<PAGE> 1
As filed with the Securities and Exchange Commission on December 3, 1999
Registration No. 333-______
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLOBESPAN, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3674 75-2658218
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Number) Identification No.)
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100 SCHULZ DRIVE
RED BANK, NEW JERSEY 07701
(732) 345-7500
(Address of principal executive offices) (Zip Code)
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GLOBESPAN, INC. 1996 EQUITY INCENTIVE PLAN
(Full title of the Plan)
-------------------
ROBERT J. MCMULLAN
CHIEF FINANCIAL OFFICER
GLOBESPAN, INC.
100 SCHULZ DRIVE
RED BANK, NEW JERSEY 07701
(Name and address of agent for service)
(732) 345-7500
(Telephone number, including area code, of agent for service)
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CALCULATION OF REGISTRATION FEE
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=============================================================================================================
Title of Proposed Maximum Proposed Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share Price (2) Fee
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Common Stock (par value $.001) 952,384 shares $75.1875(2) $71,607,372(2) $18,904.35
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(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the 1996 Equity Incentive Plan,
by reason of any stock dividend, stock split, recapitalization or other
similar transaction effected without the receipt of consideration which
results in an increase in the number of the outstanding shares of Common
Stock of GlobeSpan, Inc.
(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended, on the basis of the average of the
high and low price per share of Common Stock of GlobeSpan, Inc. as
reported on the Nasdaq National Market on December 1, 1999.
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EXPLANATORY NOTE
GlobeSpan, Inc. has prepared this Registration Statement in accordance
with the requirements of Form S-8 under the Securities Act of 1933, as amended
(the "1933 Act"), to register shares of its common stock, $0.001 par value per
share. Under cover of this Form S-8 is a Reoffer Prospectus GlobeSpan, Inc.
prepared in accordance with Part I of Form S-3 under the 1933 Act. The Reoffer
Prospectus may be utilized for reofferings and resales of up to 952,384 shares
of common stock acquired by Selling Stockholders under the GlobeSpan, Inc. 1996
Equity Incentive Plan.
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GLOBESPAN, INC.
FORM S-8 CROSS REFERENCE SHEET SHOWING LOCATION OF INFORMATION
REQUIRED BY PART I OF FORM S-3
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Form S-3 Item Number Location/Heading in Prospectus
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1. Forepart of Registration Statement and Cover page
Outside Front Cover page of Prospectus
2. Inside Front and Outside Back Cover Available Information; Incorporation of
Page of Prospectus Certain Information by Reference
3. Summary Information, Risk Factors and Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holder Selling Security Holder
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Not Applicable
Registered
10. Interests of Named Experts and Counsel Not Applicable
11. Material Changes Not Applicable
12. Incorporation of Certain Information Documents Incorporated by Reference
13. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act
Liabilities
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<PAGE> 4
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
GlobeSpan, Inc. (the "Registrant") hereby incorporates by reference into
this Registration Statement the following documents previously filed with the
Securities and Exchange Commission (the "SEC"):
(a) The Registrant's prospectus filed with the SEC pursuant to Rule
424(b) of the Securities Act of 1933, as amended (the "1933
Act"), in connection with the Registration Statement No.
333-75173 on Form S-1 filed with the SEC on May 10, 1999,
together with any and all amendments thereto, in which there is
set forth audited financial statements for the period from
inception through December 31, 1996 and for each of the
Registrant's fiscal years ending December 31, 1997 and 1998; and
(b) The Registrant's Quarterly Reports on Form 10-Q for the quarters
ended June 30, 1999 and September 30, 1999;
(c) The Registrant's Registration Statement No. 000-26401 on Form 8-A
filed with the SEC on June 16, 1999, together with all amendments
thereto, pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "1934 Act") in which there is described the
terms, rights and provisions applicable to the Registrant's
outstanding Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of
this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents.
Item 4. Description of Securities
Not Applicable.
Item 5. Interests of Named Experts and Counsel
Not Applicable.
Item 6. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court
to award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the 1933 Act. Article VII,
Section 6, of the Registrant's Bylaws provides for mandatory indemnification of
its directors and officers and permissible indemnification of employees and
other agents to the maximum extent permitted by the Delaware General Corporation
Law. The Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be liable for monetary damages for breach
of their fiduciary duty as directors to the Registrant and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the
fiduciary duty of the directors, and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant has entered into Indemnification Agreements with its officers and
directors. The Indemnification Agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law.
