<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File Number 000-26401
GlobeSpan, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2658218
(State of incorporation) (IRS Employer Identification No.)
100 SCHULZ DRIVE, RED BANK, NEW JERSEY 07701
(Address of principal executive offices, including ZIP code)
(732) 345-7500
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes [X] No [ ], and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X].
The number of shares outstanding of the Registrant's Common Stock as of
July 30, 1999 was 18,273,855.
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GLOBESPAN, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Part I. Financial
Information.........................................................................................i
Item 1. Condensed Balance Sheets as of June 30, 1999 and December 31, 1998..........................1
Condensed Statements of Operations for the Three Months and Six Months Ended June 30,
1999 and 1998.......................................................................................2
Condensed Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998..................3
Notes to Financial Statements.......................................................................4
Item 2. Management's discussion and Analysis of Financial Condition and Results of Operations.......6
Part II Other Information..................................................................................22
Item 1. Legal Proceedings..........................................................................22
Item 2. Changes in Securities and Use of Proceeds..................................................22
Item 3. Defaults Upon Senior Securities............................................................23
Item 4. Submission of Matters to a Vote of Security Holders........................................23
Item 5. Other Information..........................................................................23
Item 6. Exhibits and Reports on Form 8-K...........................................................23
Signature...................................................................................................26
Exhibit Index...............................................................................................27
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
GLOBESPAN, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,266 $ 12
Accounts receivable, less allowance for doubtful account of $111 and $61,
respectively 3,748 3,823
Accounts receivable from affiliates 1,071 73
Inventories 3,146 912
Prepaid income taxes 1,093 1,178
Prepaid expenses and other current assets 1,397 564
-------- --------
Total current assets 52,721 6,562
Property and equipment, net 5,755 6,680
Other assets 1,643 188
-------- --------
Total assets $ 60,119 $ 13,430
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit $ 2 $ 2,466
Accounts payable 2,917 2,131
Accounts payable to affiliates 1,230 327
Accrued expenses and other liabilities 4,890 1,482
Payroll and benefit related liabilities 3,604 2,519
Current portion of capital lease obligations 384 292
-------- --------
Total current liabilities 13,027 9,217
Subordinated note payable to Communication Partners, L.P. -- 5,000
Capital lease obligations, less current portion 512 506
-------- --------
Total liabilities 13,539 14,723
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, par value $0.001; 10,000,000 shares authorized; none
issued and outstanding -- --
Common stock, par value $0.001; 100,000,000 shares authorized;
18,028,430 and 12,283,921 shares issued and outstanding, respectively 18 12
Stock purchase warrant -- 3,654
Additional paid-in capital 68,100 3,629
Notes receivable from stock sales (7,453) (725)
Deferred stock compensation (65) (76)
Accumulated deficit (14,020) (7,787)
-------- --------
Total stockholders' equity (deficit) 46,580 (1,293)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 60,119 $ 13,430
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
GLOBESPAN, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
For three months For six months
ended June 30, ended June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 9,434 $ 7,683 $ 18,075 $ 15,251
Cost of sales 3,236 2,312 6,137 4,160
Cost of sales related to
termination charge -- -- 1,119 --
------------ ------------ ------------ ------------
Gross profit 6,198 5,371 10,819 11,091
------------ ------------ ------------ ------------
Operating Expenses
Research and development 5,494 4,286 10,874 7,535
Selling, general and administrative 2,950 2,556 5,878 3,999
Amortization and other -- 250 -- 500
------------ ------------ ------------ ------------
Total operating expenses 8,444 7,092 16,752 12,034
------------ ------------ ------------ ------------
Loss from operations (2,246) (1,721) (5,933) (943)
Interest (expense) income, net (118) 13 (300) 25
------------ ------------ ------------ ------------
Loss before income taxes (2,364) (1,708) (6,233) (918)
Income tax benefit -- (534) -- (258)
------------ ------------ ------------ ------------
Net loss $ (2,364) $ (1,174) $ (6,233) $ (660)
Preferred stock deemed dividend
and accretion (3,466) -- (3,466) --
------------ ------------ ------------ ------------
Net loss attributable to
common stockholders $ (5,830) $ (1,174) $ (9,699) $ (660)
============ ============ ============ ============
Basic and diluted net loss per
share attributable to common
shareholders $ (0.43) $ (0.10) $ (0.76) $ (0.06)
============ ============ ============ ============
Weighted average shares of
common stock outstanding
used in computing basic
and diluted net loss per share 13,407,121 11,854,781 12,716,750 11,805,057
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
GLOBESPAN, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES
Net loss $ (6,233) $ (660)
Adjustments to reconcile net loss to cash (used in) provided
by operating activities:
Provision for bad debts 50 3
Provision for inventory obsolescence -- 95
Amortization and depreciation 1,584 1,396
Changes in assets and liabilities:
(Increase) decrease in accounts receivables (973) 4,522
(Increase) in inventories (2,234) (1,419)
(Increase) in prepaid expenses and other assets (2,283) (1,498)
Increase in accounts payable 1,689 219
Increase in accrued expenses and other
current liabilities 4,493 1,080
-------- --------
Net cash (used in) provided by operating activities (3,907) 3,738
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (568) (3,038)
-------- --------
Net cash (used in) investing activities (568) (3,038)
-------- --------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
(Repayment) of borrowings under subordinated note payable (5,000) --
(Repayment) of borrowings under line of credit (2,464) --
Proceeds from issuance of common stock, net 42,945 --
Proceeds from issuance of preferred stock, net 11,150 --
Proceeds from repayment of notes receivable -- 5
Repayments under capital lease obligations 98 73
-------- --------
Net cash provided by financing activities 46,729 78
-------- --------
Net increase in cash and cash equivalents 42,254 778
Cash and cash equivalents at beginning of period 12 875
-------- --------
Cash and cash equivalents at end of period $ 42,266 $ 1,653
======== ========
Supplemental noncash financing:
Notes receivable for sale of stock 6,728 385
======== ========
Forgiveness of subordinated note payable 100 --
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
GlobeSpan, Inc. ("GlobeSpan" or the "Company") is a leading worldwide
developer of advanced digital subscriber line (DSL) integrated circuits which
enable high-speed data transmission over the existing network of copper
telephone wires known as the local loop. GlobeSpan sells integrated circuits as
chip sets to manufacturers of DSL equipment for incorporation into products
which are sold to telecommunications service providers and end users.
In June 1999, GlobeSpan completed an initial public offering ("IPO") of
3,250,000 shares of common stock resulting in net proceeds, after deducting
underwriting commissions, of approximately $45.3 million (prior to taking into
account the underwriters' additional 15% over-allotment option exercised in July
1999). The net proceeds of the IPO were used to retire approximately $5.0
million of subordinated long-term debt to Communications Partners, L.P., a
related party, to loan Mr. Geday, president and CEO, approximately $1.4 million
for the payment of withholding taxes in connection with his early exercise of
options to purchase GlobeSpan common stock and for working capital. Upon
closing, all outstanding Series A preferred stock, issued in May 1999 for $12.0
million, converted into shares of common stock on a one for one basis. In
addition, the outstanding stock purchase warrant with Lucent Technologies was
net exercised for 724,500 shares.
Unaudited Interim Financial Statement
The accompanying unaudited financial statements have been prepared by
GlobeSpan and reflect all adjustments, consisting only of normal recurring
adjustments, which in the opinion of management are necessary to present fairly
the financial position and the results of operations for the interim periods.
The balance sheet at December 31, 1998 has been derived from audited financial
statements at that date. The financial statements have been prepared in
accordance with the regulations of the Securities and Exchange Commission, but
omit certain information and footnote disclosure necessary to present the
statements in accordance with generally accepted accounting principles. For
further information, refer to the financial statements and notes thereto
included in GlobeSpan's Registration Statement on Form S-1, as amended, filed
with the Securities and Exchange Commission on June 23, 1999 (the "Registration
Statement"). Results for the interim periods are not necessarily indicative of
results for the entire fiscal year.
Reverse Stock Split
The Board of Directors effected a one-for-three reverse stock split
concurrent with the IPO effective June 21, 1999. The Board of Directors also
approved the adjustment of par value to $0.001 per share. The share information
in the accompanying financial statements has been retroactively restated to
reflect the effect of this reverse stock split for all periods presented.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No.
128, Earnings per Share ("FAS 128"), which requires the presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS")
by all entities that have publicly traded common stock or potential common
stock. FAS 128 also requires the presentation of earnings per share by an entity
that has made a filing or is in the process of filing with a regulatory agency
in preparation for the sale of those securities in a public market. Basic EPS is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period.
The computation of Diluted EPS does not assume conversion, exercise or
contingent exercise of securities that would have an anti-dilutive effect on
earnings. The dilutive effect of the outstanding stock warrants and options was
computed using the treasury stock method.
As of June 30, 1999 and 1998, the Company had outstanding options and
warrants to purchase an aggregate of 1,249,262 and 3,128,026 shares of common
stock, respectively, which were not included in the calculation of earnings per
share for such periods, due to the anti-dilutive nature of these instruments.
4
<PAGE> 7
Revenue Concentration
Two customers accounted for 47% and 12% of net revenues in the three
months ended June 30, 1999 . In the three months ended June 30, 1998, three
customers accounted for 50%, 18% and 10% of net revenues. For the six months
ended June 30, 1999 and 1998, three customers accounted for 43%, 10% and 6% and
38%, 23% and 12%, of net revenues, respectively.
