<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1999.
REGISTRATION NO. 333-75173
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GLOBESPAN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 75-2658218
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
100 SCHULZ DRIVE
RED BANK, NJ 07701
(732) 345-7500
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT J. MCMULLAN
CHIEF FINANCIAL OFFICER
GLOBESPAN, INC.
100 SCHULZ DRIVE
RED BANK, NJ 07701
(732) 345-7500
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
SCOTT C. DETTMER, ESQ. BARRY E. TAYLOR, ESQ.
GUNDERSON DETTMER STOUGH TREVOR J. CHAPLICK, ESQ.
VILLENEUVE FRANKLIN & HACHIGIAN, LLP WILSON SONSINI GOODRICH & ROSATI
155 CONSTITUTION DRIVE PROFESSIONAL CORPORATION
MENLO PARK, CA 94025 650 PAGE MILL ROAD, PALO ALTO, CA 94303
(650) 321-2400 (650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 10, 1999
[GLOBESPAN LOGO]
3,000,000 SHARES
COMMON STOCK
GlobeSpan, Inc. is offering 3,000,000 shares of common stock. This is our
initial public offering and no public market currently exists for our shares.
The shares we are offering have been approved for quotation on the Nasdaq
National Market under the symbol "GSPN." We anticipate that the initial public
offering price will be between $9.00 and $11.00 per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to GlobeSpan....................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 450,000 shares of common stock to cover over-allotments.
------------------------------
BANCBOSTON ROBERTSON STEPHENS DONALDSON, LUFKIN & JENRETTE
------------------------------
SG COWEN THOMAS WEISEL PARTNERS LLC
THE UNDERSIGNED IS FACILITATING INTERNET DISTRIBUTION
E*TRADE SECURITIES DLJDIRECT INC.
The date of this prospectus is , 1999
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
"GLOBESPAN," "WE," "OUR" AND "US" REFER TO GLOBESPAN, INC.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Note Regarding Forward-Looking Statements................... 20
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Certain Information......................................... 20
Capitalization.............................................. 21
Dilution.................................................... 23
Selected Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 36
Management.................................................. 50
Certain Transactions........................................ 60
Principal Stockholders...................................... 68
Description of Capital Stock................................ 70
Shares Eligible for Future Sale............................. 74
Underwriting................................................ 76
Legal Matters............................................... 78
Experts..................................................... 78
Where You Can Find Additional Information................... 79
Index to Financial Statements............................... F-1
</TABLE>
-------------------------
This prospectus contains trademarks and trade names of other companies.
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before buying shares in the offering. You
should read this entire prospectus carefully.
OUR BUSINESS
GlobeSpan, Inc. 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
kilobytes 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 branch
office internetworking. 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. We are successful in capturing design wins because:
- We have a long history of DSL development experience;
- We have sold over one million DSL chip sets;
- We offer a broad suite of DSL chip sets;
- Our DSL chip sets provide advanced functionality differentiated by high
performance and software flexibility;
- Our DSL chip sets offer a competitive total system cost;
- We apply advanced systems-level expertise;
- We sell comprehensive reference design guides and offer strong technical
support to accelerate customers' time to market; and
- Our DSL chip sets are designed to comply with industry standards.
1
<PAGE> 5
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:
- Targeting all applications in the DSL market and providing the chip set
technologies necessary to enable these applications;
- Strengthening and broadening our technology competencies to maintain our
leading position in the DSL market;
- Leveraging our advanced systems-level expertise to develop and offer chip
sets that can be cost effectively incorporated into complete DSL systems;
and
- 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 OFFERING
Common stock offered...................... 3,000,000 shares
Common stock to be outstanding after this
offering.................................. 17,166,573 shares
Use of proceeds........................... We intend to use the estimated
$26.2 million net proceeds from
this offering to retire
approximately $4.9 million of
indebtedness to Communication
Partners, L.P., a related party,
and for working capital, repayment
of other indebtedness, potential
acquisitions of technology or
businesses and other general
corporate purposes.
Proposed Nasdaq National Market symbol.... GSPN
- ------------------------------
Except as otherwise indicated, information in this prospectus is based on the
following assumptions:
- The number of shares of our common stock to be outstanding after the
offering is based on:
(a) shares outstanding as of March 31, 1999;
(b) the assumption that the shares of our Series A preferred stock issued
in May 1999 will be converted to 1,461,454 shares of common stock
effective as of the completion of this offering;
(c) completion of a one-for-three reverse stock split to be effected
prior to the completion of this offering; and
(d) 430,500 shares of common stock to be issued upon the "net exercise"
of our outstanding warrant held by Lucent Technologies. The warrant
is currently exercisable for 1,312,500 shares of our common stock at
an exercise price of $6.72 per share. The warrant can either be
exercised by payment of the exercise price in cash or by a net
exercise. A net exercise means that the aggregate exercise price of
the warrant is deemed to be paid by the warrant holder by giving up
shares of our common stock, in lieu of
2
<PAGE> 6
paying cash, based on the fair market value of such shares at the
time of the net exercise. The number of shares to be issued upon the
net exercise of the warrant set forth above is based upon an assumed
initial public offering price of $10.00 per share.