II-1
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Item 7. Exemption from Registration Claimed
The sale and issuance of securities to the registered stockholders by
GlobeSpan, Inc. to whom the shares offered for resale pursuant to this
Registration Statement were sold were in each case deemed to be exempt from
registration under the Securities Act of 1933 by virtue of Section 4(2) thereof.
Item 8. Exhibits
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Exhibit
Number Exhibit
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4 Instrument Defining Rights of Stockholders. Reference is made to
Registrant's Registration Statement No. 000-26401 on Form 8-A,
together with all amendments thereto, which is incorporated herein
by reference pursuant to Item 3(d) of this Registration Statement.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
24 Power of Attorney. Reference is made to page II-3 of this
Registration Statement.
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Item 9. Undertakings
A. The undersigned Registrant hereby undertakes: (1) to file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement (i) to include any prospectus required
by Section 10(a)(3) of the 1933 Act, (ii) to reflect in the prospectus any facts
or events arising after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; provided, however, that clauses (1)(i) and (1)(ii) shall
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the SEC by the Registrant pursuant to Section 13 or Section 15(d)
of the 1934 Act that are incorporated by reference in this Registration
Statement; (2) that for the purpose of determining any liability under the 1933
Act each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof and (3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Registrant's 1996 Equity Incentive Plan.
B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the 1933 Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act that is incorporated by reference in this Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the indemnification provisions summarized in Item 6 or
otherwise, the Registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the 1933 Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Red Bank, State of New Jersey on this 1st day
of December, 1999.
GLOBESPAN, INC.
By: /s/ ARMANDO GEDAY
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Armando Geday
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of GlobeSpan, Inc., a
Delaware corporation, do hereby constitute and appoint Armando Geday and Robert
J. McMullan, and either of them, the lawful attorneys-in-fact and agents with
full power and authority to do any and all acts and things and to execute any
and all instruments which said attorneys and agents, and either one of them,
determine may be necessary or advisable or required to enable said corporation
to comply with the Securities Act of 1933, as amended, and any rules or
regulations or requirements of the Securities and Exchange Commission in
connection with this Registration Statement. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to any and all
amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
all that said attorneys and agents, or either one of them, shall do or cause to
be done by virtue hereof. This Power of Attorney may be signed in several
counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
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Signature Title Date
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/s/ ARMANDO GEDAY President, Chief Executive Officer and December 1, 1999
- ---------------------------------- Director (Principal Executive Officer)
Armando Geday
/s/ ROBERT MCMULLAN Chief Financial Officer (Principal December 1, 1999
- ---------------------------------- Financial and Accounting Officer) and
Robert McMullan Secretary
/s/ THOMAS EPLEY Director December 1, 1999
- ----------------------------------
Thomas Epley
/s/ KEITH GEESLIN Director December 1, 1999
- ----------------------------------
Keith Geeslin
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Signature Title Date
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/s/ DAVID STANTON Director December 1, 1999
- ----------------------------------
David Stanton
Director
- ----------------------------------
Dipanjan Deb
Director
- ----------------------------------
James Coulter
/s/ BARBARA CONNOR Director December 1, 1999
- ----------------------------------
Barbara Connor
/s/ FEDERICO FAGGIN Director December 1, 1999
- ----------------------------------
Federico Faggin
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<PAGE> 8
SHARES OF COMMON STOCK
GLOBESPAN, INC.
This Reoffer Prospectus relates to 952,384 shares of the Common Stock,
par value $0.001 (the "Common Stock"), of GlobeSpan, Inc. (the "Company"), which
may be offered from time to time by certain key employees named herein (the
"Registered Stockholders"). It is anticipated that the Registered Stockholders
will offer shares for sale at prevailing prices on the Nasdaq National Market
System on the date of sale. The Company will receive no part of the proceeds of
sale made hereunder. All expenses of registration incurred in connection with
this offering are being borne by the Company, but all selling and other expenses
incurred by each of the Registered Stockholders will be borne by each such
Registered Stockholder.
The Common Stock is traded on the Nasdaq National Market System.
The Registered Stockholders and any broker executing selling orders on
behalf of the Registered Stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
which event commissions received by such broker may be deemed to be underwriting
commissions under the Securities Act.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 4. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering described herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Registered Stockholder. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, nor shall there be any sale of these
securities by any person in any jurisdiction in which it is unlawful for such
person to make such offer, solicitation or sale. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create an
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
The date of this Prospectus is December 3, 1999.