Revenues by geographic region for the three months ended June 30, 1999
and 1998 and for the six months ended June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
For three months For six months
ended June 30, ended June 30,
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues:
United States $ 6,295 $ 5,373 $11,278 $11,410
Europe 1,426 1,092 2,499 2,124
Mexico/Latin America 62 -- 1,570 80
Asia 1,607 1,141 2,586 1,548
Australia 44 77 142 89
------- ------- ------- -------
$ 9,434 $ 7,683 $18,075 $15,251
======= ======= ======= =======
</TABLE>
2. RELATED PARTY TRANSACTIONS
In March 1999, the Company and Paradyne Corporation agreed to terminate
the Cooperative Development Agreement. In connection with such termination
agreement, the Company agreed to pay Paradyne an aggregate of $1.5 million, less
the amounts previously paid of approximately $0.3 million (or approximately $1.2
million) to terminate the July discount pricing arrangement with Paradyne
Corporation. Such payment was made in July 1999 and was charged to cost of sales
during the three months ended March 31, 1999. In addition, GlobeSpan and
Paradyne Corporation as part of the Termination Agreement affirmed that the
earlier technology license provisions of the Cooperative Development Agreement
were never implemented. In conjunction with the signing of the Termination
Agreement, GlobeSpan and Paradyne Corporation also entered into a four-year
Supply Agreement which gave Paradyne Corporation preferential pricing and other
terms in connection with the sale by GlobeSpan of products to Paradyne
Corporation. In addition, under the terms of the Supply Agreement, GlobeSpan is
required to honor Paradyne Corporation's orders for GlobeSpan's products in
quantities at least consistent with Paradyne Corporation's past ordering
practices and must afford Paradyne Corporation at least the same priority for
Paradyne Corporation's orders as GlobeSpan affords its other similarly situated
customers. GlobeSpan also granted Paradyne Corporation a standard customer
immunity under GlobeSpan's intellectual property rights with respect to any of
Paradyne Corporation's products which incorporate GlobeSpan's products. Net
revenues for the three months ended June 30, 1999 and 1998 were $0.5 million and
$0.2 million, respectively, and for the six months ended June 30, 1999 and 1998
were $1.1 million and $0.6 million, respectively.
3. LOAN TO OFFICER
On June 16, 1999, the Company loaned approximately $2.2 million to
Armando Geday, our president and CEO, collateralized by a stock pledge, in
connection with the purchase of approximately 489,060 shares of the Company's
common stock and the payment of withholding taxes for the income realized on the
exercise of the underlying stock options. The full recourse note bears interest
at the rate of 5.37% per annum and is payable upon the earlier of the fifth
anniversary of the note, or 30 days following the termination of employment.
4. PREFERRED STOCK DEEMED DIVIDEND AND ACCRETION
On May 6, 1999, the Company completed the sale of an aggregate 1,461,454 shares
of Series A preferred stock and warrants to purchase an aggregate 300,000 shares
of common stock for gross proceeds of $12.0 million. Since the issuance included
a non-detachable conversion feature to common stock at the initial public
offering of the Company, that was "in-the-money" at the date of issuance and was
immediately exercisable, the Company recognized a one-time charge of
5
<PAGE> 8
approximately $3.5 million for the beneficial conversion feature attributable to
the common shareholders and accretion charges in the three months ended June 30,
1999. See Note 1.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934, as amended. Such statements are based upon
current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. GlobeSpan's actual results and the timing of certain
events may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a discrepancy include,
but are not limited to, those discussed in "Other Factors Affecting Operating
Results, Liquidity and Capital Resources" below, as well as Risk Factors
included in the Registration Statement. All forward-looking statements in this
document are based on information available to GlobeSpan as of the date hereof
and GlobeSpan assumes no obligation to update any such forward-looking
statements.
<TABLE>
<CAPTION>
For Three Months For Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost of sales 34.3 30.1 34.0 27.3
Cost of sales related to termination charge -- -- 6.2 --
----- ----- ----- -----
Gross profit 65.7 69.9 59.9 72.7
----- ----- ----- -----
Operating expenses
Research and development 58.2 55.8 60.2 49.4
Selling, general and administrative 31.3 33.3 32.5 26.2
Amortization and other -- 3.3 -- 3.3
----- ----- ----- -----
Total operating expenses 89.5 92.3 92.7 78.9
----- ----- ----- -----
Loss from operations (23.8) (22.4) (32.8) (6.2)
Interest income (expense), net (1.3) 0.2 (1.7) 0.2
----- ----- ----- -----
Loss before income taxes (25.1) (22.2) (34.5) (6.0)
Benefit for income taxes -- 7.0 -- 1.7
----- ----- ----- -----
Net loss (25.1)% (15.3)% (34.5)% (4.3)%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net Revenues Our net revenues were $9.4 million and $7.7 million in the
three months ended June 30, 1999 and 1998, respectively. This amount represents
an increase of 22.8%. This increase in net revenues were primarily due to the
increases in unit volume shipments to existing customers, expansion of our
customer base and the introduction of new products. Net revenues from
international customers represented 33% and 30% of our net revenues in the three
months ended June 30, 1999 and 1998, respectively. Net revenues from
international customers increased as a percentage of net revenues as a result of
greater shipments to existing customers in the Asian pacific rim. We expect that
revenues generated from international customers will continue to account for a
significant percentage of our net revenues.
Cost of Sales and Gross Profit. Our gross profit was $6.2 million and $5.4
million in the three months ended June 30, 1999 and 1998, respectively. This
amount represents an increase of 15.4%. Our gross margin was 65.7% and 69.9% in
the three months ended June 30, 1999 and 1998, respectively. The decrease in
gross margin was related to lower
6
<PAGE> 9
average selling prices. The increase in gross profit dollars was the result of
higher unit sales. We expect that gross margin may decrease due to a number of
factors, including pressures on average selling prices and customer mix.
Research and Development. Our research and development expenses were $5.5
million and $4.3 million in the three months ended June 30, 1999 and 1998,
respectively. This amount represents an increase of 28.2%. Research and
development expense represented 58.2% and 55.8% of net revenues for the three
months ended June 30, 1999 and 1998, respectively. The increase in dollars and
percentage of net revenues resulted from an increase in development efforts in
advance of anticipated revenues from such efforts. In addition, we added new
personnel and related support and incurred higher amounts of non-recurring
engineering expenses related to new products. Our research and development
expense may increase due to planned increases in personnel, prototyping costs
and depreciation resulting from increased capital investment.
Selling, General and Administrative. Our selling, general and
administrative expense was $3.0 million and $2.6 million in the three months
ended June 30, 1999 and 1998, respectively. This amount represents an increase
of 15.4%. Selling, general and administrative expense represented 31.3% and
33.3% of net revenues for the three months ended June 30, 1999 and 1998,
respectively. The increases in dollars and percentage of net revenues resulted
from the addition of sales, marketing, management and administrative personnel
and related expenses, including increased commissions, and general business
costs. Our selling, general and administrative expense may increase due to
higher commissions and administrative costs.
Amortization and Other. Amortization was provided on a straight-line
basis commencing in August 1996 through July 1998. Our expense for amortization
of patents was $0.3 million in the three months ended June 30, 1998.
Other income (expense), net. Interest expense increased $0.1 million for
the three months ended June 30, 1999. The increased interest expense resulted
from the addition of bank borrowings and other debt.
Income Taxes. We use the liability method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. We recorded an income tax benefit during the three months
ended June 30, 1998 primarily reflecting a loss carryback. Since we generated a
loss in the three months ended June 30, 1999 and had a loss carryforward for the
year ended December 31, 1998, we did not record an income tax benefit for the
three months ended June 30, 1999.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net Revenues Our net revenues were $18.1 million and $15.3 million in the
six months ended June 30, 1999 and 1998, respectively. This amount represents an
increase of 18.5%. This increase in revenues were primarily due to the increases
in unit volume shipments to existing customers, expansion of our customer base
and the introduction of new products. Net revenues from international customers
represented 38% and 25% of our net revenues in the six months ended June 30,
1999 and 1998, respectively. Net revenues from international customers increased
as a percentage of net revenues as a result of greater shipments to existing
customers in the Asian pacific rim. We expect that revenues generated from
international customers will continue to account for a significant percentage of
our net revenues.
Cost of Sales and Gross Profit. Our gross profit was $10.8 million and
$11.1 million in the six months ended June 30, 1999 and 1998, respectively. This
amount represents a decrease of 2.5%. Our gross margin was 59.9%, and 72.7% in
the six months ended June 30, 1999 and 1998, respectively. The decrease in gross
margin was related to a charge incurred in March 1999 for the termination a
royalty agreement and lower average selling prices. Without this termination
charge, our gross margin would have been 66.0% in the six months ended June 30,
1999. We expect that gross margin may decrease due to a number of factors,
including pressures on average selling prices and customer mix.