- The number of shares excludes:
(a) 450,000 shares available for issuance if the underwriters'
over-allotment option is exercised in full;
(b) 2,368,181 shares of common stock available for issuance under our
1996 Equity Incentive Plan as of March 31, 1999, 2,000,710 of which
were subject to outstanding options at a weighted average price of
$3.93 per share at March 31, 1999;
(c) 1,000,000 shares of common stock available for issuance under our
1999 Equity Incentive Plan, which was approved by the board of
directors in March 1999 and by the stockholders in May 1999;
(d) 250,000 shares of common stock available for issuance under our 1999
Director Stock Plan, which was approved by the board of directors in
March 1999 and by the stockholders in May 1999; and
(e) 400,000 shares of common stock available for issuance under our
Employee Stock Purchase Plan, which was approved by the board of
directors in March 1999 and by the stockholders in May 1999.
(f) 300,000 shares of common stock issuable upon the exercise of warrants
issued in connection with the issuance of Series A preferred stock in
May 1999.
(g) Up to 200,000 shares of common stock issuable upon the exercise of
warrants issued in connection with the issuance of Series A preferred
stock in May 1999. These warrants expire unexercised upon the
completion of this offering at an offering price of $10.00 per share
or more. See "Description of Capital Stock."
3
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
--------------------------- --------------------------------------------------------------------
SEVEN FIVE
YEAR ENDED MONTHS MONTHS YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, MARCH 31,
---------------- JULY 31, DECEMBER 31, ------------------------- -------------------------
1994 1995 1996 1996 1997 1998 1998 1999
------- ------ -------- ------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............... $ 380 $6,685 $ 1,597 $ 2,360 $ 22,546 $ 31,464 $ 7,568 $ 8,641
Gross profit............... 380 6,685 1,597 1,864 14,981 21,582 5,720 4,621
Interest income (expense)
net...................... 14 (182)
(Loss) income from
operations............... (4,593) 765 (2,419) (800) 1,051 (7,912) 778 (3,687)
Net (loss) income.......... $(4,593) $ 765 $(2,419) $ (800) $ 842 $ (7,829) $ 516 $ (3,869)
======= ====== ======= =========== =========== =========== =========== ===========
(Loss) earnings per share:
Basic.................... $ (0.07) $ 0.07 $ (0.65) $ 0.04 $ (0.32)
=========== =========== =========== =========== ===========
Diluted.................. $ (0.07) $ 0.07 $ (0.65) $ 0.04 $ (0.32)
=========== =========== =========== =========== ===========
Shares used in computing
(loss) earnings per
share:
Basic.................... 11,437,500 11,515,538 12,084,711 11,906,674 12,137,589
Diluted.................. 11,437,500 12,706,432 12,084,711 12,586,663 12,137,589
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 146 $ 31,808
Working capital (deficit)................................... (5,882) 26,568
Total assets................................................ 14,261 45,923
Long-term liabilities, less current portion................. 5,391 491
Total stockholders' (deficit) equity........................ (5,024) 32,326
</TABLE>
The financial data under the heading "Predecessor Company" is for our
business when it was the Advanced Transmission Technology Division of AT&T
Paradyne Corporation. We were formed in July 1996 as part of the divestiture of
AT&T Paradyne Corporation by Lucent Technologies and commenced operations in
August 1996. For more information on the divestiture, see "Certain Transactions"
and Note 1 of the Notes to Financial Statements.
See Note 9 of the Notes to Financial Statements for an explanation of the
method used to calculate earnings per share. Earnings per share data is not
presented for the Predecessor Company since the Predecessor Company did not have
its own capital structure. As a result, this information would not be
meaningful.
The balance sheet data as of March 31, 1999, as adjusted, gives effect to
(a) our receipt of the net proceeds from the sale of shares of common stock
offered hereby at an assumed public offering price of $10.00 per share, after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us, (b) the net exercise of the outstanding warrant held by
Lucent Technologies, (c) the repayment of certain indebtedness and (d) the sale
of 1,461,454 shares of Series A preferred stock in May 1999 and the conversion
of such shares to common stock upon completion of this offering. See "Use of
Proceeds" and "Capitalization."