<PAGE> 9
AVAILABLE INFORMATION
The Company will be subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") upon the
first date on which its Common Stock is registered under Section 12(g) of the
Exchange Act and in accordance therewith will file reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Room of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
219 South Dearborn Street, Chicago, IL 60604; 26 Federal Plaza, New York, NY
10007; and 5757 Wilshire Boulevard, Los Angeles, CA 90036, at prescribed rates.
The Common Stock is quoted on the Nasdaq National Market System. Reports, proxy
statements, informational statements and other information concerning the
Company can be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. The
Commission also maintains a Web site (http://www.sec.gov) that contains reports,
proxy statements and other information regarding registrants that file
electronically with the Commission.
The Company intends to furnish its stockholders with annual reports
containing additional financial statements and a report thereon by independent
certified public accountants.
A copy of any document incorporated by reference in the Registration
Statement (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that the Registration Statement incorporates) of which this
Reoffer Prospectus forms a part but which is not delivered with this Reoffer
Prospectus will be provided by the Company without charge to any person
(including any beneficial owner) to whom this Reoffer Prospectus has been
delivered upon the oral or written request of such person. Such requests should
be directed to Robert McMullan, GlobeSpan, Inc., 100 Schultz Drive, Red Bank, NJ
07701. The Company's telephone number at that location is (732) 345 7500.
TABLE OF CONTENTS
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THE COMPANY................................................................3
RISK FACTORS...............................................................4
USE OF PROCEEDS...........................................................16
REGISTERED STOCKHOLDERS...................................................16
PLAN OF DISTRIBUTION......................................................17
DOCUMENTS INCORPORATED BY REFERENCE.......................................17
INDEMNIFICATION...........................................................18
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THE COMPANY
GlobeSpan, Inc. (the "Company") is a leading worldwide developer of
advanced digital subscriber line (DSL) integrated circuits (chip sets) which
enable high-speed data transmission over the existing network of copper
telephone wires known as the local loop. Our products, when deployed at each end
of these copper telephone wires, enable data transmission at rates over 100
times faster than today's commonly deployed modem technologies, which transmit
data at 56 kilobits per second (Kbps). We sell our integrated circuits as chip
sets to manufacturers of DSL equipment for incorporation into products that are
sold to telecommunications service providers and end users. To date, we have
shipped more than one million DSL chip sets, representing a significant share of
this emerging market, to a broad base of leading communications equipment
manufacturers, including Ascom Hasler AG, Cisco Systems, LG Information &
Communications, NEC Corporation, Paradyne Corporation and Westell Technologies.
We do not own or operate our own fabrication facility and Lucent Technologies
currently manufactures substantially all of our chip sets.
Our products target the rapidly growing market for high-speed data
transmission applications such as Internet access, telecommuting and networking
among branch offices. In order to enable these applications, equipment
manufacturers are designing DSL systems around increasingly complex integrated
circuits which account for a significant portion of the value-added,
proprietary content of such systems. While equipment manufacturers have
in-depth systems knowledge, they often lack the core technology and expertise
necessary to develop these integrated circuits internally and are turning to
DSL integrated circuit developers that possess the core technologies and
expertise required to bring high performance, cost-effective solutions to
market.
Our objective is to maximize the number of products that are designed by
new and existing customers to incorporate our chip sets. By maximizing the
number of such "design wins," we create an opportunity to sell our chip sets in
volume quantities, capitalize on the success of any one of our customers' DSL
products and increase the likelihood of additional design wins with our
customers. While achieving such a design win is not a binding commitment to
purchase our product and does not guarantee an order for large volumes of our
products, it is a decision by a customer to use our products in the design
process of that customer's products. We are successful in capturing design wins
because:
o We have extensive DSL development experience, including six years of
field experience in implementing DSL technology;
o We have sold over one million DSL chip sets, which represents a
significant market share of the DSL integrated circuit market;
o We offer a broad suite of DSL chip sets;
o Our DSL chip sets provide high performance processing power, enabling
billions of operations per second;
o Our DSL chip sets create software flexibility, enabling our customers
to enhance or reconfigure their products through software downloads;
o Our DSL chip sets offer a competitive total system cost;
o We apply advanced systems-level expertise;
o We sell comprehensive reference design guides and offer strong
technical support to accelerate customers' time to market; and
o Our DSL chip sets are designed to comply with industry standards.
We believe these advantages and design attributes position us as the
preferred design partner and chip set supplier for DSL equipment manufacturers.
Our strategy is to maintain and grow our leading design win position by:
o Targeting all applications in the DSL market and providing the chip
set technologies necessary to enable these applications;
o Strengthening and broadening our technology competencies to maintain
our leading position in the DSL market;
o Leveraging our advanced systems-level expertise to develop and offer
ship sets that can be cost effectively incorporated into complete
DSL systems; and
o Continuing to actively participate in the formulation of critical
standards for the high-speed data transmission market.