Research and Development. Our research and development expenses were $10.9
million and $7.5 million in the six months ended June 30, 1999 and 1998,
respectively. This amount represents an increase of 44.3%. Research and
development expense represented 60.2% and 49.4% of net revenues for the six
months ended June 30, 1999 and 1998, respectively. The increase in dollars and
percentage of net revenues resulted from an increase in development efforts in
advance of anticipated revenue from such efforts. In particular, we added new
personnel and related support and incurred higher amounts of non-recurring
engineering expenses related to new products. Our research and development
expense
7
<PAGE> 10
may increase due to planned increases in personnel, prototyping costs and
depreciation resulting from increased capital investment.
Selling, General and Administrative. Our selling, general and
administrative expense $5.9 million and $4.0 million in the six months ended
June 30, 1999 and 1998, respectively. This amount represents an increase of
47.0%. Selling, general and administrative expense represented 32.5% and 26.2%
of net revenues for the six months ended June 30, 1999 and 1998, respectively.
The increases in dollars and percentage of net revenues resulted from the
addition of sales, marketing, management and administrative personnel and
related expenses, including increased commissions, and general business costs.
Our selling, general and administrative expense may increase due to higher
commissions and administrative costs.
Amortization and Other. Amortization was provided on a straight-line
basis commencing in August 1996 through July 1998. Our expense for amortization
of patents was $0.5 million in the six months ended June 30, 1998.
Other income (expense), net. Interest expense increased $0.3 million for
the six months ended June 30, 1999. The increased interest expense resulted from
the addition of bank borrowings and other debt.
Income Taxes. We use the liability method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (see Note 8 of Notes to Financial Statements). We recorded an
income tax benefit for the three months ended June 30, 1998 primarily reflecting
a loss carryback. Since we generated a loss in the six months ended June 30,
1999 and had a loss carryforward for the year ended December 31, 1998, we did
not record an income tax benefit for the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from initial capital, borrowings on our
lines of credit and the recent sale of Series A preferred stock and common stock
through our initial public offering on June 23, 1999. As of June 30, 1999, we
had working capital of approximately $39.7 million and $42.3 million in cash and
cash equivalents.
Net cash used in operating activities was $3.9 million in the six months
ended June 30, 1999. Net cash provided by operating activities was $3.7 million
in the six months ended June 30, 1998. The decrease to 1999 from 1998 was
primarily due to greater net loss.
Net cash used in investing activities was $0.6 million, and $3.0 million
in six months ended June 30, 1999 and 1998, respectively, and related primarily
to lower capital expenditures. We may increase our capital expenditures in 1999.
Cash provided from financing activities was $46.7 million and $0.1
million in the six months ended June 30, 1999 and 1998, respectively, and was
provided by the net proceeds of sales of preferred and common shares of $11.9
million and $42.3 million, respectively. As of June 30, 1999 we had a revolving
line of credit (the "Credit Line") of up to $5.0 million from BankAmerica
Business Credit which bears interest at the bank's prime rate plus 1.5%, of
which zero was outstanding. We also had a subordinated borrowings line from
Communication Partners, L.P. (the "Subordinated Line") of up to $10.0 million
bearing interest at prime rate plus 1.0%, of which zero was outstanding. We used
a portion of the proceeds of the initial public offering to repay all
outstanding indebtedness under both the Credit Line and the Subordinated Line.
We have no plans to borrow under either the Credit Line or the Subordinated Line
at this time. Our Credit Line contains certain financial covenants and
restrictions as to various matters including our ability to pay cash dividends
or to effect mergers or acquisitions, incur certain other indebtedness or to
make certain investments without the bank's prior approval. We are currently in
compliance with such financial covenants and restrictions. Borrowings under the
Credit Line are secured by substantially all of our assets. The Credit Line
expires May 2003, and $5.0 million of the Subordinated Line expires on March 31,
2000 and $5.0 million on May 2003.
We currently anticipate that the net proceeds from our initial public offering,
together with our current cash, cash equivalents, and the Credit Line and
Subordinated Line, will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
Thereafter, cash generated from operations, if any, may not be sufficient to
satisfy our liquidity requirements. We may therefore need to sell additional
equity or raise funds by other means. Any additional financings, if needed,
might not be available on reasonable terms or at all. Failure to raise capital
when needed could seriously harm our business and operating results. If
additional funds are raised through the issuance of
8
<PAGE> 11
equity securities, the percentage of ownership of our stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences or
privileges senior to our common stock.
YEAR 2000 ISSUE
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century of the year. Many existing
electronic systems, including computer systems, use only the last two digits to
refer to a year. Therefore, these systems may recognize a date using "00" as
1900 rather than the year 2000. If not corrected, these electronic systems could
fail or create erroneous results when addressing dates on and after January 1,
2000.
In assessing the effect of the Year 2000 Issue on GlobeSpan, we
determined that we need to evaluate four general areas:
- Supplier relationships;
- Internal infrastructure;
- Products sold to customers; and
- Other third-party relationship.
Supplier Relationships. We are a "fabless" semiconductor company and
therefore rely on third party manufacturers to manufacture our chip sets. To
date, Lucent Technologies manufactures substantially all our chip sets. If
Lucent Technologies is affected by the Year 2000 Issue, our supply of chip sets
could be delayed or eliminated. Any disruption in our supply of chip sets from
Lucent Technologies would seriously harm our business, financial condition and
results of operations. We are currently seeking assurances from Lucent
Technologies that their manufacturing of our chip sets will be unaffected by the
Year 2000 Issue but have not received such assurances to date.
Internal Infrastructure. The Year 2000 Issue could also affect our
internal systems, including both our information technology and non-information
technology systems. We have initiated an assessment of our material internal
information technology systems, including third-party software and hardware
technology. Based upon representations received from these third-party software
and hardware suppliers, we do not believe that our material internal information
technology systems will be affected by the Year 2000 Issue. We have also
initiated an assessment of our non-information technology internal systems, such
as our test facility. Based on our preliminary assessment, we do not believe
that our material non-information technology internal systems will be affected
by the Year 2000 Issue. However, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology used
in our internal information technology and non-information technology systems.
Products Sold to Customers. Our chip sets and DSL reference design guides
do not contain two digit date codes and therefore are generally unaffected by
the Year 2000 Issue. However, once shipped, our chip sets are incorporated into
system and board-level products which we do not develop. The performance of our
chip sets could be affected if a Year 2000 Issue exists in a different component
of customer's product. We have not, and will not, assess the existence of these
potential problems in our customers' products.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience significant costs to remedy problems,
or they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate the budgets that current or potential customers could have for
purchases of our products and services. As a result, our business, results of
operations or financial condition could be materially adversely affected.
Other Third-Party Relationships. We rely on outside vendors for utilities and
telecommunication services as well as climate control, building access and other
infrastructure services. We are not capable of independently evaluating the Year
2000 compliance of the systems utilized to supply these services. We cannot
assure you that these suppliers will resolve any or all Year 2000 Issues with
these systems before the occurrence of a material disruption to our business.
Any failure
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of these third parties to resolve Year 2000 Issues with their systems in a
timely manner could have a material adverse effect on our business, financial
condition or results of operations.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not plan to do so in the future. Any investigations we
have undertaken with respect to Year 2000 Issues have been funded from available
cash, and these costs have not been separately accounted for. To date, these
costs have not been significant.
OTHER FACTORS AFFECTING OPERATING RESULTS, LIQUIDITY AND CAPITAL RESOURCES
We Have Only Been Operating as an Independent Company Since August 1996, and
This Limited Operating History Makes It Difficult to Evaluate Our Prospects
We have only been operating as an independent company since August 1996,
and we only began shipping chip sets in volume in January 1997. We have not had
a long history of generating significant revenues. Many of our chip sets have
only recently been introduced. As a result of our limited operating history, we
have limited historical financial data that can be used in evaluating our
business and its prospects and in projecting future operating results. You must
consider our prospects in light of the risks, expenses and difficulties we might
encounter because we are at an early stage of development in a new and rapidly
evolving market.
Our Quarterly Operating Results Will Fluctuate Because of Many Factors, and May
Cause Our Stock Price to Fluctuate
Our revenues and operating results have varied in the past and are likely
to vary in the future from quarter to quarter. As a result, we believe that
period-to-period comparisons of our operating results are not necessarily
meaningful. Investors should not rely on the results of any one quarter or
series of quarters as an indication of our future performance.
It is likely that in some future quarter or quarters our operating
results will be below the expectations of public market analysts or investors.
In such event, the market price of our common stock may decline significantly.
These variations in our operating results will likely to be caused by
factors related to the operation of our business, including:
- Variations in the timing and size of chip set orders from, and
shipments to, our existing and new customers;
- Loss of a significant customer, or a significant decrease in purchases
by significant customers, such as Cisco Systems or NEC Corporation;
- The mix of chip sets shipped with different gross margins, including
the impact of volume purchases from our large customers at discounted
average selling prices;
- The availability of foundry capacity and the expense of having our chip
sets manufactured by Lucent Technologies or other foundries in the
future;
- The timing and size of expenses, including operating expenses and
expenses of developing new products and product enhancements; and
- Our ability to attract and retain key personnel.
These variations will also be caused by factors related to the
development of the DSL market and the competition we face from other DSL chip
set suppliers, including:
- The timing and rate of deployment of DSL services by telecommunications
service providers;
- The timing and rate of deployment of alternative high-speed data
transmission technologies, such as cable modems and high-speed wireless
data transmission;
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- Anticipated decreases in per unit prices as competition among DSL chip
set suppliers increases; and
- The level of market penetration of our chips sets relative to those of
our competitors.