4
<PAGE> 8
RISK FACTORS
Before you invest in our common stock, you should be aware of various
risks, including those described below. You should carefully consider these risk
factors, together with all of the other information included in this prospectus,
before you decide whether to purchase shares of our common stock.
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 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;
- 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.
5
<PAGE> 9
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 sell our products based on individual purchase orders and our customers
are not obligated to purchase our chip sets. We do not have a substantial
non-cancelable backlog of orders and our customers can generally cancel or
reschedule orders upon short notice. For these reasons, we typically base our
product plans and expenses on forecasts of customer demand. Accordingly, we
incur significant expenses before we generate associated revenues. If revenues
are below our projections, then our losses will increase.
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. For example, Paradyne Corporation
is currently entitled to purchase our chip sets at preferential prices. If
Paradyne Corporation increases its orders from us, our gross margins could be
materially adversely affected.
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 $3.9 million in the three months ended
March 31, 1999. As of March 31, 1999, we had an accumulated deficit of $11.7
million. 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.
6
<PAGE> 10
BECAUSE A LARGE PORTION OF OUR REVENUES IS DERIVED FROM A RELATIVELY SMALL
NUMBER OF CUSTOMERS, THE LOSS OF ONE OR MORE OF OUR KEY CUSTOMERS WOULD
SERIOUSLY HARM OUR BUSINESS
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
three months ended March 31, 1999, our customers who individually represented at
least five percent of our net revenues accounted for 85.5%, 72.6%, 70.1% and
65.7%, 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 three months ended March 31, 1999, our
top three customers were Cisco Systems, NEC Corporation and Ascom Hasler AG,
which accounted for 39.4%, 9.7% and 9.0% 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 INCUR
SUBSTANTIAL EXPENSES BEFORE WE EARN ASSOCIATED NET REVENUES
We develop products based on forecasts of demand and incur substantial
product development expenditures prior to generating associated revenues. 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. Even after our chip
sets are initially selected to be designed into a product, we may not ultimately
sell volume quantities of our chip sets for that product. We do not secure
binding commitments and volume production of the DSL equipment manufacturer's
product that incorporates our chip sets typically does not begin until three to
six months or more after we are awarded the design win. In addition, sales of
our chip sets are subject to delays or cancellations by such customers. A design
win will translate into volume shipments of our chip sets only if our customers'
products are 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.
7
<PAGE> 11
BECAUSE THE DSL MARKET IS RAPIDLY EVOLVING AND HAS ONLY RECENTLY DEVELOPED, OUR
BUSINESS WILL BE HARMED IF OUR NEW PRODUCTS ARE NOT SUCCESSFUL
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 (2B1Q), 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 2B1Q 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, substantially all of our product revenues to
date have come from the sale of chip sets that use the CAP line code. We have
not commercially shipped chip sets based on the 2B1Q, DMT or PAM line codes and
we cannot be certain that these chip sets will be successful.
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 BUSINESS
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 AND
WOULD SERIOUSLY HARM OUR BUSINESS
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
8
<PAGE> 12
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 DISRUPTIVE TO OUR BUSINESS
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 HAVE AN ADVERSE EFFECT ON OUR BUSINESS
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 there can be no assurance that
Lucent Technologies would consider that all of these transactions were on terms
obtainable in a comparable arms' length transaction. Lucent Technologies is
currently a competitor 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.
9
<PAGE> 13
WE MAY BE REQUIRED TO OBTAIN LICENSES ON TERMS THAT WOULD ADVERSELY AFFECT OUR
BUSINESS 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 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 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. If any such claims
are made, 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
10
<PAGE> 14
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;
- 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
11
<PAGE> 15
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
access 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, OUR BUSINESS WILL BE HARMED
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 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.
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<PAGE> 16
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 AND THE ASSUMPTION OF SERVICES
PREVIOUSLY PERFORMED FOR US BY PARADYNE CORPORATION HAS PLACED A STRAIN ON OUR
MANAGEMENT AND PERSONNEL AND OTHER RESOURCES
Since our formation, Paradyne Corporation has provided us with certain
services, including legal, accounting and tax support, information systems and
facilities management. Although we now perform many of these functions, Paradyne
Corporation still provides certain services, such as insurance and retirement
plan administration. We expect to perform an increasing number of the remaining
services currently provided by Paradyne Corporation. If we do not successfully
manage this transition, our business, financial condition and results of
operations will be seriously harmed. Further, from December 31, 1997 to March
31, 1999, we increased from 93 to 178 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.
