States tax code, our contributions will be deductible by us when made.
Our employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit of $10,500 in 2000 and to have those funds
contributed to the Triton Network Systems 401(k) Savings Plan. The Triton
Network Systems 401(k) Savings Plan permits us, but does not require us, to make
additional matching contributions on behalf of all participants. To date, we
have not made any contributions to the Triton Network Systems 401(k) Savings
Plan.
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<PAGE> 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PREFERRED STOCK
In November 1997, we sold an aggregate 7,200,000 shares of our series A
preferred stock at a price of $2.00 per share. In May 1998, July 1998 and
January 1999 we sold an aggregate 6,553,969 shares of our series B preferred
stock at a price of $5.00 per share. In October 1999 and November 1999, we sold
an aggregate 5,052,500 shares of our series C preferred stock at a price of
$10.00 per share. On March 31, 2000 we issued an additional 2,750,000 shares of
our series C preferred stock in connection with the purchase of IBM's broadband
modem product line. The following officers, directors and 5% stockholders
purchased shares in these financings:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
PURCHASER SERIES A STOCK SERIES B STOCK SERIES C STOCK
--------- -------------- -------------- --------------
<S> <C> <C> <C>
OFFICERS AND DIRECTORS
Robert P. Goodman............................. 50,000 80,000 --
Kenneth R. Vines.............................. -- 5,000 1,500
FIVE PERCENT STOCKHOLDERS
Entities affiliated with Oak Investment
Partners.................................... 2,500,000 930,285 500,000
Entities affiliated with Worldview Technology
Partners.................................... 1,500,000 558,171 450,000
Entities affiliated with Bessemer Venture
Partners.................................... 1,177,500 470,000 300,000
Entities affiliated with Advent Partners...... 1,250,000 465,143 450,000
Lockheed Martin Corporation................... -- 1,200,000 --
Entities affiliated with TeleSoft Partners.... -- 885,235 280,479
Entities affiliated with MeriTech Capital
Partners.................................... -- -- 1,946,963
International Business Machines Corporation... 2,750,000
</TABLE>
OTHER MATERIAL TRANSACTIONS
In June 1997, we entered into a license agreement with Lockheed Martin
pursuant to which we received an exclusive, perpetual license for the use of
Lockheed Martin's monolithic millimeterwave integrated circuit, or MMIC,
technology in our products. In exchange, we agreed to make royalty payments to
Lockheed Martin and to issue 25,000 shares of our common stock to the Central
Florida Innovation Corporation, a business development entity that helped
facilitate our relationship with Lockheed Martin. Our agreement with Lockheed
Martin may be terminated by either party upon a material breach or following a
party's filing of bankruptcy, its making of an assignment for the benefit of
creditors or its seeking legal protection from creditors' claims. In July 1998,
Lockheed Martin relinquished its rights to royalty payments under this agreement
in exchange for 800,000 shares of our common stock.
We have entered into agreements with Lockheed Martin relating to the design
and development of the MMIC technology and transceiver module in our products.
Under these agreements we will pay Lockheed Martin on a cost reimbursable basis,
including its fee, for production services performed thereunder. Additionally,
we will pay Lockheed Martin for specified costs related to the continued
development of our products. In 1999, the value of these payments to Lockheed
Martin was approximately $5,500,000. Lockheed Martin is a holder of more than 5%
of our capital stock. James Gibbons, one of our directors is a director of
Lockheed Martin. Stanley Arthur, one of our directors, is an officer of Lockheed
Martin Missiles and Fire Control -- Orlando, a division of Lockheed Martin.
In December 1999, we entered into a supply agreement with Advanced Radio
Telecom under which Advanced Radio Telecom is obligated to purchase and we are
obligated to supply our products under the terms and conditions described in the
agreement. Entities associated with Oak Investment
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<PAGE> 57
Partners, of which Bandel Carano, one of our directors, is a general partner,
Worldview Technology Partners, of which James Wei, one of our directors, is a
general partner, and other stockholders of ours have invested in Advanced Radio
Telecom. Mr. Carano, one of our directors, is a director of Advanced Radio
Telecom.
In February 2000, we entered into a value added reseller agreement with
CommVerge Solutions. Investors in CommVerge Solutions include entities
associated with Oak Investment Partners, of which Bandel Carano, one of our
directors, is a general partner and Worldview Technology Partners, of which
James Wei, one of our directors, is a general partner. Mr. Wei, one of our
directors, is also a director of CommVerge Solutions.
INVESTOR RIGHTS AGREEMENT
We have entered into an agreement with our preferred stockholders pursuant
to which these and other preferred stockholders will have registration rights
with respect to their shares of common stock following this offering. For a
description of these registration rights, see "Description of Capital Stock."
Upon the completion of this offering, all shares of our outstanding preferred
stock will be automatically converted into an equal number of shares of common
stock.
INDEBTEDNESS OF MANAGEMENT
In October 1999, we made an interest free loan in the principal amount of
$300,000 to Mr. Speaks, our President and Chief Executive Officer, which is
secured by Mr. Speaks' options and specified real estate. The loan is payable on
September 30, 2004 or within one year of the termination of his employment with
us, and is to be payable prior to this date on a dollar for dollar basis out of
any proceeds received by Mr. Speaks as a result of sale of shares of common
stock by him.
In June 1999, we made two separate loans in the principal amounts of
$62,500 and $25,000, respectively, to Mr. Campbell, one of our executive
officers, each of which accrues interest at a rate equal to 5.1% per annum
compounded annually. Each loan is secured by shares of our restricted stock
purchased by Mr. Campbell using the proceeds of the loans. The loans are payable
on June 30, 2004, or, at our option, within thirty days of the termination of
his employment with us.
In January 1999, we made a loan in the principal amount of $18,750 to Mr.
Goodman, the Chairman of our board of directors. In December 1999, we made a
second loan to Mr. Goodman in the principal amount of $150,000. Both loans
accrue interest at a rate equal to 5.1% per annum compounded annually and each
of which is secured by shares of our restricted stock purchased by Mr. Goodman
using the proceeds of the loans. The loan made in January 1999 is payable on
January 31, 2004, or, at our option, within thirty days of his ceasing to be
Chairman of our board of directors. The loan made in December 1999 is payable in
December 31, 2004, or, at our option, within thirty days of his ceasing to
provide services to us.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions between us and our officers,
directors, principal shareholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent,
disinterested outside directors on the board of directors, and will be on terms
no less favorable to us than could be obtained from unaffiliated third parties.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 2000, and as adjusted
to reflect the sale of common stock offered hereby, by the following:
- each stockholder known by us to own beneficially more than 5% of our
common stock;
- each of our executive officers named in the compensation table above;
- each of our directors; and
- all directors and executive officers as a group.
As of March 31, 2000, there would have been 28,330,932 shares of our common
stock outstanding, assuming that all outstanding preferred stock had been
converted into common stock. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below, on the information furnished
by such owners, have sole voting power and investment power with respect to such
shares. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percent ownership of that person, shares
of common stock subject to options or warrants held by that person that are
currently exercisable or that will become exercisable within 60 days after March
31, 2000 are deemed outstanding, while such shares are not deemed outstanding
for purposes of computing percent ownership of any other person. Unless
otherwise indicated in the footnotes below, the persons and entities named in
the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. The
address for those individuals for which an address is not otherwise indicated is
c/o Triton Network Systems, Inc., 8529 South Park Circle, Orlando, Florida
32819.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
SHARES BENEFICIALLY --------------------
OWNED PRIOR PRIOR TO AFTER
NAME OR GROUP OF BENEFICIAL OWNERS TO OFFERING OFFERING OFFERING
---------------------------------- ------------------- -------- --------
<S> <C> <C> <C>
Bandel L. Carano(1)................................. 3,940,285 13.9% 11.6%
Entities affiliated with Oak Investment
Partners(2)....................................... 3,930,285 13.9 11.6
525 University Avenue, Suite 1300
Palo Alto, CA 94301
International Business Machines Corporation......... 2,750,000 9.7 8.1
North Castle Drive
Armonk, NY 10504
James Wei(3)........................................ 2,518,171 8.9 7.4
Entities affiliated with Worldview Technology
Partners(4)....................................... 2,508,171 8.9 7.4
435 Tasso Street, Suite 120
Palo Alto, CA 94301
Entities affiliated with Advent Partners(5)......... 2,165,143 7.6 6.4
75 State Street
Boston, MA 02109
James F. Gibbons(6)................................. 2,110,000 7.4 6.2
Lockheed Martin Corporation......................... 2,000,000 7.1 5.9
5600 Sand Lake Road
Orlando, FL 32819
Entities affiliated with MeriTech Capital
Partners(7)....................................... 1,946,963 6.9 5.8
90 Middlefield Road, Suite 201
Menlo Park, CA 94025
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
SHARES BENEFICIALLY --------------------
OWNED PRIOR PRIOR TO AFTER
NAME OR GROUP OF BENEFICIAL OWNERS TO OFFERING OFFERING OFFERING
---------------------------------- ------------------- -------- --------
<S> <C> <C> <C>
Entities affiliated with Bessemer Venture
Partners(8)....................................... 1,929,657 6.8% 5.7%
83 Walnut Street
Wellesley Hills, MA 02481
Arjun Gupta(9)...................................... 1,575,714 5.6 4.7
Entities affiliated with TeleSoft Partners(10)...... 1,565,714 5.5 4.6
1450 Fashion Island Boulevard, Suite 610
San Mateo, CA 94404
Brian J. Andrew(11)................................. 693,716 2.4 2.0
Howard "Skip" Speaks(12)............................ 625,000 2.2 1.8
Robert P. Goodman(13)............................... 430,000 1.5 1.3
Michael A. Clark(14)................................ 302,497 1.1 0.9
Kenneth R. Vines(15)................................ 206,500 * *
Philip C. Gulliford(16)............................. 189,997 * *
Douglas R.B. Campbell(17)........................... 150,000 * *
Stanley R. Arthur................................... -- * *
All directors and executive officers as a group (12
persons).......................................... 12,741,880 43.6 36.7
</TABLE>
-------------------------
(1) Includes 3,930,285 shares held by the entities listed in note 2 below. Mr.
Carano is a general partner of the entities listed in note 2 below. Mr.