These variations will also be caused by other factors affecting our
business, many of which are substantially outside of the control of our
management, including:
- Costs associated with future litigation, including litigation relating
to the use or ownership of intellectual property;
- Acquisition costs or other non-recurring charges in connection with the
acquisition of companies, products or technologies;
- Foreign currency and exchange rate fluctuations which may make our
dollar-denominated products more expensive in foreign markets or could
expose us to currency rate fluctuation risks if our sales become
denominated in foreign currencies; and
- General global economic conditions which could adversely affect sales
to our customers.
We Expect that Price Competition Among DSL Chip Set Suppliers and Volume
Purchases by Large Customers Will Reduce Our Gross Margins in the Future
We expect that price competition among DSL chip set suppliers and volume
purchases of our chip sets at discounted prices will reduce our gross margins in
the future. We anticipate that average per unit selling prices of DSL chip sets
will continue to decline as product technologies mature. Since we do not
manufacture our own products, we may be unable to reduce our manufacturing costs
in response to declining average per unit selling prices. Many of our
competitors are larger with greater resources and therefore may be able to
achieve greater economies of scale and would be less vulnerable to price
competition.
Further, we expect that average per unit selling prices of our chip sets
will decrease in the future due to volume discounts to our large customers.
These declines in average per unit selling prices will generally lead to
declines in gross margins for these products.
We Have a History of Losses, and We Expect to Incur Losses in the Future
Our failure to significantly increase our revenues would result in
continuing losses. We incurred net losses of $0.8 million in the five months
ended December 31, 1996, earned net income of $0.8 million in 1997 and incurred
net losses of $7.8 million in 1998 and $6.2 million in the six months ended June
30, 1999. We expect to incur net losses for the foreseeable future, and these
losses may be substantial. Further, we expect to incur substantial negative cash
flow in the future. Because of continuing substantial capital expenditures and
product development, sales, marketing and administrative expenses, we will need
to generate significant quarterly revenues to achieve profitability and positive
cash flow. Even if we do achieve profitability and positive cash flow, we may
not be able to sustain or increase profitability or cash flow on a quarterly or
annual basis.
The Loss of One or More of Our Key Customers Would Result in a Loss of a
Significant Amount of Our Revenues
A relatively small number of customers account for a large percentage of our net
revenues. Our business will be seriously harmed if we do not generate as much
revenue as we expect from these customers, or experience a loss of any of our
significant customers, particularly Cisco Systems or NEC Corporation, or suffer
a substantial reduction in orders from such customers. In the five months ended
December 31, 1996, the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1999, our customers who individually represented at least five
percent of our net revenues accounted for 85.5%, 72.6%, 70.1% and 71.5%,
respectively, of our net revenues. In 1996, our top three customers were Lucent
Technologies, LG Information & Communications and Ascom Hasler AG, which
accounted for 27.2%, 15.9% and 12.0% of our net revenues, respectively. In
.1997, our top three customers were LG Information & Communications, Ascom
Hasler AG and Westell Technologies, which accounted for 21.4%, 12.5% and 9.6% of
our net revenues, respectively. In 1998, our top three customers were Cisco
Systems, NEC Corporation and Ascorn Hasler AG, which accounted for 48.3%, 12.6%
and 9.2% of our net revenues, respectively. In the six months ended June 30,
1999, our top
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three customers were Cisco Systems, Ascom Hasler AG, and NEC Corporation AG,
which accounted for 43.4%, 10.3% and 6.4% of our net revenues, respectively. We
do not have purchase contracts with any of our customers that obligate them to
continue to purchase our products and these customers could cease purchasing our
products at any time. Furthermore, it is possible that DSL equipment
manufacturers, such as Cisco Systems, NEC Corporation and Ascom Hasler AG, may
design and develop internally, or acquire, their own chip set technology, rather
than continue to purchase chip sets from third parties such as us. We expect
that sales of our products to relatively few customers will continue to account
for a significant portion of our net revenues for the foreseeable future.
Because of Our Long Product Development Process and Sales Cycle, We May Incur
Substantial Expenses Before We Earn Associated Net Revenues and May Not
Ultimately Sell a Large Volume of Our Products
We develop products based on forecasts of demand and incur substantial
product development expenditures prior to generating associated revenues. We
sell our products based on individual purchase orders. Our customers are not
obligated by long-term contracts to purchase our chip sets. In addition, we do
not receive orders for our chip sets during the period that potential customers
test and evaluate our chip sets. This test and evaluation period typically lasts
from three to six months or longer, and volume production of the DSL equipment
manufacturer's product that incorporates our chip sets typically does not begin
until this test and evaluation period has been completed. In addition, we do not
have a substantial non-cancelable backlog of orders and our customers can
generally cancel or reschedule orders upon short notice. As a result, a
significant period of time may lapse between our product development and sales
efforts and our realization of revenues from volume ordering of our products by
our customers, or we may never realize revenues from our efforts. Furthermore,
achieving a design win with a customer does not necessarily mean that this
customer will order large volumes of our products. A design win is not a binding
commitment by a customer to purchase our products. Rather, it is a decision by a
customer to use our products in the design process of that customer's products.
A customer can choose at any time to discontinue using our products in that
customer's designs or product development efforts. If our products are chosen to
be incorporated into a customer's products, we may still not realize significant
revenues from that customer if that customer's products are not commercially
successful.
If We Do Not Achieve Design Wins with Key Equipment Manufacturers, We May Be
Unable to Secure Design Wins from These Customers in the Future
Once a DSL equipment manufacturer has designed a supplier's chip set into
its products, the DSL equipment manufacturer may be reluctant to change its
source of chip sets due to the significant costs associated with qualifying a
new supplier. Accordingly, the failure to achieve design wins with key DSL
equipment manufacturers who have chosen a competitor's chip set could create
barriers to future sales opportunities with such DSL equipment manufacturers.
Rapid Changes in the Market for DSL Chip Sets May Render Our Chip Sets Obsolete
or Unmarketable
The market for chip sets for DSL products is characterized by:
- Intense competition;
- Rapid technological change;
- Frequent new product introductions by our competitors;
- Changes in customer demands; and
- Evolving industry standards.
Any of these factors could make our products obsolete or unmarketable. To
compete, we must innovate and introduce new products. If we fail to successfully
introduce new products on a timely and cost-effective basis that meet customer
requirements and are compatible with evolving industry standards, then our
business, financial condition and results of operations will be seriously
harmed.
For example, DSL products utilize different coding techniques to transmit data
reliably over copper telephone wires. These coding techniques, or line codes,
include two bits per quadrant (2BlQ), carrierless amplitude phase modulation
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(CAP), discrete multitone modulation (DMT) and pulse amplitude modulation (PAM).
To date, most large volume DSL service deployments have used the 2BIQ and CAP
line codes. Recently, U.S. and international standards bodies have defined
additional standards specifications which incorporate the DMT and PAM line codes
for DSL applications. Although we have recently introduced products based on
these standards, the majority of all of our product revenues to date have come
from the sale of chip sets that use the CAP line code.
Lucent Technologies Granted to Us Intellectual Property Rights that Are Subject
to Restrictions, and the Scope, or Disputes About the Scope, of These
Restrictions Could Harm Our Ability to Sell Our Products
Upon our formation, Lucent Technologies granted to us a number of
intellectual property rights. All of these rights are subject to various
restrictions and/or conditions. We believe that we currently have all the
intellectual property rights from Lucent Technologies that we need to continue
to conduct our business. We also believe that we are exercising the rights
granted to us by Lucent Technologies within the scope of the applicable
restrictions and/or conditions. Nevertheless, the provisions of the agreement
describing the scope of the license and immunity rights and restrictions are
ambiguous and Lucent Technologies might not agree with our interpretations. If
Lucent Technologies adopts a conflicting interpretation or otherwise asserts
that we do not have the rights we think we have, we will need to defend
ourselves or negotiate for additional rights. It is even possible that we could
be prevented from selling some of our products that depend on these rights or
immunities. In any case, the process of negotiation or defense would be
time-consuming and expensive, and whether or not it is successful would have a
negative impact on our ability to conduct our business.
Lucent Technologies Manufactures Substantially All of Our Chip Sets, and Any
Disruption in this Relationship Could Prevent Us from Selling Our Products
We do not own or operate a semiconductor fabrication facility. We depend
on Lucent Technologies to timely deliver to us sufficient quantities of
fully-assembled and tested chip sets on a turnkey basis. We have had a series of
manufacturing arrangements with Lucent Technologies, the latest of which became
effective in March 1999. This agreement, however, does not guarantee that Lucent
Technologies will adequately fill our orders for current chip sets (either in
quantity or timing), or that we will be able to negotiate mutually satisfactory
terms for manufacturing our future chip sets. Any disruption in availability of
our products would have a serious adverse impact on our business. If we are
required for any reason to seek a new manufacturer of our chip sets, a new
manufacturer of our chip sets may not be available and in any event switching to
a new manufacturer would require six months or more and would involve
significant expense and disruption to our business. From time to time there are
shortages in worldwide foundry capacity. Such shortages, if they occur, could
make it more difficult for us to find a new manufacturer of our chip sets if our
relationship with Lucent Technologies is terminated for any reason.