13
<PAGE> 17
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 %
Three Months Ended March 31, 1999 42.3 %
</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 three months ended March 31,
1999, 9.4% and 11.3%, 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 BE ADVERSELY AFFECTED
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.
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<PAGE> 18
AFTER THIS OFFERING 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
Upon completion of this offering, executive officers and directors and
their affiliates will own, in the aggregate, approximately 66.7% of our
outstanding common stock. The purchasers of common stock in this offering will
not have sufficient voting power to elect any members of our board of directors.
As a result, our current stockholders will be able to exercise control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which could have the effect of
delaying or preventing a change of control of our company.
Entities affiliated with Texas Pacific Group will own approximately 50.5%
of GlobeSpan after the offering and will be 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. Affiliates of Texas Pacific
Group are also currently the majority owners of Paradyne Corporation. See
"Certain Transactions."
Our current board of directors consists of Messrs. Coulter, Deb, Epley,
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.
ALTHOUGH WE ARE NOT PRIMARILY A SUPPLIER OF SOFTWARE, OUR BUSINESS 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.
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<PAGE> 19
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 and our
stockholders are limited in their ability to make proposals at stockholder
meetings. See "Description of Capital Stock" for a further discussion of these
provisions.
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<PAGE> 20
WE MAY NEED TO RAISE ADDITIONAL CAPITAL WHICH MIGHT NOT BE AVAILABLE OR WHICH,
IF AVAILABLE, WOULD BE ON TERMS ADVERSE TO PERSONS BUYING SHARES IN THIS
OFFERING
We expect the net proceeds from this 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 of 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 HARD FOR
INVESTORS TO SELL THEIR SHARES
Prior to this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after this offering. We negotiated and determined the initial
public offering price with the representatives of the underwriters based upon
several factors. This price may vary from the market price after this offering.
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, RESULT IN SUBSTANTIAL COSTS AND
HARM OUR BUSINESS
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> 21
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
After this offering, we will have 17,166,573 shares of common stock
outstanding. Of these shares, the 3,000,000 sold in this offering will be freely
tradable without restriction under the Securities Act except for any shares
purchased by "affiliates" of GlobeSpan as that term is defined in Rule 144 of
the Securities Act. As of March 31, 1999, the remaining 14,166,573 shares of
common stock held by existing stockholders are "restricted shares" as that term
is defined in Rule 144, and will be available for sale in the public market as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
- ---------------- -----------------------------
<C> <S>
0 At the date of this prospectus.
0 90 days after the date of this prospectus.
14,166,573 180 days after the date of this prospectus or afterwards.
</TABLE>
The above table assumes the effectiveness of certain lock-up arrangements
with the underwriters under which the stockholders have agreed not to sell or
otherwise dispose of their shares of common stock. Most of the shares that will
be available for sale after the 180th day after the date of this prospectus or
afterwards will be subject to certain volume limitations because they are held
by affiliates of GlobeSpan. In addition, we cannot assure you that these lock-up
restrictions will not be removed prior to 180 days after the offering without
prior notice by the underwriters.
As of March 31, 1999, there were options to purchase 2,000,710 shares of
our common stock outstanding. Should the holders of these options exercise their
options, there will be additional shares eligible for sale 180 days after the
date of this prospectus.
Our principal stockholders have the right to require us to file a
registration statement to enable them to sell their shares. See "Description of
Capital Stock -- Registration Rights."
If our stockholders sell substantial amounts of the common stock, including
shares issued upon the exercise of outstanding options, in the public market,
the market price of our common stock could fall. For more detailed information
regarding future sales of our common stock, please see "Shares Eligible for
Future Sale" and "Underwriting."
OUR CURRENT STOCKHOLDERS WILL BENEFIT FROM THIS OFFERING, AND YOU WILL
EXPERIENCE IMMEDIATE DILUTION
The initial public offering price is expected to be substantially higher
than the current book value per share of our outstanding common stock.
Stockholders existing as of March 31, 1999 have paid an average of $0.57 per
share for their common stock which is considerably less than the amount to be
paid for such common stock in this offering. As a result, investors purchasing
common stock in this offering will incur immediate and substantial dilution. In
addition, we have issued options to acquire common stock at prices significantly
below the initial public offering price. To the extent such outstanding options
are ultimately exercised, there will be further dilution to investors in this
offering.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN
The principal purposes of this offering are to increase our equity capital,
to create a public market for our shares, to facilitate our future access to
public equity markets and to provide increased visibility and credibility for us
in a marketplace in which many of our current and potential competitors are or
are expected to be publicly held companies. We are effecting the offering at
this time because we believe that favorable market conditions currently exist
for the public offering of stock of companies within our industry. As of the
date of this prospectus, we have no specific plans to use the net proceeds from
the offering other than for repayment of certain indebtedness and general
corporate purposes and plan to invest the net proceeds in short-term,
investment-grade, interest-
18
<PAGE> 22
bearing securities. Accordingly, our management will retain broad discretion to
allocate a substantial portion of the net proceeds from this offering to uses
that the stockholders may not deem as desirable, and there can be no assurance
that these proceeds can or will yield a significant return.