Carano disclaims beneficial ownership of the shares held by the entities
listed in note 2 below except to the extent of his direct pecuniary
interest in these shares. Includes 10,000 shares issuable upon the
exercise of options exercisable within sixty days of March 31, 2000; all
of which are subject to our right of repurchase which lapses over time.
(2) Includes 3,833,993 shares held by Oak Investment Partners VII, Limited
Partnership and 96,292 shares held by Oak VII Affiliates Fund, Limited
Partnership.
(3) Includes 2,508,171 shares held by the entities listed in note 4 below. Mr.
Wei is a general partner of the general partner of the entities listed in
note 4 below. Mr. Wei disclaims beneficial ownership of the shares held by
the entities listed in note 4 below except to the extent of his direct
pecuniary interest in these shares. Includes 10,000 shares issuable upon
the exercise of options exercisable within sixty days of March 31, 2000;
all of which are subject to our right of repurchase which lapses over
time.
(4) Includes 1,394,528 shares held by Worldview Technology Partners I, L.P.,
543,524 shares held by Worldview Technology International I, L.P., 120,119
shares held by Worldview Strategic Partners I, L.P., 333,687 shares held
by Worldview Technology Partners II, L.P., 102,149 shares held by
Worldview Technology International II, L.P. and 14,165 shares held by
Worldview Strategic Partners II, L.P.
(5) Includes 1,014,518 shares held by Digital Media Communications, 460,359
shares held by Adtel LP, 246,532 shares held by Tel Advent LP, 171,532
shares held by Adtec LP, 94,300 shares held by Digital Media and
Communications II, 70,600 shares held by Envirotech, 54,902 shares held by
Advent Partners and 52,400 shares held by Advent Crown Fund II.
(6) Includes 2,000,000 shares held by Lockheed Martin Corporation, of which
Mr. Gibbons is a director. Mr. Gibbons disclaims beneficial ownership of
the shares held by Lockheed Martin Corporation. Includes 10,000 shares
issuable upon the exercise of options exercisable within
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<PAGE> 60
sixty days of March 31, 2000; all of which are subject to our right of
repurchase which lapses over time.
(7) Includes 31,152 shares held by MeriTech Capital Affiliates L.P. and
1,915,811 shares held by MeriTech Capital Partners L.P.
(8) Includes 164,750 shares held by Bessemer Venture Investors L.P., 700,266
shares held by Bessemer Venture Partners IV, L.P., 700,268 shares held by
Bessec Ventures IV L.P. and 65,549 shares held by BVP IV Special
Situations L.P. Also includes 298,825 shares beneficially held by
individuals, or entities affiliated with these individuals, that are
affiliated with Bessemer. In specified circumstances, Bessemer can direct
the voting of these 298,825 shares.
(9) Includes 1,565,714 shares held by the entities listed in note 10 below.
Mr. Gupta is the President of TeleSoft IA-GP, Inc., the general partner of
TeleSoft Partners IA, L.P. The shares held by Deutsche Bank Securities
Inc. and the Goel Family Partnership are held pursuant to a management
agreement with TeleSoft Management, L.L.C. Mr. Gupta is the executive
manager of TeleSoft Management, L.L.C. Mr. Gupta disclaims beneficial
ownership of the shares held by the entities listed in note 10 below
except to the extent of his direct pecuniary interest in these shares.
Includes 10,000 shares issuable upon the exercise of options exercisable
within sixty days of March 31, 2000; all of which are subject to our right
of repurchase which lapses over time.
(10) Includes 1,165,714 shares held by TeleSoft Partners IA, L.P., 200,000
shares held by TeleSoft Partners, L.P., 53,500 shares held by Deutsche
Bank Securities Inc., 66,500 shares held by TeleSoft Coinvestments, L.P.
and 80,000 shares held by Goel Family Partnership.
(11) Includes 174,764 shares held by affiliates of Mr. Andrew. Includes 230,464
shares subject to our right of repurchase which lapses upon the completion
of this offering. Includes 50,000 shares of common stock issuable upon the
exercise of options exercisable within sixty days of March 31, 2000; all
of these shares are subject to our right of repurchase which lapses over
time.
(12) Includes 625,000 shares issuable upon the exercise of options exercisable
within sixty days of March 31, 2000; all of which are subject to our right
of repurchase which lapses over time.
(13) Mr. Goodman is a member of the management company that manages the
entities listed in note 8 above. However, Mr. Goodman is not listed as the
beneficial owner of the shares held by the entities listed in note 8 above
because he has no pecuniary or voting interest in the shares as they are
held by entities established prior to his becoming affiliated with
Bessemer. Includes 50,000 shares held by trust entities established for
the benefit of Mr. Goodman's children. Mr. Goodman disclaims beneficial
ownership of these shares. 189,584 of these shares are subject to our
right of repurchase which lapses over time.
(14) Includes 61,455 shares subject to our right of repurchase which lapses
upon the completion of this offering. Includes 112,500 shares of common
stock issuable upon the exercise of options exercisable within 60 days of
March 31, 2000; 92,969 of these shares are subject to our right of
repurchase which lapses over time.
(15) Includes 44,000 shares held by entities affiliated with Mr. Vines.
Includes 100,000 shares subject to our right of repurchase which lapses
over time. Includes 50,000 shares of common stock issuable upon the
exercise of options exercisable within sixty days of March 31, 2000; all
of these shares are subject to our right of repurchase which lapses over
time.
(16) Includes 61,455 shares subject to our right of repurchase which lapses
upon the completion of this offering.
(17) Includes 118,750 shares subject to our right of repurchase which lapses
over time.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
130,000,000 shares, $0.001 par value per share, to be divided into two classes
to be designated common stock and preferred stock. Of the shares authorized,
120,000,000 shares will be designated as common stock and 10,000,000 shares will
be designated as preferred stock. The following description of our capital stock
is only a summary. You should refer to our amended and restated certificate of
incorporation and amended and restated bylaws as in effect upon the completion
of this offering, which are included as exhibits to the registration statement
of which this prospectus forms a part, and the provisions of applicable Delaware
law.
COMMON STOCK
As of March 31, 2000, assuming the conversion of all outstanding shares of
preferred stock into common stock, there were 28,330,932 shares of common stock
outstanding which were held by approximately 371 stockholders. Assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options after March 31, 2000, there will be 33,830,932 shares of
common stock outstanding after giving effect to the sale of our common stock in
this offering. There are a total of 1,455,587 shares reserved for issuance, and
2,092,437 shares issuable upon exercise of outstanding options, under our 1997
Stock Plan. There are an aggregate of 250,000 shares reserved for issuance under
our 2000 Employee Stock Purchase Plan.
The holders of our common stock are entitled to one vote per share held of
record on all matters submitted to a vote of the stockholders. Our amended and
restated certificate of incorporation, to be filed concurrently with completion
of this offering, does not provide for cumulative voting in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by our board of
directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, holders of our common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to prior distribution rights of preferred stock, if any, then outstanding.
Holders of our common stock have no preemptive or other subscription or
conversion rights. There are no redemption or sinking fund provisions applicable
to our common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued upon the completion
of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Upon the completion of this offering and filing of our amended and restated
certificate of incorporation, our board of directors will be authorized, without
action by the stockholders, to issue 10,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof. These rights, preferences and privileges may include dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of any series, all or any of which may be greater than the rights of
the common stock.
The issuance of preferred stock could adversely affect the voting power of
holders of common stock and the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation. In addition, the
issuance of preferred stock could have the effect of delaying or preventing a
change in our control without further action by the stockholders. We have no
present plans to issue any shares of preferred stock.
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<PAGE> 62
WARRANTS TO PURCHASE COMMON STOCK
As of March 31, 2000, we had the following warrants outstanding to purchase
a total of 366,071 shares of our common stock:
- An aggregate 250,000 shares pursuant to three separate warrants, each at
an exercise price of $1.00 per share, and each terminating November 14,
2004.
- 22,500 shares at an exercise price of $1.00 per share, terminating on the
later of January 20, 2005 or three years following the effective date of
our initial public offering.
- 50,000 shares at an exercise price of $1.00 per share, terminating
January 31, 2003.
- 15,000 shares at an exercise price of $0.50 per share, terminating March
25, 2003.
- 28,571 shares at an assumed exercise price of $12.60 per share, based on
an assumed initial offering price of our common stock of $14.00 per
share, terminating February 28, 2007.
On February 25, 2000, we entered into an agreement with a financial
institution to borrow up to $9.0 million in 2000 for capital equipment
purchases, furniture and software. For a detailed description of the terms of
this agreement and our obligations thereunder, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
REGISTRATION RIGHTS
Pursuant to a registration rights agreement we entered into with holders of
24,397,414 shares of our common stock, assuming conversion of all outstanding
shares of preferred stock, and the holders of all outstanding warrants, 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 limit 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.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the
benefits of increased protection of our potential ability to negotiate with
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the proponent of an unfriendly or unsolicited proposal to acquire or restructure
us outweighs the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms. The amendment of any of the following provisions would require
approval by holders of at least 66 2/3% of our outstanding common stock.
Election and Removal of Directors. Effective with the first annual meeting
of stockholders following completion of this offering, our amended and restated
bylaws provide for the division of our board of directors into three classes, as
nearly equal in number as possible, with the directors in each class serving for
a three-year term, and one class being elected each year by our stockholders.
This system of electing and removing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of us
and may maintain the incumbency of the board of directors, as it generally makes
it more difficult for stockholders to replace a majority of the directors.
Further, our amended and restated certificate of incorporation filed in
connection with this offering and restated bylaws do not provide for cumulative
voting in the election of directors.
Stockholder Meetings. Under our amended and restated certificate of
incorporation and amended and restated bylaws, only our board of directors,
Chairman of the Board or Chief Executive Officer may call special meetings of
stockholders. Our amended and restated bylaws establish advance notice
procedures with respect to stockholder proposals and the nomination of
candidates for election as directors, other than nominations made by or at the
direction of the board of directors or a committee thereof. In addition, our
amended and restated certificate of incorporation eliminates the right of
stockholders to act by written consent without a meeting, eliminates the right
of stockholders to call a special meeting and eliminates cumulative voting.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors 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 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;
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<PAGE> 64
- 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 American Stock
Transfer & Trust Company.