If We Are Required to Seek a New Manufacturer of Our Chip Sets, We Will Be
Required to Modify Our Products Which Will Be Costly and Will Require Our
Customers to Redesign their Products
Each of our DSL products contains two chips: a digital signal processing
chip and an analog front end chip. Lucent Technologies manufactures both the
digital signal processing chip and the analog front end chip. Our chip sets
utilize certain circuits owned by Lucent Technologies, and we do not have a
license to these circuits. Although we have independently designed functionally
equivalent circuits, we have not established a manufacturing source for chip
sets that use these replacement circuits, and such chip sets have never been
produced. Further, replacing our chip sets that use circuits owned by Lucent
Technologies with newly designed products that use our own replacement circuits
may in turn require our customers to redesign or re-qualify their products in
certain respects. Establishing additional sources for manufacturing our products
independent of the circuits owned by Lucent Technologies would be expensive and
disruptive to our business.
We Could Become Involved in Disputes with Lucent Technologies, and any Such
Dispute Would Be Costly and Time Consuming and Could Be Resolved Adversely to Us
Although we do not currently anticipate any dispute with Lucent Technologies,
because Lucent Technologies is a source of our intellectual property, the
principal manufacturer of our chip sets, a significant stockholder, a competitor
and a potential customer, we could in the future become involved in disputes
with Lucent Technologies. This risk is heightened by the ambiguity inherent in
the divestiture agreements among Lucent Technologies, Paradyne Corporation and
us. We cannot be certain that we would prevail in any such dispute and,
regardless of whether we prevail, any such dispute would
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be expensive and time-consuming and would harm our business. Further, because we
rely on Lucent Technologies, we may be reluctant to enforce our rights in any
such dispute. For example, we recently sent Lucent Technologies a letter that
inquired whether Lucent Technologies was misappropriating our intellectual
property in connection with the development of a competing DSL chip set. In
response to discussions with Lucent Technologies about this letter, we have
decided not to pursue any claim against Lucent Technologies in connection with
past acts relating to digital subscriber loop analog chip (DSLAC) technology.
Lucent Technologies also has a warrant to purchase our common stock which
provides that we shall not enter into any transaction directly or indirectly,
with or for the benefit of any related party other than transactions entered
into on a basis no less favorable to us than would be obtainable in a comparable
arms' length transaction with a third party that is not a related party. We have
entered into several transactions with Paradyne Corporation and Communication
Partners, L.P., who are related parties, and we can not assure you that Lucent
Technologies would conclude that all of these transactions were on terms
obtainable in a comparable arms' length transaction.
The Nature of Our Relationship with, and Substantial Dependence on, Lucent
Technologies May Provide Lucent Technologies with an Advantage as a Competitor
of Ours
Lucent Technologies is a competitor of ours. Additionally, Lucent
Technologies is a source of our intellectual property, the principal
manufacturer of our chip sets and a significant stockholder of ours. Upon our
formation, Lucent Technologies retained a license to use all patents that were
assigned to us, including in products that compete with our chip sets. Lucent
Technologies' ability to compete with us could be enhanced by this license.
Furthermore, our substantial dependence on Lucent Technologies could provide
Lucent Technologies with the ability to more effectively compete with us.
We May Be Required to Obtain Licenses on Adverse Terms to -Sell Industry
Standard Compliant Chip Sets
We have received correspondence, including a proposed licensing
agreement, from Amati Corporation (which was recently acquired by Texas
Instruments) stating that they believe that they own a number of patents that
are required to be compliant with the American National Standards Institute
(ANSI) standard specification T1.413. This industry standard is based on the DMT
line code. We have introduced products that we believe are compliant with this
industry standard, and we may be required to obtain a license to these Amati
Corporation patents. We are currently evaluating the patents and proposed
licensing terms. If these patents are valid and essential to the implementation
of products that are compliant with this industry standard, then Amati
Corporation may be required to offer us a license on commercially reasonable,
non-discriminatory terms. Because there are currently no established terms for
such a license, we may be unable to agree with Amati Corporation on acceptable
license terms. If these patents are valid, but not essential to the
implementation of products that are compliant with this industry standard, and
they apply to our products and we do not modify our products so they become
non-infringing, then Amati Corporation would not be obligated to offer us a
license on reasonable terms or at all. If we are not able to agree on license
terms and as a result fail to obtain a required license, then we could be sued
and potentially be liable for substantial monetary damages or have the sale of
our products stopped by an injunction. We could also be subject to similar
claims like the Amati Corporation claim by third parties in the future.
Third-Party Claims Regarding Intellectual Property Matters Could Cause Us to
Stop Selling Our Products or Pay Monetary Damages
There is a significant risk that third parties, including current and potential
competitors, will claim that our products, or our customers' products, infringe
on their intellectual property rights. The owners of such intellectual property
rights may bring infringement claims against us. Any such litigation, whether or
not determined in our favor or settled by us, would be costly and divert the
attention of our management and technical personnel. For example, on February 5,
1997 we received an inquiry from Telecommunications Research Laboratories as to
whether our product lines in the area of rate adaptive digital subscriber loop
technology may be infringing any of the claims of U.S. patent no. 5,023,869 held
by Telecommunications Research Laboratories. Upon review of such patent, we
responded in a letter dated March 11, 1997 that our products based on rate
adaptive digital subscriber loop technology do not infringe any claims of patent
no. 5,023,869. Inquiries with respect to the coverage of our intellectual
property, such as the Telecommunications Research Laboratories' inquiry, could
develop into litigation. Further, one of our customers received a letter dated
March 22, 1996 from Telebit Corporation (which was subsequently acquired by
Cisco Systems) claiming that it owns patents it believes are essential to, and
useful in the manufacture, use and sale of products complying with the American
National Standards Institute ASDSL standard T1.413-1995. We examined the merits
of Telebit Corporation's claims in light of our then current products that used
the CAP line code, but we have not reviewed the merits of the claim with respect
to our recently
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introduced chip sets that use the DMT line code. In the event of an adverse
ruling for an intellectual property infringement claim, we could be required to
obtain a license or pay substantial damages or have the sale of our products
stopped by an injunction. In addition, if a customer of our chip sets cannot
acquire a required license on commercially reasonable terms, that customer may
choose not to use our chip sets. We have obligations to indemnify our customers
under some circumstances for infringement of third-party intellectual property
rights. From time to time we receive letters from customers inquiring as to the
scope of these indemnity rights; for example, in June 1999, we received a letter
from Paradyne Corporation (a customer and affiliated company), informing us that
Paradyne had received a letter from a third-party suggesting that some of the
third-party's patents may be infringed by Paradyne products. We evaluate all
letters of this nature to determine whether we have an indemnity obligation and
take appropriate steps. For example, our preliminary review of the letter from
Paradyne and the claims made by the third-party suggests that the third-party's
patents, if infringed, would be infringed by technology used by our suppliers
(with whom we have reciprocal indemnity agreements) and not by our technology,
and, therefore, there is no material risk to us; we will continue our review of
this (and all other) claims, and take additional steps, if appropriate. If any
claims from third-parties required us to indemnify customers (including
Paradyne) under our agreements, the costs could be substantial and our business
could be harmed.
Despite Our Efforts to Protect Our Intellectual Property, Third Parties May Gain
Access to Our Proprietary Technology and Use It to Compete with Us
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or obtain and use
information that we regard as proprietary. For example, in June 1998, we filed
suit against three former employees who recently began employment with one of
our competitors.
We rely primarily on a combination of patents, copyrights, trademarks,
trade secret laws, contractual provisions, licenses and maskwork protection
under the Federal Semiconductor Chip Protection Act of 1984 to protect our
intellectual property. In particular, we rely on these measures to protect our
intellectual property because, as a fabless semiconductor company, we have third
parties, including competitors such as Lucent Technologies, manufacture our chip
sets. We also enter into confidentiality agreements with our employees,
consultants and customers and seek to control access to, and distribution of,
our other proprietary information. There is no guarantee that such safeguards
will protect our intellectual property and other valuable competitive
information.
In connection with our private placement of Series A preferred stock to
Intel Corporation, we agreed not to sue Intel Corporation for any violation by
it of our patent rights. This agreement terminates if Intel Corporation sues us
for any infringement by us of its patent rights. This agreement not to sue could
enable Intel Corporation to compete more effectively against us.
Our Efforts to Protect Our Intellectual Property May Be Less Effective in Some
Foreign Countries Where Intellectual Property Rights Are Not Well Protected by
Law or Enforcement
The laws of some foreign countries do not protect our proprietary rights
to as great an extent as do the laws of the United States, and many U.S.
companies have encountered substantial infringement problems in such countries,
some of which are countries in which we have sold and continue to sell products.
There is a risk that our means of protecting our proprietary rights may not be
adequate. For example, our competitors may independently develop similar
technology, duplicate our products or design around our patents or our other
intellectual property rights. If we fail to adequately protect our intellectual
property, it would be easier for our competitors to sell competing products.
Our Industry Is Highly Competitive, and We Cannot Assure You that We Will Be
Able to Effectively Compete
The DSL chip set market is intensely competitive. We expect competition
to intensify as current competitors expand their product offerings and new
competitors enter the market. We believe that we must compete on the basis of a
variety of factors, including:
- Time to market;
- Functionality;
- Conformity to industry standards;
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- Performance;
- Price;
- Breadth of product lines;
- Product migration plans; and
- Technical support.