We were formed as an independent company in July 1996 as part of the
divestiture of AT&T Paradyne Corporation by Lucent Technologies. We commenced
operations in August 1996. Prior to the divestiture, our business was operated
as the Advanced Transmission Technology Division of AT&T Paradyne Corporation.
The Company's executive offices are located at GlobeSpan, Inc., 100 Schultz
Drive, Red Bank, NJ 07701. The Company's telephone number is (732) 345 7500.
3
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RISK FACTORS
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 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 Paradyne
Corporation;
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<PAGE> 12
- 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;
- 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
5
<PAGE> 13
$7.8 million in 1998 and $7.5 million in the nine months ended September 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 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 nine months ended
September 30, 1999, our customers who individually represented at least five
percent of our net revenues accounted for 85.5%, 72.6%, 70.1% and 61.0%,
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 Ascom Hasler AG, which accounted for 48.3%, 12.6% and 9.2% of
our net revenues, respectively. In the nine months ended September 30, 1999, our
top three customers were Cisco Systems, Paradyne Corporation, and Ascom Hasler
AG, which accounted for 46.1%, 7.7% and 7.2% 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, Paradyne 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
6
<PAGE> 14
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 (2BIQ), carrierless amplitude phase
modulation (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 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
7
<PAGE> 15
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 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.
8
<PAGE> 16
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 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
9
<PAGE> 17
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;
- Performance;
- Price;
- Breadth of product lines;
- Product migration plans; and
- Technical support.
We believe our principal competitors include Alcatel, Analog Devices,
Centillium 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.
10
<PAGE> 18
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
Paradyne 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 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
11
<PAGE> 19
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 September 30, 1999, we increased from
93 to 186 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%
Year Ended December 31, 1998 32.6%
Nine Months Ended September 30, 1999 47.5%
</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 nine months ended September
30, 1999, 9.4% and 23.1%, 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
12
<PAGE> 20
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 63.4% of our outstanding common stock as of November 4,
1999.
Entities affiliated with Texas Pacific Group own approximately 45.0% 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 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
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<PAGE> 21
- 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 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
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<PAGE> 22
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;
- Changes in market valuations of integrated circuit companies;
- Announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
- Loss of or 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.
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<PAGE> 23
USE OF PROCEEDS
The Company will not receive any of the proceeds from the
offering hereunder. All expenses of registration incurred in connection with
this offering are being borne by the Company, but all selling and other expenses
incurred by the individual Registered Stockholders will be borne by such
Registered Stockholders.
REGISTERED STOCKHOLDERS
The Reoffer Prospectus relates to shares of Common Stock which have been
acquired by the Registered Stockholders. Registered Stockholders acquired shares
of Common Stock to be offered hereunder pursuant to the exercise of options
granted under the 1996 Equity Incentive Plan.
The following table sets forth certain information with respect to the
Registered Stockholders as of November 30, 1999:
<TABLE>
<CAPTION>
Number
Number of Number of of
Shares Shares to Shares
Stockholder's Owned be Owned
Registered Position with Before Offered After
Stockholder Company Offering Hereby Offering*
- --------------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1% Holders and others
Armando Geday President, Chief 525,317 489,060 36,257
Executive Officer,
Director
Nicholas Aretakis Vice President, 101,108 101,108 0
Worldwide Sales
Robert McMullan Chief Financial 107,775 107,775 0
Officer, Vice
President,
Treasurer and
Secretary
Thomas Sennhauser Chief Operating 101,108 101,108 0
Officer
Other Registered Employees N/A 153,333 N/A
Stockholders holding
less than 1% of the
Capital Stock
</TABLE>
- --------------------------------------------------------------------------------
*Assumes sale of all of the shares offered; however, the Registered Stockholders
may or may not sell all or any of the offered shares.
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<PAGE> 24
PLAN OF DISTRIBUTION
The shares of Common Stock covered by this Reoffer Prospectus are
being registered by the Company for the account of the Registered Stockholders.