THE NASDAQ STOCK MARKET'S NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "TNSI."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our stock.
Future sales of substantial amounts of our common stock in the public market
following this offering or the possibility of such sales occurring could
adversely affect market prices for our common stock or could impair our ability
to raise capital through an offering of equity securities. Furthermore, since
relatively few shares will be available for sale shortly after this offering
because of contractual and legal restrictions on resale as described below,
sales of substantial amounts of our common stock in the public after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
After the offering, 33,830,932 shares of our common stock will be
outstanding, assuming that the underwriters do not exercise the over-allotment
option. Of these shares, all of the 5,500,000 shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining shares of common
stock held by existing shareholders are "restricted securities" as that term is
defined in Rule 144 under 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 Rules 144 or 701 under the Securities Act, which rules are
summarized below.
All of our officers, directors and substantially all of our other
stockholders and option holders have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction which
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership or our common stock, whether any such aforementioned transaction is to
be settled by delivery of our common stock or such other securities, in cash or
otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus.
Under these lock-up agreements, our outstanding shares of common stock will
be available for sale in the public market as follows:
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL SHARES
SHARES OUTSTANDING DATE OF AVAILABILITY FOR SALE
---------- ------------ -----------------------------
<S> <C> <C>
1,954,834 6.9% ________________, 2000 (date of this prospectus)
to ________________, 2001 (180 days after the date
of this prospectus)
23,599,666 83.3% ________________, 2001 (180 days after the date of
this prospectus), in some cases under Rule 144
2,776,432 9.8% at various times after ________________, 2001
</TABLE>
Stock Options. Immediately after this offering we intend to file a
registration statement under the Securities Act covering 5,270,000 shares of
common stock reserved for issuance under our stock option plans and 250,000
shares of common stock under our 2000 Employee Stock Purchase Plan. Each year as
the number of shares reserved for issuance under our 1997 Stock Plan increases,
we will file an amendment to the registration statement covering the additional
shares. As of March 31, 2000, options to purchase 2,092,437 shares of common
stock were issued and outstanding. This registration statement is expected to be
filed and become effective as soon as practicable after the effective date of
this offering. Accordingly, shares registered under that registration statement
that are subject to the lock-up agreements described above will, subject to
vesting provisions and Rule 144 volume
65
<PAGE> 66
limitations applicable to our affiliates, be available for sale in the open
market immediately after the 180 day lock-up agreements expire.
Resale of most of the restricted shares that will become available for sale
in the public market starting 181 days after the effective date will be limited
by volume and other resale restrictions under Rule 144 because the holders are
our affiliates.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year is entitled to sell, within any
three-month period, a number of shares that is not more than the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 338,309 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us.
Rule 144(k). Under Rule 144(k), a person who has not been one of our
affiliates at any time during the 90 days before a sale, and who has
beneficially owned the restricted shares for at least two years, is entitled to
sell the shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchase shares from
us under a stock option plan or other written agreement can resell those shares
90 days after the effective date of this offering in reliance on Rule 144, but
without complying with some of the restrictions, including the holding period,
contained in Rule 144.
Registration Rights. Upon completion of this offering, the holders of
24,397,414 shares of our common stock and the holders of all outstanding
warrants will be entitled to rights with respect to the registration of their
shares under the Securities Act. After registration, these shares will become
freely tradable without restriction under the Securities Act. Any sales of
securities by these shareholders could have a material adverse effect on the
trading price of our common stock.
66
<PAGE> 67
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities Inc. ..............................
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total..................................................... 5,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 825,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
Per Share Total
--------------------------------- -------------------------------
Without With Without With
Over-Allotment Over-Allotment Over-allotment Over-allotment
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us.......... $ $ $ $
Expenses payable by us............ $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
All of our officers, directors and substantially all of our other
stockholders and option holders have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction which
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership or our common stock, whether any such aforementioned transaction is to
be settled by delivery of our common stock or such other securities, in cash or
67
<PAGE> 68
otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to 330,000 shares of the common stock for some of our employees,
directors and certain other persons associated with us who have expressed an
interest in purchasing common stock in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent these persons purchase the reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
The shares of common stock have been approved for listing on The Nasdaq
Stock Market's National Market under the symbol "TNSI."
Deutsche Bank Securities Inc. and its affiliates beneficially own an
aggregate of 220,000 shares of our preferred stock which will automatically
convert into 220,000 shares of common stock upon the closing of this offering.
Deutsche Bank Securities Inc. holds a 5.97% interest in TeleSoft Partners IA,
L.P. which holds 1,365,714 shares of our preferred stock which will
automatically convert into 1,365,714 shares of common stock upon the closing of
this offering.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price has been determined by negotiation
between us and the representatives. The principal factors considered in
determining the public offering price included:
- the information set forth in this prospectus and otherwise available to
the representatives;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly-traded common
stock of generally comparable companies.
The initial offering price may not correspond to the price of which our
common stock will trade in the public market subsequent to this offering, and an
active trading market for our common stock may not develop or continue after
this offering.
In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares, which they may purchase in the
over-allotment option. In a naked short position,
68
<PAGE> 69
the number of shares involved is greater than the number of shares in the
over-allotment option. The underwriters may close out any short position
by either exercising their over-allotment option and/or purchasing shares
in the open market.
- 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. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option -- a naked short position -- that
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors
who purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
common stock or preventing or retarding a decline in the market price of the
common stock. As a result the price of the common stock, may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
69
<PAGE> 70
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws; (ii) where required
by law, such purchaser is purchasing as principal and not as agent, and (iii)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
70
<PAGE> 71
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Legal matters will be passed upon for the underwriters by Testa,
Hurwitz & Thibeault, LLP. 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 and former
individual members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, beneficially own an aggregate of 65,213 shares
of Triton Network Systems, Inc. preferred and common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and 1998, and for each of the two
years in the period ended December 31, 1999 and for the period March 5, 1997
through December 31, 1997, as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form S-1 under the Securities Act with respect
to the shares of common stock offered hereby. This prospectus does not contain
all the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, reference is made to the registration statement and to the exhibits and
schedules filed therewith. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of the contract or
other document filed as an exhibit to the registration statement, each statement
being qualified in all respects by this reference. A copy of the registration
statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of all or any portion of the registration
statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees.
The public may obtain information on the operation of the public reference room
by calling the SEC at 1-800-SEC-0330. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
71
<PAGE> 72
TRITON NETWORK SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1999
and March 31, 2000 (unaudited)............................ F-3
Consolidated Statements of Operations for the period from
March 5, 1997 (inception) through December 31, 1997 and
for the years ended December 31, 1998 and 1999 and the
three months ended March 31, 1999 and 2000 (unaudited).... F-4
Consolidated Statements of Stockholders' Equity for the
period from March 5, 1997 (date of inception) through
December 31, 1997 and for the years ended December 31,
1998 and 1999 and the three months ended March 31, 2000
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the period from
March 5, 1997 (inception) through December 31, 1997 and
for the years ended December 31, 1998 and 1999 and the
three months ended March 31, 1999 and 2000 (unaudited).... F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Triton Network Systems, Inc.
We have audited the accompanying consolidated balance sheets of Triton
Network Systems, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period March 5, 1997 (date of inception) through December 31, 1997 and, for
each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Triton Network
Systems, Inc. at December 31, 1998 and 1999, and the consolidated results of
their operations and their cash flows for the period from March 5, 1997 (date of
inception) through December 31, 1997 and for each of the two years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
-------------------------------------
Orlando, Florida
February 11, 2000, except for Note 10, as to
which the date is July 10, 2000
F-2
<PAGE> 74
TRITON NETWORK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------- ------------
1998 1999 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 10,323,758 $ 46,130,279 $ 31,339,762
Short-term investments......................... 11,003,876 -- --
Trade receivables.............................. -- -- 965,031
Inventory...................................... -- 7,244,874 10,091,861
Other current assets........................... 194,221 1,017,565 1,357,208
------------ ------------ ------------
Total current assets...................... 21,521,855 54,392,718 43,753,862
Property and equipment, net...................... 2,754,230 7,970,374 12,700,179
Restricted cash.................................. -- 650,000 1,443,315
Intangible assets................................ -- -- 36,179,516
Other non-current assets......................... 163,844 687,353 739,480
------------ ------------ ------------
Total assets.............................. $ 24,439,929 $ 63,700,445 $ 94,816,352
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 1,140,397 $ 5,207,524 $ 4,884,448
Accrued compensation........................... 830,757 1,338,156 1,753,206
Other accrued expenses......................... 145,436 2,227,802 3,205,442
Current portion of capital leases.............. 442,080 1,279,862 1,385,788
Current portion of notes payable............... -- 159,140 470,257
------------ ------------ ------------
Total current liabilities................. 2,558,670 10,212,484 11,699,141
Capital leases, net of current portion......... 1,457,073 1,967,690 1,775,935
Notes payable, net of current portion.......... -- 187,440 1,655,324
Commitments and contingencies
Stockholders' equity:
Series A, voting, convertible preferred stock,
$.001 par value; 7,200,000 shares
authorized, 7,200,000 issued and outstanding
at December 31, 1998 and 1999 and March 31,
2000........................................ 14,400 14,400 14,400
Series B, voting, convertible preferred stock,
$.001 par value; 6,600,000 shares
authorized, 4,463,000 issued and outstanding
at December 31, 1998 and 6,553,969 issued
and outstanding at December 31, 1999 and
March 31, 2000.............................. 8,926 13,108 13,108
Series C, voting, convertible preferred stock,
$.001 par value; 7,802,500 shares