We believe our principal competitors include Alcatel, Analog Devices,
Centilliurn Technology Corporation, Conexant Systems, Level One Communications,
Lucent Technologies, MetaLink, Motorola and Texas Instruments. In addition to
these competitors, there have been growing numbers of announcements by other
integrated circuit companies that they intend to enter the DSL chip set market.
Many of our competitors have greater name recognition, their own
manufacturing capabilities, significantly greater financial and technical
resources, and the sales, marketing and distribution strengths that are normally
associated with large multinational companies. These competitors may also have
pre-existing relationships with our customers or potential customers. These
competitors may compete effectively with us because of the above-listed factors
and because they more quickly introduce new technologies, more rapidly or
effectively address customer requirements or devote greater resources to the
promotion and sale of their products than we do. Further, in the event of a
manufacturing capacity shortage, these competitors may be able to manufacture
products when we are unable to do so.
Further, many of our customers face competition from companies, such as
Orckit Communications and PairGain Technologies, which design their own chip
sets. Because these companies do not purchase all of their chip sets from
suppliers such as us, if these competitors displace our customers in the DSL
equipment market, our customers would no longer need our products.
Other Technologies for the High-Speed Data Transmission Market Will Compete
Effectively with DSL Services
DSL services are competing with a variety of different high-speed data
transmission technologies, including cable modems, satellite and other wireless
technologies. Many of these technologies will compete effectively with DSL
services. All of our chip sets are deployed in networks that use standard copper
telephone wires. Copper telephone wires have physical properties that limit the
speed and distance over which data can be transmitted. In general, data
transmission rates over copper telephone wires are slower over longer distances
and faster over shorter distances. If any technology that is competing with DSL
technology is more reliable, faster, less expensive, reaches more customers or
has other advantages over DSL technology, then the demand for our chip sets and
our revenues and gross margins may decrease.
Our Executive Officers and Key Personnel Are Critical to Our Business, and These
Officers and Personnel May Not Remain with Us in the Future
We depend upon the continuing contributions of our key management, sales,
customer support and product development personnel. The loss of such personnel
could seriously harm us. Only Armando Geday, our President and Chief Executive
Officer, is subject to an employment agreement; however, we cannot be sure that
we can retain Mr. Geday's services. In addition, we have not obtained key-man
life insurance on any of our executive officers or key employees. Because DSL
technology is specialized and complex, we need to recruit and train qualified
technical personnel. However, there are many employers competing to hire
qualified technical personnel and we have had difficulty attracting and
retaining such personnel. We expect to continue to have difficulty hiring and
retaining qualified personnel. Further, our competitors have recruited our
employees and may do so in the future.
If Leading DSL Equipment Manufacturers Do Not Incorporate Our Chip Sets in
Successful Products, Sales of Our Products Will Significantly Decline
We rely upon DSL equipment manufacturers, such as Cisco Systems and NEC
Corporation, to design our chip sets into their DSL products. We further rely on
these products to be successful, and if they are not, we will not sell our chip
sets in volume quantities. Accordingly, we must correctly anticipate the price,
performance and functionality requirements
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of these DSL equipment - manufacturers. We must also successfully develop
products that meet these requirements and make such products available on a
timely basis and in sufficient quantities. Further, if there is consolidation in
the DSL equipment manufacturing industry, or if a small number of DSL equipment
manufacturers otherwise dominate the market for DSL equipment, then our success
will depend upon our ability to establish and maintain relationships with these
market leaders. If we do not anticipate trends in the DSL market and meet the
requirements of DSL equipment manufacturers, or if we do not successfully
establish and maintain relationships with leading DSL equipment manufacturers,
then our business, financial condition and results of operations will be
seriously harmed.
Substantial Sales of Our Chip Sets Will Not Occur Unless Telecommunications
Service Providers Initiate Substantial Deployment of DSL Services
The success of our products is dependent upon the decision by
telecommunications service providers to deploy DSL technologies and the timing
of the deployment. Factors that will impact such deployment include:
- A prolonged approval process, including laboratory tests, technical
trials, marketing trials, initial commercial deployment and full
commercial deployment;
- The development of a viable business model for DSL services, including
the capability to market, sell, install and
maintain DSL services;
- Cost constraints, such as installation costs and space and power
requirements at the telecommunications service provider's central
office;
- Varying and uncertain conditions of the local loop, including the size
and length of the copper wire, electrical interference and interference
with existing voice and data telecommunications services;
- Challenges of interoperability among DSL equipment manufacturers'
products;
- Evolving industry standards for DSL technologies; and
- Government regulation.
Although a number of telecommunications service providers have commenced
commercial deployment of DSL services using DSL products that incorporate our
chip sets, if these telecommunications service providers do not expand their
deployment of DSL services, or if additional telecommunications service
providers do not offer DSL services on a timely basis, then our business,
financial condition and results of operations will be seriously harmed.
The Recent Rapid Expansion in Our Operations Has Placed a Strain on Our
Management and Personnel and Other Resources
The recent rapid expansion in our operations has placed a strain on our
management and personnel and other resources. If we do not successfully manage
our business, financial condition and results of operations will be seriously
harmed. Further, from December 31, 1997 to June 30, 1999, we increased from 93
to 180 total employees. This growth has placed and will continue to place a
significant strain upon our management, operating and financial systems and
other resources. To accommodate this expansion of operations, we must continue
to implement and improve information systems, procedures and controls and
expand, train, motivate and manage our work force.
Sales to Customers Based Outside of the United States Have Accounted for a
Significant Portion of Our Revenues, Which Exposes Us to Inherent Risks of
International Business
The following table shows the percentage of our net revenues which we
derived from sales to customers based outside of the United States for the time
periods indicated:
<TABLE>
<CAPTION>
Time Period Percentage of Net Revenues
----------- --------------------------
<S> <C>
Five Months Ended December 31, 1996 40.0%
Year Ended December 31, 1997. 49.2%
</TABLE>
17
<PAGE> 20
<TABLE>
<S> <C>
Year Ended December 31, 1998. 32.6%
Six Months Ended June 30, 1999 38.2%
</TABLE>
We expect that sales to such international customers will continue to
account for a significant portion of our net revenues for the foreseeable
future. Accordingly, we are subject to risks inherent in our international
business activities, including:
- Unexpected changes in regulatory requirements;
- Tariffs and other trade barriers, including current and future import
and export restrictions;
- Difficulties in collecting accounts receivables;
- Difficulties in staffing and managing international operations;
- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- The burdens of complying with a wide variety of foreign laws
(particularly with respect to intellectual property) and license
requirements;
- The risks related to international political instability and to the
recent global economic turbulence and adverse economic circumstances in
Asia;
- Risks that changes in foreign currency exchange rates will make our
products comparatively more expensive;
- Risks that although our product sales are currently denominated in U.S.
dollars, if we denominate product sales in foreign currencies in the
future, then we will experience risk of loss due to fluctuations in the
value of foreign currencies;
- Difficulties in protecting intellectual property rights in certain
foreign countries; and
- Limited ability to enforce agreements and other rights in certain
foreign countries.
In the year ended December 31, 1998 and the six months ended June 30,
1999, 9.4% and 14.3%, respectively, of our net revenues were derived from
customers based in Asian countries. Because of the continuing economic
instability in Asia, sales of our chip sets to customers in this region may be
adversely affected.
If We Deliver Products with Defects, Our Credibility Will Be Harmed, and the
Sales and Market Acceptance of Our Products Will Decrease
Our products are complex and have contained errors, defects and bugs when
introduced. If we deliver products with errors, defects or bugs, our credibility
and the market acceptance and sales of our products could be harmed. Further, if
our products contain errors, defects and bugs, then we may be required to expend
significant capital and resources to alleviate such problems. Defects could also
lead to product liability as a result of product liability lawsuits against us
or against our customers. We have agreed to indemnify our customers in some
circumstances against liability from defects in our products. A successful
product liability claim could seriously harm our business, financial condition
and results of operations.
We Will Continue to Be Controlled by a Principal Stockholder, Which May Have the
Effect of Preventing or Delaying a Change of Control of Our Company, and the
Interests of the Principal Stockholder May Not Always Coincide with Those of Our
Stockholders
Our executive officers and directors and their affiliates own, in the
aggregate, approximately 66.0% of our outstanding common stock.
Entities affiliated with Texas Pacific Group own approximately 48.0% of
GlobeSpan and are able to exercise control over GlobeSpan subject to the
fiduciary duties of its representatives on the board of directors under Delaware
law. The interests of Texas Pacific Group, may not always coincide with our
interests or the interests of other stockholders. Texas
18
<PAGE> 21
Pacific Group, through its representatives on the board of directors, could
cause us to enter into transactions or agreements which we would not otherwise
consider absent Texas Pacific Group's influence.
Our current board of directors consists of Ms. Connor and Messrs.
Coulter, Deb, Epley, Faggin, Geday, Geeslin and Stanton. Our board of directors
has also created an Executive Committee consisting of Messrs. Coulter, Deb,
Epley and Geday. Of the current members of the board of directors and the
Executive Committee, Messrs. Epley, Geeslin and Stanton are also currently
directors of, and have direct or indirect equity interests in, Paradyne
Corporation, which is a customer of ours. In addition, Dipanjan Deb, a director
of GlobeSpan, is employed by the Texas Pacific Group. Accordingly, our
continuing supplier relationship with Paradyne Corporation, and any other
potential business dealings between Paradyne Corporation and us, could create
conflicts of interest for the GlobeSpan directors.