The Registered Stockholders may sell the shares in one or more
transactions (which may involve one or more block transactions) on the Nasdaq
National Market, in sales occurring in the public market off such system, in
privately negotiated transactions or in a combination of such transactions. Each
such sale may be made either at market prices prevailing at the time of such
sale or at negotiated prices. The Registered Stockholders may sell some or all
of the shares in transactions involving broker-dealers, who may act as agent or
acquire the shares as principal. Any broker-dealer participating in such
transactions as agent may receive commissions from the Registered Stockholders
(and, if they act as agent for the purchaser of such shares, from such
purchaser). The Registered Stockholders will pay usual and customary brokerage
fees. Broker-dealers may agree with the Registered Stockholders to sell a
specified number of shares at a stipulated price per share and, to the extent
such a broker-dealer is unable to do so acting as agent for the Registered
Stockholders, to purchase as principals any unsold shares at the price required
to fulfill the respective broker-dealer's commitment to the Registered
Stockholders. Broker-dealers who acquire shares as principals may thereafter
resell such shares from time to time in transactions (which may involve cross
and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices, and in connection with
such resales may pay to or receive from the purchasers of such shares
commissions.
To the knowledge of the Company, there is currently no agreement with
any broker or dealer respecting the sale of the shares offered hereby. Upon the
sale of any such shares, the Registered Stockholders or anyone effecting sales
on behalf of the Registered Stockholders may be deemed an underwriter, as that
term is defined under the Securities Act of 1933, as amended. The Company will
pay all expenses of preparing and reproducing this Reoffer Prospectus, but will
not receive the proceeds from sales by the Registered Stockholders. Sales will
be made at prices prevailing at the time of such sales.
The Company is bearing all costs relating to the registration of the
shares. Any commissions or other fees payable to broker-dealers in connection
with any sale of the shares will be borne by the Registered Stockholders or
other party selling such shares. In order to comply with certain states'
securities laws, if applicable, the shares will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In certain states the
shares may not be sold unless the shares have been registered or qualified for
sale in such state, or unless an exemption form registration or qualification is
available and is obtained.
DOCUMENTS INCORPORATED BY REFERENCE
GlobeSpan, Inc. hereby incorporates by reference into this Registration
Statement the following documents previously filed with the Commission:
(a) GlobeSpan, Inc.'s prospectus filed with the SEC pursuant to Rule
424(b) of the Securities Act of 1933, as amended (the "1933
Act"), in connection with the Registration Statement No.
333-75173 on Form S-1 filed with the SEC on May 10, 1999,
together with any and all amendments thereto, in which there is
set forth audited financial statements for the period from
inception through December 31, 1996 and for each of GlobeSpan,
Inc.'s fiscal years ending December 31, 1997 and 1998; and
(b) GlobeSpan's Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1999 and September 30, 1999;
(c) GlobeSpan, Inc.'s Registration Statement No. 000-26401 on Form
8-A filed with the SEC on June 16, 1999, together with all
amendments thereto, pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") in which there
is described the terms, rights and provisions applicable to
GlobeSpan, Inc.'s outstanding Common Stock
All of such documents are on file with the Commission. All
documents subsequently filed by GlobeSpan, Inc. pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the filing of a
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<PAGE> 25
post-effective amendment which indicates that all securities to be offered
pursuant hereto have been sold or which deregisters all such securities then
remaining unsold shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of the filing of such
documents.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law authorizes a court
to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the 1933 Act. GlobeSpan,
Inc.'s Bylaws provide for mandatory indemnification of its directors and
officers and permissible indemnification of employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. GlobeSpan,
Inc.'s Certificate of Incorporation provides that, under Delaware law, its
directors shall not be liable for monetary damages for breach of their fiduciary
duty as directors to GlobeSpan, Inc. and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the fiduciary duty of the
directors, and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to GlobeSpan, Inc. for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. GlobeSpan, Inc. has
entered into Indemnification Agreements with its officers and directors. The
Indemnification Agreements provide GlobeSpan, Inc.'s officers and directors with
further indemnification to the maximum extent permitted by the Delaware General
Corporation Law.
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<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
4 Instrument Defining Rights of Stockholders. Reference is made to
Registrant's Registration Statement No. 000-26401 on Form 8-A,
together with all amendments thereto, which is incorporated herein
by reference pursuant to Item 3(d) of this Registration Statement.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24 Power of Attorney. Reference is made to page II-5 of this
Registration Statement.
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated February 12, 1999, except as to the
first paragraph of Note 14 which is as of June 18, 1999 relating to the
financial statements of GlobeSpan, which appears in the Prospectus constituting
part of GlobeSpan Inc.'s Registration Statement on Form S-1 (No. 333-75173).
PricewaterhouseCoopers LLP
Florham Park, New Jersey
December 3, 1999
/s/ PricewaterhouseCoopers LLP
----------------------------------------
PRICEWATERHOUSECOOPERS LLP