authorized, 5,052,500 issued and outstanding
at December 31, 1999 and 7,802,500 issued
and outstanding at March 31, 2000........... -- 10,105 15,605
Common stock, $.001 par value; 33,250,000
shares authorized, 6,241,049 shares issued
and outstanding at December 31, 1998,
6,795,832 shares issued and outstanding at
December 31, 1999 and 6,774,463 issued and
outstanding at March 31, 2000............... 12,482 13,592 13,549
Additional paid-in capital..................... 42,402,456 105,366,954 144,153,906
Notes receivable from stockholders............. (200,474) (606,624) (431,624)
Deferred compensation.......................... (2,114,835) (1,925,998) (1,605,523)
Accumulated deficit............................ (19,698,769) (51,552,706) (62,487,469)
------------ ------------ ------------
Total stockholders' equity................ 20,424,186 51,332,831 79,685,952
------------ ------------ ------------
Total liabilities and stockholders'
equity................................. $ 24,439,929 $ 63,700,445 $ 94,816,352
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 75
TRITON NETWORK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------- --------------------------
1997 1998 1999 1999 2000
------------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................... $ -- $ -- $ -- $ -- $ 3,496,939
Cost of revenues........... -- -- -- -- 5,162,388
----------- ------------ ------------ ----------- ------------
Gross profit (loss)........ -- -- -- -- (1,665,449)
Operating expenses:
Manufacturing and
operations............ -- 2,325,681 7,989,575 2,718,816 --
Research and
development........... 1,894,644 8,494,207 12,631,231 2,843,582 4,161,280
Selling and marketing.... 162,475 2,444,802 6,111,074 1,612,331 3,337,357
General and
administrative........ 500,911 1,747,956 4,473,094 557,281 1,869,319
Royalty expense.......... -- 2,800,000 -- -- --
Amortization of deferred
compensation.......... -- 292,353 1,560,877 378,274 320,475
----------- ------------ ------------ ----------- ------------
2,558,030 18,104,999 32,765,851 8,110,284 9,688,431
----------- ------------ ------------ ----------- ------------
Loss from operations....... (2,558,030) (18,104,999) (32,765,851) (8,110,284) (11,353,880)
Other income (expenses):
Interest income.......... 85,934 1,065,805 1,336,744 303,641 564,104
Interest expense......... (310) (160,363) (425,905) (81,079) (134,750)
Other income
(expenses)............ (2,295) (24,511) 1,075 (887) (10,237)
----------- ------------ ------------ ----------- ------------
83,329 880,931 911,914 221,675 419,117
----------- ------------ ------------ ----------- ------------
Net loss................... $(2,474,701) $(17,224,068) $(31,853,937) $(7,888,609) $(10,934,763)
=========== ============ ============ =========== ============
Net loss per share -- basic
and diluted.............. $ (1.01) $ (5.07) $ (6.67) $ (1.84) $ (2.02)
=========== ============ ============ =========== ============
Shares used in per share
calculations -- basic and
diluted.................. 2,456,995 3,395,300 4,776,567 4,295,326 5,407,418
=========== ============ ============ =========== ============
Pro forma net loss per
common share (unaudited):
Net loss per
share -- basic and
diluted............... $ (1.64) $ (0.45)
============ ============
Shares used in per share
calculations -- basic
and diluted........... 19,400,204 24,213,887
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 76
TRITON NETWORK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK NOTES
--------------------- --------------------- ADDITIONAL RECEIVABLE
SHARES PAR SHARES PAR PAID-IN DEFERRED FROM
OUTSTANDING VALUE OUTSTANDING VALUE CAPITAL COMPENSATION STOCKHOLDERS
----------- ------- ----------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A preferred
stock, net of expenses...... 7,200,000 $14,400 -- $ $ 13,555,236 $ --
Issuance of common stock...... -- -- 4,249,986 8,500 136,594 (137,974)
Forgiveness of debt by
stockholder................. -- -- -- -- 1,403,973 --
Net loss...................... -- -- -- -- -- --
---------- ------- ---------- ------- ------------ ----------- ---------
Balances at December 31,
1997.......................... 7,200,000 14,400 4,249,986 8,500 15,095,803 (137,974)
Issuance of Series B preferred
stock, net of expenses...... 4,463,000 8,926 -- -- 21,726,116 --
Issuance of common stock...... -- -- 800,000 1,600 2,798,400 --
Issuance of common stock upon
exercise of stock options... -- -- 1,191,063 2,382 374,949 (62,500)
Deferred compensation related
to stock option grants...... 2,407,188 (2,407,188)
Amortization of deferred
compensation................ 292,353
Net loss...................... -- -- -- -- -- --
---------- ------- ---------- ------- ------------ ----------- ---------
Balances at December 31,
1998.......................... 11,663,000 23,326 6,241,049 12,482 42,402,456 (2,114,835) (200,474)
Issuance of Series B preferred
stock, net of expenses...... 2,090,969 4,182 -- -- 10,427,407 --
Issuance of Series C preferred
stock, net of expenses...... 5,052,500 10,105 -- -- 50,464,895 --
Issuance of common stock upon
exercise of stock options... -- -- 682,575 1,365 764,947 (441,150)
Repurchase of common stock.... -- -- (127,792) (255) (64,791) 35,000
Deferred compensation related
to stock option grants...... 1,372,040 (1,372,040)
Amortization of deferred
compensation................ 1,560,877
Net loss...................... -- -- -- -- -- --
---------- ------- ---------- ------- ------------ ----------- ---------
Balances at December 31,
1999.......................... 18,806,469 37,613 6,795,832 13,592 105,366,954 (1,925,998) (606,624)
Issuance of Series C preferred
stock....................... 2,750,000 5,500 -- -- 30,244,500 --
Issuance of common stock...... -- -- 2,500 5 24,995 --
Issuance of common stock upon
exercise of stock options... -- -- 25,100 50 26,200 --
Repurchase of common stock.... -- -- (48,969) (98) (24,027) 175,000
Other......................... -- -- -- -- 265,284 --
Amortization of deferred
compensation................ 320,475
Net loss......................
---------- ------- ---------- ------- ------------ ----------- ---------
Balance at March 31, 2000
(unaudited)................... 21,556,469 $43,113 6,774,463 $13,549 $135,903,906 $(1,605,523) $(431,624)
========== ======= ========== ======= ============ =========== =========
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- ------------
<S> <C> <C>
Issuance of Series A preferred
stock, net of expenses...... $ -- $ 13,569,636
Issuance of common stock...... -- 7,120
Forgiveness of debt by
stockholder................. -- 1,403,973
Net loss...................... (2,474,701) (2,474,701)
------------ ------------
Balances at December 31,
1997.......................... (2,474,701) 12,506,028
Issuance of Series B preferred
stock, net of expenses...... -- 21,735,042
Issuance of common stock...... -- 2,800,000
Issuance of common stock upon
exercise of stock options... -- 314,831
Deferred compensation related
to stock option grants...... --
Amortization of deferred
compensation................ 292,353
Net loss...................... (17,224,068) (17,224,068)
------------ ------------
Balances at December 31,
1998.......................... (19,698,769) 20,424,186
Issuance of Series B preferred
stock, net of expenses...... -- 10,431,589
Issuance of Series C preferred
stock, net of expenses...... -- 50,475,000
Issuance of common stock upon
exercise of stock options... -- 325,162
Repurchase of common stock.... -- (30,046)
Deferred compensation related
to stock option grants......
Amortization of deferred
compensation................ 1,560,877
Net loss...................... (31,853,937) (31,853,937)
------------ ------------
Balances at December 31,
1999.......................... (51,552,706) 51,332,831
Issuance of Series C preferred
stock....................... -- 30,250,000
Issuance of common stock...... -- 25,000
Issuance of common stock upon
exercise of stock options... -- 26,250
Repurchase of common stock.... -- 150,875
Other......................... -- 265,284
Amortization of deferred
compensation................ 320,475
Net loss...................... (10,934,763) (10,934,763)
------------ ------------
Balance at March 31, 2000
(unaudited)................... $(62,487,469) $ 71,435,952
============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 77
TRITON NETWORK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------- --------------------------
1997 1998 1999 1999 2000
------------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................. $(2,474,701) $(17,224,068) $(31,853,937) $(7,888,609) $(10,934,763)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 16,019 454,733 1,444,608 211,692 598,534
Extinguishment of royalty agreement....... -- 2,800,000 -- -- --
Amortization of deferred compensation..... -- 292,353 1,560,877 378,274 320,475
Other..................................... -- -- -- -- 265,284
Changes in operating assets and
liabilities, net of effects of
acquisition in 2000:
Increase in trade receivables........... -- -- -- -- (965,031)
Increase in inventory................... -- -- (7,244,874) -- (2,346,987)
Increase in other current assets........ (83,037) (111,184) (823,344) (41,590) (557,343)
Increase in restricted cash............. -- -- (650,000) -- (793,315)
Increase in other non-current assets.... -- (163,844) (565,266) (14,297) (70,421)
Increase in accounts payable, accrued
compensation and other accrued
expenses.............................. 1,367,961 1,828,155 6,656,892 1,163,538 992,314
----------- ------------ ------------ ----------- ------------
Net cash used in operating
activities......................... (1,173,758) (12,123,855) (31,475,044) (6,190,992) (13,491,253)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......... (175,464) (1,042,529) (4,501,112) (1,161,829) (2,976,065)
Sales (purchases) of short-term
investments............................... -- (11,003,876) 11,003,876 (6,015,968) --
----------- ------------ ------------ ----------- ------------
Net cash provided by (used in) investing
activities................................ (175,464) (12,046,405) 6,502,764 (7,177,797) (2,976,065)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of preferred and
common stock.............................. 13,576,756 22,049,873 61,201,706 10,571,995 202,211
Proceeds from notes payable................. -- -- 461,789 439,500 1,817,155
Borrowings from stockholder................. 248,501 -- -- -- --
Payments on capital leases and notes
payable................................... -- (31,890) (884,694) (93,991) (342,565)
----------- ------------ ------------ ----------- ------------
Net cash provided by financing activities... 13,825,257 22,017,983 60,778,801 10,917,504 1,676,801
Net increase (decrease) in cash and cash
equivalents............................... 12,476,035 (2,152,277) 35,806,521 (2,451,285) (14,790,517)
Cash and cash equivalents at beginning of
period.................................... -- 12,476,035 10,323,758 21,327,634 46,130,279
----------- ------------ ------------ ----------- ------------
Cash and cash equivalents at end of
period.................................... $12,476,035 $ 10,323,758 $ 46,130,279 $18,876,349 $ 31,339,762
=========== ============ ============ =========== ============
</TABLE>
F-6
<PAGE> 78
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------- --------------------------
1997 1998 1999 1999 2000
------------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid............................... $ -- $ 160,363 $ 425,905 $ 81,079 $ 134,750
=========== ============ ============ =========== ============
NON-CASH FINANCING AND INVESTING ACTIVITIES
Fixed assets acquired under capital lease
obligations............................... $ 3,706 $ 1,931,043 $ 2,117,842 $ 839,962 $ 223,979
=========== ============ ============ =========== ============
Common stock issued in connection with
extinguishment of royalty agreement....... $ -- $ 2,800,000 $ -- $ $
=========== ============ ============ =========== ============
Common stock issued for notes receivable
from stockholders......................... $ 137,974 $ 62,500 $ 441,150 $ $
=========== ============ ============ =========== ============
Common stock warrants issued in connection
with lease and credit agreements.......... $ -- $ 87,500 $ -- $ -- $ 360,000
=========== ============ ============ =========== ============
Common stock warrants issued for services in
connection with Series A offering......... $ 250,000 $ -- $ -- $ -- $ --
=========== ============ ============ =========== ============
Forgiveness of accounts payable for expenses
paid by stockholder....................... $ 1,079,526 $ -- $ -- $ -- $ --
=========== ============ ============ =========== ============
Forgiveness of accounts payable for purchase
of property and equipment by
stockholder............................... $ 75,946 $ -- $ -- $ -- $ --
=========== ============ ============ =========== ============
Forgiveness of accounts payable for
borrowings from stockholder............... $ 248,501 $ -- $ -- $ -- $ --
=========== ============ ============ =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 79
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Triton Network Systems, Inc., a Delaware corporation (the Company), was
incorporated on March 5, 1997 and is based in Orlando, Florida. The Company
operates in one business segment as defined by Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise, and provides
broadband wireless equipment that enables communications service providers to
deliver voice, video and data services to their business customers. Through
December 31, 1998, the Company was in the development stage. As of December 31,
1998, the Company had an accumulated deficit of $19,698,769. The Company emerged
from the development stage in 1999 when it began to produce its products for
commercial sales.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, TNS Finance Company, Inc. All intercompany
transactions have been eliminated.