We have waived in our amended and restated certificate of incorporation
the application to us of section 203 of the Delaware General Corporation Law.
Section 203 of the Delaware General Corporation Law is a statute that generally
prohibits an "interested stockholder" from engaging in a "business combination"
with a corporation for three years following the time this person became an
interested stockholder. An "interested stockholder" is defined generally as a
person owning 15% or more of a corporation's voting stock or an affiliate or
associate of that person. A "business combination" is defined to include a
variety of transactions, including mergers and sales of 10% or more of a
corporation's assets. A business combination with an interested stockholder is
allowed, however, if the business combination is approved by at least 66.6% of
the shares held by the corporation's disinterested stockholders. By waiving
Section 203, it will be easier for us to enter into transactions with our
significant stockholders, including Texas Pacific Group, without giving our
disinterested stockholders the opportunity to approve the transaction.
Although We Are Not Primarily a Supplier of Software, Our Operations Could Be
Affected by Year 2000 Issues, Particularly if Year 2000 Issues Affect Lucent
Technologies
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century of the year. Many existing
electronic systems, including computer systems, use only the last two digits to
refer to a year. Therefore, these systems may recognize a date using "00" as
1900 rather than the year 2000. If not corrected, these electronic systems could
fail or create erroneous results when addressing dates on and after January 1,
2000.
In assessing the effect of the Year 2000 Issue on GlobeSpan, we
determined that we need to evaluate four general areas:
- Supplier relationships;
- Internal infrastructure;
- Products sold to customers; and
- Other third-party relationships.
Supplier Relationships. We are a "fabless" semiconductor company and
therefore rely on third party manufacturers to manufacture our chip sets. To
date, Lucent Technologies manufactures substantially all of our chip sets. If
Lucent Technologies is affected by the Year 2000 Issue, our supply of chip sets
could be delayed or eliminated. Any disruption in our supply of chip sets from
Lucent Technologies would seriously harm our business, financial condition and
results of operations. We are currently seeking assurances from Lucent
Technologies that their manufacturing of our chip sets will be unaffected by the
Year 2000 Issue but have not received such assurances to date.
Internal Infrastructure. The Year 2000 Issue could also affect our internal
systems, including both our information technology and non-information
technology systems. We have initiated an assessment of our material internal
information technology systems, including third-party software and hardware
technology. Based upon representations received from these third-party software
and hardware suppliers, we do not believe that our material internal information
technology systems will be affected by the Year 2000 Issue. We have also
initiated an assessment of our non-information technology internal systems, such
as our test facility. Based on our preliminary assessment, we do not believe
that our material non-information technology internal systems will be affected
by the Year 2000 Issue. However, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology used
in our internal information
19
<PAGE> 22
technology and non-information technology systems.
Products Sold to Customers . Our chip sets and DSL reference design
guides do not contain two digit date codes and therefore are generally
unaffected by the Year 2000 Issue. However, once shipped, our chip sets are
incorporated into system and board-level products which we do not develop. The
performance of our chip sets could be affected if a Year 2000 Issue exists in a
different component of a customer's product. We have not, and will not, assess
the existence of these potential problems in our customers' products.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience significant costs to remedy problems,
or they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate the budgets that current or potential customers could have for
purchases of our products and services. As a result, our business, results of
operations or financial condition could be materially adversely affected.
Other Third-Party Relationships. We rely on outside vendors for utilities
and telecommunication services as well as climate control, building access and
other infrastructure services. We are not capable of independently evaluating
the Year 2000 compliance of the systems utilized to supply these services. We
cannot assure you that these suppliers will resolve any or all Year 2000 Issues
with these systems before the occurrence of a material disruption to our
business. Any failure of these third parties to resolve Year 2000 Issues with
their systems in a timely manner could have a material adverse effect on our
business, financial condition or results of operations.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not plan to do so in the future. Any investigations we
have undertaken with respect to Year 2000 Issues have been funded from available
cash, and these costs have not been separately accounted for. To date, these
costs have not been significant.
We Have Certain Antitakeover Defenses that Could Delay or Prevent an Acquisition
of Our Company
Certain provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of delaying, deferring or
preventing an acquisition of GlobeSpan. For example, we have authorized but
unissued shares of preferred stock which could be used to fend off a takeover
attempt, our stockholders may not take actions by written consent, our
stockholders are limited in their ability to make proposals at stockholder
meetings and our directors may be removed only for cause and upon the
affirmative vote of at least 80% of our outstanding voting shares.
We May Need to Raise Additional Capital Which Might Not Be Available or
Which, if Available, Would Be on Terms Adverse to Our Recent Public Offering
We expect the net proceeds from our recent public offering, our current
cash and cash equivalents and cash from commercial borrowing availability under
credit facilities will meet our working capital and capital expenditure needs
for at least one year. After that, we may need to raise additional funds, and we
cannot be certain that we will be able to obtain additional financing on
favorable terms, if at all. We may also require additional capital for the
acquisition of businesses, products and technologies that are complementary to
ours. Further, if we issue equity securities, the ownership percentage of our
stockholders would be reduced, and the new equity securities may have rights,
preferences or privileges senior to those existing holders of our common stock.
If we cannot raise needed funds on acceptable terms, we may not be able to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements, which could
seriously harm our business, operating results and financial condition.
Our Stock Price May Be Volatile or Thinly Traded, Which Might Make it Difficult
for Stockholders to Sell Their Shares
The market price of our common stock will likely fluctuate
significantly in response to the following factors, some of which are beyond our
control:
- Variations in our quarterly operating results;
- Changes in financial estimates of our revenues and operating results
by securities analysts;
20
<PAGE> 23
- Changes in market valuations of integrated circuit companies;
- Announcements by us of significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments;
- Loss of our decrease in sales to a major customer or failure to
complete significant transactions;
- Loss or reduction in manufacturing capacity from Lucent
Technologies;
- Additions or departures of key personnel;
- Future sales of our common stock;
- Stock market price and volume fluctuations attributable to
inconsistent trading volume levels of our stock;
- Commencement of or involvement in litigation; and
- Announcements by us or our competitors of key design wins and
product introductions.
We Could Be Subject to Class Action Litigation Due to Stock Price Volatility,
Which, if It Occurs, Will Distract Management and Result in Substantial Costs,
and Could Result in Judgments Against Us
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. We may be the target of similar litigation in the future. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could cause serious harm to our business, financial
condition and results of operations.
21
<PAGE> 24
PART II. OTHER INFORMATION
GLOBESPAN, INC.
ITEM 1. LEGAL PROCEEDINGS.
In June 1998, we filed suit against Hanan Herzberg, Selvaraj Seetharaman
and Xiao-Feng Qi in the Superior Court of New Jersey seeking compensatory
damages, costs and attorneys' fees and injunctive relief based on allegations of
misappropriation of trade secrets. In April 1998, the defendants terminated
their employment with our company and subsequently began employment with Level
One Communications, a competitor in the DSL industry. No counterclaim has been
asserted against us. On June 16, 1999, the Superior Court of New Jersey issued a
final judgment in favor of GlobeSpan and against the defendants, ordering
injunctive and other relief against the defendants. We anticipate that
defendants may seek to appeal the Court's judgment. Due to the nature of
litigation, we cannot ascertain whether the judgment would be upheld on appeal.
We believe that this matter will not have a material adverse effect on our
results of operations or financial condition. However, this litigation could be
time consuming and costly, and there can be no assurance that we will
necessarily prevail given the inherent uncertainties in litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In May 1999, the Company designated 1,461,454 shares of preferred stock
as Series A Preferred Stock ("Series A Stock"). The Series A Stock was
convertible, at the option of the holder, into shares of common stock at any
time after the date of issuance at a conversion rate of $8.211 per share and
automatically converted upon consummation of the Company's IPO.
On May 6, 1999, the Company completed the sale of an aggregate 1,461,454
shares of Series A Stock and warrants to purchase an aggregate 300,000 shares of
common stock for gross proceeds of $12.0 million to Cisco Systems, Inc. and
Intel Corporation (the "Series A Investors"). The warrants issued to the Series
A Investors are exercisable for a five year term and at exercise prices equal to
the initial public offering price of $15.00 for the first 75,000 shares, $18.75
for the second 75,000 shares, $22.50 for the third 75,000 shares and $26.25 for
the last 75,000 shares.
The Company granted Cisco Systems, Inc. a right to require the Company to
repurchase its Series A Stock and warrants at cost, at any time after September
30, 1999, if by such date, the Company and the investor have not signed a
definitive development agreement, as defined, or if the second Series A Investor
gives the Company notice of its intention to exercise its right, as described
below. This right terminated upon consummation of the IPO.
The Company granted Intel Corporation a right to require the Company to
repurchase its Series A Stock and warrants at cost, at any time after the first
Series A Investor has given notice to the Company of its intention to exercise
its right as described above or December 31, 1999, if the Company has not
completed its IPO. This right terminated upon consummation of the IPO. In
addition, the Company has agreed not to assert any patent right against Intel
Corporation as long as Intel Corporation maintains an investment in the Company
of at least 1% of its capital stock.