UNAUDITED INTERIM FINANCIAL DATA
The financial information as of March 31, 2000 and for the three months
ended March 31, 1999 and 2000 is unaudited. In the opinion of management, the
interim financial information includes all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. The results of operations for the three months ended March 31,
2000 are not necessarily indicative of the results to be expected for any future
period.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid instruments with a maturity of
three months or less at the date of purchase to be cash equivalents. Short-term
investments generally mature between 3 - 12 months from the purchase date. All
cash equivalents and short-term investments are classified as held to maturity
and are recorded at amortized cost, which approximates market. Restricted cash
exclusively secures letters of credit obtained by the Company.
The cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Manufacturing, development, and test equipment.............. 3 - 7 years
Computer equipment and software............................. 3 - 5 years
Leasehold improvements...................................... 5 years
Office furniture and other.................................. 3 - 7 years
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue upon shipment, provided no significant
obligations remain and collection is probable. The Company does not recognize
revenue on the shipment of product for field
F-8
<PAGE> 80
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
trials where the customer has the option of returning the equipment at no cost.
Revenue from service and support arrangements is recognized ratably over the
service period.
WARRANTY COSTS
The Company provides for estimated future warranty costs at the time
revenue is recognized.
INVENTORY
Inventory is stated at the lower of cost, determined based on an average
cost basis, or market. Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
Raw materials................................ $3,347,540 $ 5,534,951
Work in process.............................. 1,535,916 2,209,329
Finished goods............................... 2,361,418 2,347,581
---------- -----------
$7,244,874 $10,091,861
========== ===========
</TABLE>
RESEARCH AND DEVELOPMENT EXPENDITURES
Expenditures for research and development are expensed as incurred.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
LONG-LIVED ASSETS
The Company periodically evaluates the recoverability of its long-lived
assets based on expected undiscounted cash flows and will recognize impairment
of the carrying value of long-lived assets, if any is indicated, based on the
fair value of such assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash and cash equivalents, accounts payable
and accrued expenses approximate their carrying values due to their short-term
nature. The fair value of the Company's capital lease and note payable
obligations approximates their carrying value based on interest rates currently
available for instruments with similar terms.
F-9
<PAGE> 81
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation under the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25) and complies with the disclosure provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (FAS 123). Accounting for the issuance of stock options under the
provisions of APB 25 does not result in compensation expense for the Company
when the exercise price of options granted equals the fair value of the
Company's common stock on the date of award.
EARNINGS PER SHARE
Basic income (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted average common shares
outstanding for the period. Diluted income (loss) per share is computed giving
effect to all potentially dilutive common shares. Potentially dilutive common
shares may consist of incremental shares issuable upon the exercise of stock
options, adjusted for the assumed repurchase of the Company's common stock, at
the average market price, from the exercise proceeds and also may include
incremental shares issuable in connection with convertible securities. In
periods in which a net loss has been incurred, all potentially dilutive common
shares are considered antidilutive and thus are excluded from the calculation.
See Note 7 for the computation of net loss per share data and Note 6 for the
number of common shares subject to repurchase that are not included in the
calculation of basic and diluted loss per share.
DERIVATIVES
The Financial Accounting Standards Board Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities (FAS 133), as amended, is
effective for financial statements for all fiscal years beginning after June 15,
2000. FAS 133 requires the recognition of all derivatives in the consolidated
balance sheet as either assets or liabilities measured at fair value. Management
does not anticipate the adoption of FAS 133 will have a material impact on
results of operations, cash flows, or financial position of the Company.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, Reporting Comprehensive Income (FAS 130). FAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net loss or stockholders' equity. The Company had no items of
comprehensive income other than net loss.
SOFTWARE
The Company capitalizes software purchased for internal use as property and
equipment and amortizes the cost over the estimated useful life.
F-10
<PAGE> 82
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company's financial instruments that are exposed to concentrations of
credit risk consist of cash, cash equivalents and short-term securities. The
Company places its cash, cash equivalents and short-term securities with high
credit quality institutions. Securities held at these institutions may exceed
the amount of insurance provided for such securities.
Cash, cash equivalents and short-term investments are composed of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Cash................................................. $ 4,351,380 $ 543,690
Money market funds................................... -- 45,586,589
Commercial paper and government securities 90 days or
less.............................................. 5,972,378 --
----------- -----------
$10,323,758 $46,130,279
=========== ===========
Short-term investments:
Commercial paper..................................... $ 5,992,114 $ --
Government securities................................ 5,011,762 --
----------- -----------
$11,003,876 $ --
=========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Manufacturing, development, and test equipment.......... $ 717,510 $ 4,997,206
Computer equipment and software......................... 936,339 2,439,256
Leasehold improvements.................................. 362,332 473,078
Office furniture and other.............................. 1,205,075 1,929,745
---------- -----------
3,221,256 9,839,285
Less accumulated depreciation and amortization.......... (467,026) (1,868,911)
---------- -----------
$2,754,230 $ 7,970,374
========== ===========
</TABLE>
Depreciation of capital lease assets is included in depreciation expense.
The total cost and accumulated depreciation related to capital lease purchases
were $1,931,043 and $238,632, respectively for 1998 and $4,048,885 and
$1,060,125, respectively for 1999.
F-11
<PAGE> 83
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT
During 1998, the Company entered into four lease agreements which provide
up to $8,000,000 to finance manufacturing, development, and test equipment and
furniture purchases during 1998 and 1999. At December 31, 1998 and 1999,
$1,899,153 and $3,247,552, respectively, was outstanding under the lease
agreements. In connection with the 1998 leases, the Company issued warrants to
the lessors, entitling them to purchase an aggregate of 72,500 shares of common
stock at an exercise price of $1.00 per share. The warrants are exercisable at
any time up to their expiration date. The expiration date of 50,000 of the
warrants is January 2003, and the balance of the warrants expires in January
2005 or three years after the effective date of a "Qualified Initial Public
Offering," whichever is longer.
Future minimum lease payments under capital leases were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000....................................................... $ 1,621,118
2001....................................................... 1,594,519
2002....................................................... 559,954
-----------
Total minimum lease payments............................... 3,775,591
Less imputed interest...................................... (528,039)
-----------
Present value of lease payments............................ 3,247,552
Less current portion....................................... (1,279,862)
-----------
Long-term capital lease obligations........................ $ 1,967,690
===========
</TABLE>
In 1999, the Company entered into a note payable with a third party in the
amount of $379,500. The note bears interest at 11% per annum and is payable over
36 months. As of December 31, 1999, remaining principal payments on all notes
payable of $159,140 and $187,440 are due in 2000 and 2001, respectively.
The Company had an unsecured $1.0 million revolving credit agreement with a
bank which expired in September 1999. There were no borrowings under this
agreement. During 1999 and the first quarter of 2000, the bank issued letters of
credit as security deposits for the Company's leased facilities. The outstanding
letters of credit, which are fully collateralized with a certificate of deposit
held in escrow, were $650,000 at December 31, 1999 and $1,443,315 (unaudited) at
March 31, 2000. In connection with this credit agreement, the Company issued
warrants to the lessor, entitling them to purchase an aggregate of 15,000 shares
of common stock at an exercise price of $1.00 per share. In accordance with the
agreement, the warrants are exercisable at any time up to March 2003.
5. INCOME TAXES
In accordance with Statement of Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes, a valuation allowance has been
recorded to reduce the deferred tax assets to zero, as the Company is presently
not able to conclude that it is probable that the deferred taxes will be
realized. At December 31, 1999, the Company has available net operating loss
carryforwards of $1,427,000 which expire in 2012, $8,097,000 which expire in
2018, and $11,869,000 which expire in 2019. As a result of equity transactions
that have occurred since the Company's inception, an "ownership change" as
defined under Section 382 of the Internal Revenue Code may have occurred which
may limit the use of the Company's net operating loss carryforwards and
F-12
<PAGE> 84
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
deductions for capitalized start-up costs in the future. Management has not
completed the complex analysis to determine the amounts subject to limitation
and the amount of the limitation.
A reconciliation of income tax computed at the U.S. federal statutory rates
to income tax benefit is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1997
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1997 1998 1999
------------- ----------- ------------
<S> <C> <C> <C>
Income tax benefits computed at the federal
statutory rate of 34%....................... $(841,398) $(5,856,183) $(10,830,339)
State income tax benefits, net of federal
benefit..................................... (89,832) (623,679) (1,156,298)
Nondeductible items........................... 1,969 14,561 45,723
Increase in valuation allowance............... 929,261 6,465,301 11,940,914
--------- ----------- ------------
Total......................................... $ -- $ -- $ --
========= =========== ============
</TABLE>
The components of the deferred tax balances are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Capitalized start-up costs.......................... $ 4,018,143 $ 11,285,410
Net operating loss carryforwards.................... 3,376,419 8,050,066
----------- ------------
Total deferred tax assets......................... 7,394,562 19,335,476
Valuation allowance............................... (7,394,562) (19,335,476)
----------- ------------
Total net deferred taxes.......................... $ -- $ --
=========== ============
</TABLE>
6. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
The Company has been authorized, by approval of the Board of Directors in
October 1999, to issue 30,500,000 shares of common stock, $0.001 par value, and
18,852,500 shares of preferred stock, $0.001 par value. Since inception, the
Company has not declared or paid a cash dividend.
During the three months ended March 31, 2000, the stockholders approved an
increase to the authorized shares of the Series C preferred stock to 7,802,500
(unaudited) and to increase the authorized shares of common stock to 33,250,000
(unaudited).
The holders of the Company's Series A preferred stock are entitled to
receive dividends at the rate of $0.16 per share, noncumulative, if declared by
the Board of Directors. Each share of Series A preferred stock is convertible at
any time into one share of common stock (subject to adjustment in the event of
future dilution). The liquidation value of each share of Series A preferred
stock is $2.00 plus an amount equal to all declared but unpaid dividends.
F-13
<PAGE> 85
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The holders of the Company's Series B preferred stock are entitled to
receive dividends at the rate of $0.40 per share, noncumulative, if declared by
the Board of Directors. Each share of Series B preferred stock is convertible at
any time into one share of common stock (subject to adjustment in the event of
future dilution). The liquidation value of each share of Series B preferred
stock is $5.00 plus an amount equal to all declared but unpaid dividends.
The holders of the Company's Series C preferred stock are entitled to
receive dividends at the rate of $0.80 per share, noncumulative, if declared by
the Board of Directors. Each share of Series C preferred stock is convertible at
any time into one share of common stock (subject to adjustment in the event of
future dilution). The conversion rate increases to 1.43 shares of common stock
for every share of Series C preferred stock if the Company does not recognize
net revenues of at least $50 million for the year ending December 31, 2000. The
liquidation value of each share of Series C preferred stock is $10.00 plus an
amount equal to all declared but unpaid dividends.
Holders of each share of Series A, B, and C preferred stock have voting
rights and powers equal to the voting rights and powers of the common stock. The
holder of each share of Series A, B, and C preferred stock is entitled to the
number of votes equal to the largest number of full shares of common stock into
which each share of preferred stock can be converted. In the event the Company
completes an initial public offering, each share of Series A, B, and C preferred
stock automatically converts to common stock on a one for one basis.
In April and November 1997, the Company issued 402,632 and 689,868 shares,
respectively, of common stock to certain members of management at $0.02 and
$0.20 per share, respectively, for aggregate proceeds of $138,779. The amount
paid per share was determined by the Board of Directors to be fair market value
of the stock at the date of issuance. The shares issued in November 1997 were to
three members of management who issued promissory notes for the aggregate
purchase price of $137,974. The notes bear interest at 5.81% per annum and are
due from December 31, 2000 to December 31, 2002 or within 30 days of termination
of employment from the Company. The shares issued to these individuals are
subject to the Company's right to repurchase at the original purchase price. The
Company's right to repurchase expires over a four year period with 25% expiring
one year from the grant date, and 1/48 each month thereafter.
In November 1997, the Company sold 7,200,000 shares of Series A convertible
preferred stock at a price of $2.00 per share for an aggregate of $14,400,000.
In May and July 1998, the Company sold 4,463,000 shares of Series B convertible
preferred stock at a price of $5.00 per share for an aggregate of $22,315,000.
In January 1999, the Company sold 2,090,969 shares of Series B convertible
preferred stock at a price of $5.00 per share for an aggregate of $10,455,000.
In October 1999, the Company sold 5,052,500 shares of Series C convertible
preferred stock at a price of $10.00 per share for an aggregate of $50,525,000.
STOCK OPTIONS
The Company has a stock option plan (Plan), as amended, that provides for
the issuance of up to 5,270,000 shares of common stock to employees and
directors. The Company's Plan provides for the issuance of both incentive stock
options and nonqualified stock options exercisable for a period of 10 years. The
exercise prices of stock options which have been granted were at amounts which
management determined to approximate the fair value of the Company's common
stock at the date
F-14
<PAGE> 86
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
of grant. The options vest over a four-year period with 25% vesting one year
from the date of grant or issuance, and 1/48 vesting monthly thereafter. The
Plan provides for the issue of restricted stock if options are exercised prior
to their vesting date. In the event of discontinuation of service by option
holders, the Company has a right, at its option, to repurchase any unvested
restricted shares at their original purchase price. During 1999, the Company
repurchased 127,792 shares of restricted common stock. At December 31, 1997,
1998, and 1999 and March 31, 2000 the Company had the right to repurchase
1,124,266, 2,584,246, 1,553,623 and 1,307,793 shares of outstanding common
stock, respectively.
In 1998, two members of management exercised stock options to purchase
250,000 restricted shares of the Company's common stock at the exercise price of
$0.50 per share, for an aggregate purchase price of $125,000 which was paid by
cash of $62,500 and delivery of promissory notes for $62,500. The notes, along
with accrued interest (5.1% per annum), are due the earlier of December 31, 2003
or within 30 days of termination of employment from the Company.
In 1999, three members of management exercised stock options to purchase
415,000 restricted shares of the Company's common stock at exercise prices
ranging from $0.50 to $6.00 per share, for an aggregate purchase price of
$582,500 which was paid by cash of $141,350 and delivery of promissory notes of
$441,150. The notes, along with accrued interest (5.1% per annum), are due at
various dates in 2004 or within 30 days of termination of employment from the
Company. A promissory note in the amount of $35,000 was repaid in conjunction
with the repurchase by the Company of 127,792 shares of restricted common stock
associated with a management resignation.
Outstanding options are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at March 5, 1997 (date of inception).......... -- --
Granted............................................. 257,500 $0.20
----------
Balance at December 31, 1997.......................... 257,500 0.20
Granted............................................. 1,833,438 0.40
Forfeited........................................... (11,500) 0.50
Exercised........................................... (1,191,063) 0.32
----------
Balance at December 31, 1998.......................... 888,375 0.48
Granted............................................. 1,491,575 5.12
Cancelled........................................... (125,613) 0.52
Exercised........................................... (682,575) 1.12
----------
Balance at December 31, 1999.......................... 1,571,762 4.58
Granted (unaudited)................................. 567,513 23.20
Cancelled (unaudited)............................... (21,738) 2.92
Exercised (unaudited)............................... (25,100) 1.04
----------
Balance at March 31, 2000 (unaudited)................. 2,092,437 $9.70
==========
</TABLE>
F-15
<PAGE> 87
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
RANGE OF REMAINING CONTRACTUAL WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER OUTSTANDING LIFE IN YEARS EXERCISE PRICE
--------------- ------------------ --------------------- ----------------
<S> <C> <C> <C>
$0.20 - 1.00 356,500 8.7 $0.50
$2.00 - 5.00 813,587 9.6 $4.80
$6.00 - 10.00 401,675 9.8 $7.80
</TABLE>
FAS 123 requires disclosure of pro forma information which provides the
effects on net loss and loss per share as if the Company had accounted for its
employee stock awards under the fair value method. The fair value of the
Company's employee stock awards was estimated using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997, 1998 and
1999: risk-free interest rates of 4.68% - 5.89%; stock price volatility factors
of 69% - 100%, and expected option lives of 3 - 10 years. The Company does not
have a history of paying dividends, and none have been assumed in estimating the
fair value of the options. The weighted-average fair value per share of options
granted in 1997, 1998 and 1999 was $0.20, $0.40 and $3.30, respectively. The pro
forma effect on net loss is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1997
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1997 1998 1999
------------- ------------ ------------
<S> <C> <C> <C>
Net Loss:
As reported................................ $(2,474,701) $(17,224,068) $(31,853,937)
Pro forma.................................. $(2,476,977) $(17,265,751) $(32,558,976)
Net loss per share:
As reported -- basic and diluted........... $ (1.01) $ (5.07) $ (6.67)
Pro forma -- basic and diluted............. $ (1.01) $ (5.09) $ (6.82)
</TABLE>
Because the fair value of accounting for options applies only to options
granted subsequent to March 5, 1997, the pro forma effect will not be fully
reflected until 2001.
In connection with services as placement agent for the Series A preferred
stock offering, in November 1997, the Company granted warrants to the agent to
purchase an aggregate of 250,000 shares of common stock, subject to adjustment
for anti-dilution, at a price of $1.00 per share. The warrants are exercisable
at any time before the earlier of a "Qualified Initial Public Offering" of the
Company or October 2004.
During 1998, the Company issued, in connection with the implementation of
its leasing facilities and credit agreements, 87,500 warrants at an exercise per
share of $1.00. See Note 4 for further information.
F-16
<PAGE> 88
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
RESERVED STOCK
Common stock has been reserved for the following purposes:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Number of warrants outstanding........................... 250,000 337,500 337,500
Number of options outstanding............................ 257,500 888,375 1,571,762
Number of options available for grant under the stock
option plans........................................... 1,742,500 940,563 452,393
--------- --------- ---------
2,250,000 2,166,438 2,361,655
========= ========= =========
</TABLE>
DEFERRED COMPENSATION
In connection with the grant of certain stock options to employees during
the years ended December 31, 1998 and 1999, the Company recorded deferred
compensation of approximately $3,800,000 representing the difference between the
deemed value of the common stock for accounting purposes and the stock option
exercise price of such stock options at the date of grant. Such amount is
presented as a reduction of stockholders' equity and amortized as charges to
operations on an accelerated basis over the vesting period (generally four
years) consistent with the method described in Financial Accounting Standards
Board Interpretation No. 28. Amortization was approximately $292,000, $1,561,000
and $320,000 for the years ended December 31, 1998 and 1999, and the three
months ended March 31, 2000, respectively.
7. LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss
per common share:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1997
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
DECEMBER 31, ---------------------------- -----------------------------
1997 1998 1999 1999 2000
------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss............. $(2,474,701) $(17,224,068) $(31,853,937) $(7,888,609) $(10,934,763)
Denominator for basic
and diluted loss
per common share:
Weighted-average
shares
outstanding........ 2,456,995 3,395,300 4,776,567 4,295,326 5,407,418
----------- ------------ ------------ ----------- ------------
Net loss per common
share.............. $ (1.01) $ (5.07) $ (6.67) $ (1.84) $ (2.02)
=========== ============ ============ =========== ============
</TABLE>
F-17
<PAGE> 89
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LOSS PER COMMON SHARE (CONTINUED)
The weighted-average shares outstanding include all common stock issued.
Restricted shares issued are not included in basic or diluted loss per share in
accordance with Statement of Financial Accounting Standards Board Statement No.
128, Earnings Per Share. In computing diluted loss per share, outstanding
preferred stock, stock options and common stock warrants in the amount of
7,707,500, 12,888,875, 20,715,731, and 14,620,219 and 24,008,628 for the period
March 5, 1997 through December 31, 1997 and for the years ended December 31,
1998 and 1999 and for the three months ended March 31, 1999 and 2000,
respectively, were excluded from the diluted loss per share computation because
their effects would have been anti-dilutive.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1999 and the
three months ended March 31, 2000, is computed using the weighted-average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A, B and C preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred at the date of original issuance.
The resulting pro forma adjustment includes an increase in the weighted-average
shares used to compute basic and diluted net loss per share of 14,623,637 and
18,806,469 for the year ended December 31, 1999 and the three months ended March
31, 2000, respectively.
8. RELATED PARTY TRANSACTIONS
During 1997, 1998, and 1999, the Company entered into several contracts
with a stockholder to provide engineering services and component parts to be
used in the Company's products. The Company pays the stockholder on a cost
reimbursable basis plus a fee. Through December 31, 1997, 1998 and 1999 the
Company expensed as research and development expenses of approximately
$1,490,000, $3,813,000, $3,175,000, respectively, under the contracts. In
addition, the Company purchased approximately $2,311,000 in component parts
during 1999, which are included in inventory at December 31, 1999. Amounts
payable to the stockholder at December 31, 1998 and 1999, were approximately
$169,000, $1,122,000, respectively. At December 31, 1999, the Company had a firm
purchase commitment with the stockholder in the amount of approximately
$12,000,000 for component parts.
In 1997, the Company entered into a royalty agreement with the Stockholder,
which provided for payments of royalty for a five-year period starting at the
date of the first sale. In 1998, the Company issued 800,000 shares of common
stock to the Stockholder in satisfaction of the existing royalty agreement,
whereby the Stockholder relinquished all rights to future income streams. The
Company expensed $2,800,000 in 1998 based on the termination of the royalty
agreement.
During 1997, a stockholder of the Company paid approximately $1,080,000 in
expenses, purchased approximately $76,000 of equipment and furniture, and
advanced approximately $250,000 in cash on behalf of the Company. The Company
recorded expenses, equipment and furniture purchases, cash, and a payable due to
the stockholder as these payments and advances were made on its behalf. In
November 1997, the stockholder forgave the debt and the Company reclassified the
approximately $1,400,000 payable to the stockholder to additional paid-in
capital.
F-18
<PAGE> 90
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
During 1997 and 1998, the Company had consulting agreements with two
stockholders and a member of the Board of Directors. Approximately $36,000 and
$181,000 and were expensed in 1997 and 1998, respectively, under these
agreements which are no longer in place.
During 1999, the Company had consulting agreements with a stockholder, a
member of the Board of Directors, and an immediate relative of a member of the
Board of Directors. Approximately $170,000 was expensed in 1999 under these
agreements.
During 1999, the Company loaned a member of management $300,000 in exchange
for a promissory note payable, which is secured by certain real estate. The note
is payable on September 30, 2004, or earlier if certain events occur.
9. COMMITMENTS
The Company leases certain facilities and equipment under operating leases,
which require future rental payments. These rental arrangements do not impose
any financing or dividend restrictions on the Company or contain contingent
rental provisions. Certain of these leases have renewal and purchase options
generally at the fair value at the renewal or purchase option date. Rent expense
under operating leases was $61,550, $406,348 and $1,005,359 during 1997, 1998
and 1999, respectively.
Future minimum lease payments under operating leases were as follows:
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDING DECEMBER 31
2000........................................................ $1,522,753
2001........................................................ 1,784,603
2002........................................................ 1,799,644
2003........................................................ 1,396,934
2004........................................................ 999,737
Thereafter.................................................. 2,174,308
----------
$9,677,979
==========
</TABLE>
10. SUBSEQUENT EVENTS
ACQUISITION
On March 31, 2000, the Company completed the purchase of the broadband
modem product line from International Business Machines for 2.75 million shares
of series C preferred stock, which was valued at approximately $38.5 million.
The purchase price was allocated to net assets in the amount of approximately
$2.3 million and intangible assets, which consist of patent and patent
application licenses and patent disclosures, in the amount of approximately
$36.2 million. The purchase price was based on the fair value of the series C
preferred stock using the mid-point of the Company's initial public offering
filing price per share range or $14.00 per share. The fair value of the series C
preferred stock will be finalized once the final pricing of the Company's
initial public offering is completed and consequently, the allocation of the
purchase price is preliminary and subject to adjustment. The intangible assets
will be amortized over five years.
F-19
<PAGE> 91
TRITON NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (CONTINUED)
CREDIT AGREEMENT
On February 25, 2000, the Company entered into an agreement with a
financial institution to borrow up to $9.0 million in 2000 for capital equipment
purchases, furniture and software. Up to $5.0 million of the borrowings are
repayable over four years and will bear interest at an annual rate of 13.16% and
up to $4.0 million is repayable over three years with an annual rate of interest
of 10.4%. As of March 31, 2000, the Company had outstanding borrowings under
this agreement of approximately $2 million and the available borrowings were
approximately $5.0 million. An additional $2.0 million will be available upon
completion of an initial public offering. The agreement includes no financial
covenants and the specific equipment, furniture and software purchased with the
borrowings will serve as security for the loans. Under the agreement, the
Company issued warrants to purchase the Company's common stock in the amount of
4% of the currently available borrowing base, or $280,000. The exercise price of
these warrants is 90% of the price of the Company's initial public offering
price per share. If the Company does not complete an initial public offering
prior to the first anniversary of the agreement the exercise price of these
warrants will be $10.00 per share. The Company has also issued an additional
$80,000 worth of warrants which will become exercisable only upon completion of
an initial public offering. The exercise price of these warrants will be 90% of
the price of the Company's initial public offering price per share.
INITIAL PUBLIC OFFERING
In February 2000, the Company's Board of Directors authorized the Company
to file a Registration Statement with the Securities and Exchange Commission to
permit the Company to proceed with an initial public offering of its common
stock. Upon consummation of this offering, all of the outstanding series A, B,
and C preferred stock will be converted into 21,556,469 shares of common stock.
Upon completion of the initial public offering, the Company's Certificate of
Incorporation will be amended to authorize 120,000,000 shares of common stock
and 10,000,000 shares of preferred stock.
2000 EMPLOYEE STOCK PURCHASE PLAN
In February 2000, the board of directors approved, subject to shareholder
approval, the Company's 2000 employee stock purchase plan (the "Plan"). A total
of 250,000 shares of common stock have been reserved for the Plan. The Plan
permits eligible participants to purchase common stock at 85% of the fair market
value at the beginning or end of the offering period (whichever is lower),
through payroll deductions of up to 10% of the participant's compensation. The
first offering period will commence on the first day of trading subsequent to
the Company's initial public offering.
STOCK SPLIT
In June 2000 the Company's board of directors approved a one-for-two
reverse stock split of all outstanding shares which became effective on July 10,
2000. All share and per share information included in these consolidated
financials have been retroactively adjusted to reflect this stock split.
F-20
<PAGE> 92
TRITON NETWORK SYSTEMS(TM) LOGO
<PAGE> 93
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 Triton Network Systems, Inc.
in connection with the sale of common stock being registered. All amounts are
estimates except the Securities and Exchange Commission registration fee and the
NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 25,047
NASD filing fee............................................. 8,000
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving costs................................ 250,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 250,000
Blue Sky fees and expenses.................................. 5,000
Transfer Agent and Registrar fees........................... 5,000
Miscellaneous expenses...................................... 600,000
----------
Total............................................. $1,738,047
==========
</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 third parties acting on behalf of
the Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
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 March 1997, we sold 40,000 shares of our common stock at a price of
$0.002 per share to an investor for $80.
<PAGE> 94
(2) In April 1997, we sold an aggregate of 1,790,437 shares of our common
stock at a price of $0.002 per share to investors for an aggregate
purchase price of $3,580.87.
(3) In May 1997, we sold an aggregate of 737,529 shares of our common
stock at a price of $0.002 per share to investors for an aggregate
purchase price of $1,475.06.
(4) In June 1997, we sold an aggregate of 347,939 shares of our common
stock at a price of $0.002 per share to investors for an aggregate
purchase price of $695.88.
(5) In July 1997, we sold 4,168 shares of our common stock at a price of
$0.002 per share to investors for an aggregate purchase price of
$8.34.
(6) In August 1997, we sold an aggregate of 80,468 shares of our common
stock at a price of $0.002 per share to investors for an aggregate
purchase price of $160.94.
(7) In October 1997, we sold 50,000 shares of our common stock at a price
of $0.002 per share to investors for a purchase price of $100.
(8) In November 1997, we issued an aggregate of 499,529 shares of our
common stock to our existing stockholders pursuant to a stock split.
(10) In November 1997, we sold an aggregate of 689,868 shares of our common
stock at a price of $0.20 per share to investors for an aggregate
purchase price of $137,973.60.
(11) In November 1997, we sold an aggregate of 5,025 shares of our common
stock at a price of $0.20 per share to investors for an aggregate
purchase price of $1,005.