The effective date of the Registration Statement for the Company's
initial public offering, filed on Form S-1 under the Securities Act of 1933
(File No. 333-75173), was June 22, 1999. The class of securities registered was
Common Stock. The offering commenced on June 23, 1999. The managing underwriters
for the offering were BancBoston Robertson Stephens Inc., Donaldson, Lufkin and
Jenrette Securities Corporation, SG Cowen Securities Corporation and Thomas
Weisel Partners LLC.
Pursuant to the Registration Statement, the Company sold 3,737,500 shares
of its Common Stock, including over-allotment, for an aggregate offering price
of approximately $56.1 million.
The Company incurred expenses of approximately $6.6 million, of which
$3.9 million represented underwriting discounts and commissions and
approximately $2.7 million represented other expenses related to the offering.
The net offering proceeds to the Company after total expenses was $49.5 million.
We used $5.0 million of the net proceeds to repay our subordinated note
payable to Communications Partners, L.P., and plan to use the balance for
general corporate purposes, including working capital. The remaining net
proceeds have
22
<PAGE> 25
been invested in cash, cash equivalents and short term investments. The use of
the proceeds from the offering does not represent a material change in the use
of proceeds described in the prospectus.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
3.1 Form of Restated Certificate of Incorporation of the
Registrant - incorporated herein by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1 (File No.
333-75173).
3.2 Amended and Restated Bylaws of the Registrant - incorporated
herein by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Registrant's Common Stock certificate - incorporated
herein by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
4.3 Investors' Rights Agreement dated May 6, 1999 - incorporated
herein by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
4.4 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6, 1999
- incorporated herein by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
4.5 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6, 1999
- incorporated herein by reference to Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive officers -
incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.2 1999 Equity Incentive Plan - incorporated herein by reference
to Exhibit 10.2 to the Company's Registration Statement on
Form S-1 (File No. 333-75173).
10.3 Employee Stock Purchase Plan - incorporated herein by
reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
10.4 1999 Director Stock Plan - incorporated herein by reference to
Exhibit 10.4 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
10.5 Business Loan Agreement between BankAmerica Business Credit
and Registrant, dated May 14, 1998 incorporated herein by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.6 Real Property Lease between Paradyne Corporation and Shav
Associates, dated October 8, 1996 incorporated herein by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C>
10.7 Real Property Sublease by and between Registrant and Paradyne
Corporation, dated December 10, 1997 10.7 - incorporated
herein by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
10.8 Amendment to Real Property Sublease by Registrant and Paradyne
Corporation, dated January 1, 1999 incorporated herein by
reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.9 Termination Agreement between Registrant and Paradyne
Corporation, dated December 31, 1998 incorporated herein by
reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.10 Subordinated Promissory Note between Registrant and
Communication Partners, L.P., dated December 15, 1998 -
incorporated herein by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.11 Employment Agreement between Registrant and Armando Geday,
dated April 1, 1997 - incorporated herein by reference to
Exhibit 10.12 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
10.12 Employment Agreement between Registrant and Thomas Epley,
dated August 29, 1997 - incorporated herein by reference to
Exhibit 10.13 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
10.13+ Agreement for the Manufacture and Sale of ASIC Products
between Registrant and Lucent Technologies Inc.
Microelectronics, dated March 23, 1999 - incorporated herein
by reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.14 Intellectual Property Agreement among Registrant, Lucent
Technologies Inc. and Paradyne Corporation, dated July 31,
1996 - incorporated herein by reference to Exhibit 10.15 to
the Company's Registration Statement on Form S-1 (File No.
333-75173).
10.15 Tax Matters Agreement between Registrant and Paradyne
Corporation, dated July 31, 1996 incorporated herein by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.16+ Product Supply Agreement between Registrant and Paradyne
Corporation dated March 16, 1999 incorporated herein by
reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.17 AT&T Trademark and Patent Agreement between Registrant, AT&T
Corp. and Paradyne Corporation, dated July 31, 1996 -
incorporated herein by reference to Exhibit 10.18 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.18 Investors' Rights Agreement between Registrant, Intel
Corporation, Cisco Systems, Inc. and Communication Partners,
L.P., dated May 6, 1999 - incorporated herein by reference to
Exhibit 10.19 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
10.19 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6, 1999
- incorporated herein by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.20 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6, 1999
- incorporated herein by reference to Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.21 Covenant Not to Sue between Registrant and Intel Corporation,
dated May 6, 1999 - incorporated herein by reference to
Exhibit 10.22 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
27.1 Financial Data Schedule for EDGAR Filing.
</TABLE>
+ Certain portions of this exhibit have been granted confidential
treatment by the Commission. The omitted portions have been separately filed
with the Commission.
24
<PAGE> 27
(b) Reports on Form 8-K.
None.
25
<PAGE> 28
GLOBESPAN, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBESPAN, INC.
Date: August 11, 1999 By: /s/ Robert McMullan
---------------------------------
Robert McMullan
Chief Financial Officer
(Principal Financial and
Accounting Officer)
26
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
3.1 Form of Restated Certificate of Incorporation of the
Registrant - incorporated herein by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1 (File No.
333-75173).
3.2 Amended and Restated Bylaws of the Registrant - incorporated
herein by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Registrant's Common Stock certificate - incorporated
herein by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
4.3 Investors' Rights Agreement dated May 6, 1999 - incorporated
herein by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
4.4 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6, 1999
- incorporated herein by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
4.5 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6, 1999
- incorporated herein by reference to Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive officers -
incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.2 1999 Equity Incentive Plan - incorporated herein by reference
to Exhibit 10.2 to the Company's Registration Statement on
Form S-1 (File No. 333-75173).
10.3 Employee Stock Purchase Plan - incorporated herein by
reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
10.4 1999 Director Stock Plan - incorporated herein by reference to
Exhibit 10.4 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
10.5 Business Loan Agreement between BankAmerica Business Credit
and Registrant, dated May 14, 1998 incorporated herein by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.6 Real Property Lease between Paradyne Corporation and Shav
Associates, dated October 8, 1996 incorporated herein by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.7 Real Property Sublease by and between Registrant and Paradyne
Corporation, dated December 10, 1997 10.7 - incorporated
herein by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (File No. 333-75173).
10.8 Amendment to Real Property Sublease by Registrant and Paradyne
Corporation, dated January 1, 1999 incorporated herein by
reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.9 Termination Agreement between Registrant and Paradyne
Corporation, dated December 31, 1998 incorporated herein by
reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.10 Subordinated Promissory Note between Registrant and
Communication Partners, L.P., dated December 15, 1998 -
incorporated herein by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.11 Employment Agreement between Registrant and Armando Geday,
dated April 1, 1997 - incorporated herein by reference to
Exhibit 10.12 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
10.12 Employment Agreement between Registrant and Thomas Epley,
dated August 29, 1997 - incorporated herein by reference to
Exhibit 10.13 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
10.13+ Agreement for the Manufacture and Sale of ASIC Products
between Registrant and Lucent Technologies Inc.
Microelectronics, dated March 23, 1999 - incorporated herein
by reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.14 Intellectual Property Agreement among Registrant, Lucent
Technologies Inc. and Paradyne Corporation, dated July 31,
1996 - incorporated herein by reference to Exhibit 10.15 to
the Company's Registration Statement on Form S-1 (File No.
333-75173).
10.15 Tax Matters Agreement between Registrant and Paradyne
Corporation, dated July 31, 1996 incorporated herein by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.16+ Product Supply Agreement between Registrant and Paradyne
Corporation dated March 16, 1999 incorporated herein by
reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (File No. 333-75173).
10.17 AT&T Trademark and Patent Agreement between Registrant, AT&T
Corp. and Paradyne Corporation, dated July 31, 1996 -
incorporated herein by reference to Exhibit 10.18 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.18 Investors' Rights Agreement between Registrant, Intel
Corporation, Cisco Systems, Inc. and Communication Partners,
L.P., dated May 6, 1999 - incorporated herein by reference to
Exhibit 10.19 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
10.19 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6, 1999
- incorporated herein by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.20 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6, 1999
- incorporated herein by reference to Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (File No.
333-75173).
10.21 Covenant Not to Sue between Registrant and Intel Corporation,
dated May 6, 1999 - incorporated herein by reference to
Exhibit 10.22 to the Company's Registration Statement on Form
S-1 (File No. 333-75173).
27.1 Financial Data Schedule for EDGAR Filing.
</TABLE>
+ Certain portions of this exhibit have been granted confidential
treatment by the Commission. The omitted portions have been separately filed
with the Commission.
28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-01-1999
<CASH> 42,266
<SECURITIES> 0
<RECEIVABLES> 4,819
<ALLOWANCES> 0
<INVENTORY> 3,146
<CURRENT-ASSETS> 52,721
<PP&E> 9,761
<DEPRECIATION> 4,006
<TOTAL-ASSETS> 60,119
<CURRENT-LIABILITIES> 13,027
<BONDS> 512
0
0
<COMMON> 18
<OTHER-SE> 46,562
<TOTAL-LIABILITY-AND-EQUITY> 60,119
<SALES> 9,434
<TOTAL-REVENUES> 9,434
<CGS> 3,236
<TOTAL-COSTS> 3,236
<OTHER-EXPENSES> 8,444
<LOSS-PROVISION> 111
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> (2,364)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,364)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