(12) In December 1997, we sold an aggregate of 5,025 shares of our common
stock at a price of $0.20 per share to investors for an aggregate
purchase price of $1,005.
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 under 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 employment or other relationships, to such
information.
Preferred Stock:
(1) In November 1997, we sold 7,200,000 shares of our series A preferred
stock at a price of $2.00 per share to a group of investors for an
aggregate purchase price of $14,400,000.
(2) In May 1998, July 1998 and January 1999, we sold an aggregate of
6,553,969 shares of our series B preferred stock at a price of $5.00
per share to a group of investors for an aggregate purchase price of
$32,769,845.
(3) In October 1999 and November 1999, we sold an aggregate of 5,052,500
shares of our series C preferred stock at a price of $10.00 per share
to a group of investors for an aggregate purchase price of $50,525,000.
(4) In March 2000, in connection with our acquisition of International
Business Machines Corporation's broadband modem product line, we issued
2,750,000 shares of our series C preferred stock to International
Business Machines Corporation.
II-2
<PAGE> 95
The sales of the above securities were deemed to be exempt from
registration in reliance on Regulation D under the Securities Act in the case of
(1) and Section 4(2) of the Securities Act in the case of (2) (3) and (4)
promulgated thereunder 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 employment
or other relationships, to such information.
Stock Options:
(1) From inception through March 2000, we granted stock options to acquire
an aggregate of 4,150,025 shares of our common stock at prices ranging
from $0.20 to $24.00 per share to employees, consultants and directors
pursuant to our 1997 Stock Plan.
(2) From inception through March 2000, we issued an aggregate of 1,898,738
shares of our common stock to employees, consultants and directors
pursuant to the exercise of stock options granted under our 1997 Stock
Plan, for aggregate consideration of $1,169,494.
The sales of the above securities were deemed to be exempt from
registration in reliance on Rule 701 promulgated under Section 3(b) under the
Securities Act as transactions pursuant to a compensatory benefit plan or a
written contract relating to compensation.
Common Stock Warrants:
(1) In November 1997, we issued warrants to acquire an aggregate of 250,000
shares of our common stock at an exercise price of $1.00 per share to
consultants.
(2) In January 1998, we issued a warrant to acquire 22,500 shares of our
common stock at an exercise price of $1.00 per share to an equipment
lessor.
(3) In February 1998, we issued a warrant to acquire 50,000 shares of our
common stock at an exercise price of $1.00 per share to an equipment
lessor.
(4) In April 1998, we issued a warrant to acquire 15,000 shares of our
common stock at an exercise price of $1.00 per share to a lender.
(5) In February 2000, we issued a warrant to acquire our common stock in
the amount of $280,000, at an exercise price to be determined at the
time of our initial public offering, to a lender.
(6) In February 2000, we issued a warrant to acquire our common stock in
the amount of $80,000, at an exercise price to be determined at the
time of four initial public offering, to a lender.
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.
II-3
<PAGE> 96
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Relationships and Related Transactions" in the form of prospectus included
herein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
1.1** Form of Underwriting Agreement
3.1** Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2** Form of Amended and Restated Bylaws of the Registrant
4.1** Form of stock certificate
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1** Amended and Restated 1997 Stock Plan
10.2** 2000 Employee Stock Purchase Plan
10.3** Restated Investor Rights Agreement, dated October 18, 1999,
between the Registrant and certain stockholders
10.4** Lease by and between Gran Central Corporation and Triton
Network Systems, dated March 26, 1998
10.5** Lease by and between Gran Central Corporation and Triton
Network Systems, dated May 5, 1998
10.5.1** Lease by and between Gran Central Corporation and Triton
Network Systems, dated September 16, 1999
10.6+** License Agreement with Lockheed Martin Corporation dated
June 12, 1997
10.6.1** Agreement to Purchase Additional Shares with Lockheed Martin
Corporation
10.7** Acquisition and License Agreement between International
Business Machines Corporation and Triton Network Systems,
Inc. dated as of February 29, 2000
10.8** Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.9+** Supply Agreement with CenturyTel dated December 7, 1999
10.10+** Supply Agreement with Advanced Radio Telecom dated December
23, 1999
10.11** Employment offer letter for Skip Speaks dated August 16,
1999
10.12** Employment offer letter for Brian Andrew dated September 9,
1999
10.13** Employment offer letter for Ken Vines dated September 22,
1998
10.14** Employment offer letter for Doug Campbell dated December 18,
1998
10.14.1** Amended Employment offer letter for Doug Campbell dated July
20, 1999
10.15** Employment offer letter for Mike Clark dated February 27,
1997
10.15.1** Amended Employment offer letter for Mike Clark dated July
20, 1999
10.16** Employment offer letter for Philip Gulliford dated March 20,
1997
10.17** Common Stock Purchase Warrant Agreement with FINOVA Capital
Corporation dated February 25, 2000
10.18** Common Stock Purchase Warrant Agreement with FINOVA Capital
Corporation dated February 25, 2000
10.19** Loan and Lease Commitment Letter with FINOVA Capital
Corporation dated January 14, 2000
10.20** Master Lease Agreement with FINOVA Capital Corporation dated
January 27, 2000
10.21** Master Loan and Security Agreement with FINOVA Capital
Corporation dated January 27, 2000
10.22+** Supply Agreement with CAVU dated April 14, 2000
10.23** Employment offer letter for Mark Johnson dated May 22, 2000.
</TABLE>
II-4
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
21.1** List of Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Certified Public
Accountants
23.2** Consent of Counsel (see Exhibit 5.1)
24.1** Power of Attorney (see page II-6 of original filing)
27.1 Financial Data Schedules (for SEC use only)
</TABLE>
-------------------------
+ Confidential treatment requested for portions of these agreements. The
omitted portions have been separately filed with the Securities and Exchange
Commission.
* To be filed by amendment.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable or the information
is contained in the Consolidated Financial Statements and related Notes and
therefore have been omitted.
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-5
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Orlando,
State of Florida, on the 12th day of July, 2000.
Triton Network Systems, Inc.
By: /s/ KENNETH R. VINES
------------------------------------
Kenneth R. Vines
Senior Vice President, Finance
and Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*/s/ HOWARD "SKIP" SPEAKS President, Chief Executive July 12, 2000
----------------------------------------------------- Officer and Director (Principal
Howard "Skip" Speaks Executive Officer)
/s/ KENNETH R. VINES Senior Vice President, Finance July 12, 2000
----------------------------------------------------- and Chief Financial Officer
Kenneth R. Vines (Principal Financial and
Accounting Officer)
/s/ STANLEY R. ARTHUR Director July 12, 2000
-----------------------------------------------------
Stanley R. Arthur
*/s/ BANDEL L. CARANO Director July 12, 2000
-----------------------------------------------------
Bandel L. Carano
*/s/ JAMES F. GIBBONS Director July 12, 2000
-----------------------------------------------------
James F. Gibbons
*/s/ ROBERT P. GOODMAN Director July 12, 2000
-----------------------------------------------------
Robert P. Goodman
</TABLE>
II-6
<PAGE> 99
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*/s/ ARJUN GUPTA Director July 12, 2000
-----------------------------------------------------
Arjun Gupta
*/s/ JAMES WEI Director July 12, 2000
-----------------------------------------------------
James Wei
*By: /s/ KENNETH R. VINES Attorney-In-Fact July 12, 2000
------------------------------------------------
Kenneth R. Vines
Attorney-In-Fact
</TABLE>
II-7
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
1.1** Form of Underwriting Agreement
3.1** Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2** Form of Amended and Restated Bylaws of the Registrant
4.1** Form of stock certificate
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1** Amended and Restated 1997 Stock Plan
10.2** 2000 Employee Stock Purchase Plan
10.3** Restated Investor Rights Agreement, dated October 18, 1999,
between the Registrant and certain stockholders
10.4** Lease by and between Gran Central Corporation and Triton
Network Systems, dated March 26, 1998
10.5** Lease by and between Gran Central Corporation and Triton
Network Systems, dated May 5, 1998
10.5.1** Lease by and between Gran Central Corporation and Triton
Network Systems, dated September 16, 1999
10.6+** License Agreement with Lockheed Martin Corporation dated
June 12, 1997
10.6.1** Agreement to Purchase Additional Shares with Lockheed Martin
Corporation
10.7** Acquisition and License Agreement between International
Business Machines Corporation and Triton Network Systems,
Inc. dated as of February 29, 2000
10.8** Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.9+** Supply Agreement with CenturyTel dated December 7, 1999
10.10+** Supply Agreement with Advanced Radio Telecom dated December
23, 1999
10.11** Employment offer letter for Skip Speaks dated August 16,
1999
10.12** Employment offer letter for Brian Andrew dated September 9,
1999
10.13** Employment offer letter for Ken Vines dated September 22,
1998
10.14** Employment offer letter for Doug Campbell dated December 18,
1998
10.14.1** Amended Employment offer letter for Doug Campbell dated July
20, 1999
10.15** Employment offer letter for Mike Clark dated February 27,
1997
10.15.1** Amended Employment offer letter for Mike Clark dated July
20, 1999
10.16** Employment offer letter for Philip Gulliford dated March 20,
1997
10.17** Common Stock Purchase Warrant Agreement with FINOVA Capital
Corporation dated February 25, 2000
10.18** Common Stock Purchase Warrant Agreement with FINOVA Capital
Corporation dated February 25, 2000
10.19** Loan and Lease Commitment Letter with FINOVA Capital
Corporation dated January 14, 2000
10.20** Master Lease Agreement with FINOVA Capital Corporation dated
January 27, 2000
10.21** Master Loan and Security Agreement with FINOVA Capital
Corporation dated January 27, 2000
10.22+** Supply Agreement with CAVU dated April 14, 2000
10.23** Employment offer letter for Mark Johnson dated May 22, 2000.
21.1** List of Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Certified Public
Accountants
23.2** Consent of Counsel (see Exhibit 5.1)
24.1** Power of Attorney (see page II-6 of original filing)
27.1 Financial Data Schedules (for SEC use only)
</TABLE>
-------------------------
+ Confidential treatment requested for portions of these agreements. The
omitted portions have been separately filed with the Securities and Exchange
Commission.
* To be filed by amendment.
** Previously filed.
<PAGE> 101
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