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS
We currently intend to retain all future earnings to fund the development
and growth of our business and, therefore, we do not anticipate paying any
dividends. Additionally, our lines of credit currently prohibit the payment of
dividends.
19
<PAGE> 23
NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
prospectus regarding markets for our products and trends in net revenues, gross
margin and anticipated expense levels, and any statement that contains the words
"anticipate," "believe," "plan," "estimate," "expect," "intend" and other
similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks, including
those risks identified in "Risk Factors" and elsewhere in this prospectus and
our actual results of operations may differ significantly from those contained
in the forward-looking statements because of such risks. The cautionary
statements made in this prospectus apply to all forward-looking statements
wherever they appear in this prospectus.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 3,000,000 shares of
common stock that we are offering will be approximately $26.2 million at an
assumed initial public offering price of $10.00 per share and after deducting
estimated offering expenses of $1.7 million and underwriting discounts and
commissions payable by GlobeSpan. We intend to retire approximately $0.8 million
of aggregate outstanding indebtedness to BankAmerica Business Credit, Inc. For
the year ended December 31, 1998, the weighted average interest rate was 9.1%.
The revolving credit agreement expires on January 2000 and is automatically
renewable for additional one year terms unless terminated by GlobeSpan or the
bank. We also intend to retire approximately $4.9 million of aggregate
outstanding indebtedness to Communication Partners, L.P. Communication Partners,
L.P. is a related party. See "Certain Transactions." This loan bears interest at
a rate of 8.0% and expires May 1, 2003. After the payment of our outstanding
indebtedness, the net proceeds we will receive from the offering will be
approximately $20.5 million, or $24.7 million if the underwriters' over-
allotment option is exercised in full. We intend to use these remaining proceeds
primarily for additional working capital. Although we may use a portion of the
net proceeds to acquire technology or businesses that are complementary to our
business, we have no current plans in this regard. Pending such uses, we plan to
invest the net proceeds in short-term, interest-bearing, investment grade
securities. Another primary purpose of the offering is to create a public market
for our common stock and facilitate our future access to public capital markets.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. Additionally, our lines of credit currently prohibit the payment of
dividends.
CERTAIN INFORMATION
Our principal executive offices are located at 100 Schulz Drive, Red Bank,
New Jersey 07701, and our telephone number is (732)345-7500. Our logo and
certain titles and logos of our publications and products mentioned in this
prospectus are our service marks or trademarks. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- On an actual basis;
- On a pro-forma basis to reflect the issuance of 1,461,454 shares of
Series A preferred stock issued in May 1999 ("Pro Forma-A");
- On a pro forma basis to reflect the net exercise of Lucent Technologies'
warrant to purchase shares of our common stock and the conversion of our
Series A preferred stock issued in May 1999 into 1,461,454 shares of
common stock upon the completion of this offering ("Pro Forma-B"); and
- On a pro forma as adjusted basis to reflect the sale of the shares of
common stock offered hereby (assuming an initial public offering price of
$10.00 per share) and the application of the net proceeds we will receive
from the offering in the manner described in "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA-A PRO FORMA-B AS ADJUSTED
-------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Subordinated note payable to Communication Partners,
L.P................................................. $ 4,900 $ 4,900 $ 4,900 --
Long-term portion of capital lease obligations, less
current portion..................................... 491 491 491 491
Series A Redeemable Convertible Preferred Stock,
$0.001 par value, 1,461,454 shares authorized; no
shares issued and outstanding, actual, pro forma-B
and pro forma as adjusted; 1,461,454 shares issued
and outstanding, pro forma-A........................ -- 11,150 -- --
Stockholders' equity
Preferred stock, $0.001 par value, 10,000,000 shares
authorized; no shares issued or outstanding,
actual, pro forma-A, pro forma-B and pro forma as
adjusted.......................................... -- -- -- --
Beneficial conversion feature....................... -- 2,616 -- --
Common stock, $0.001 par value, 15,555,300 shares
authorized; 12,274,619 shares issued and
outstanding, actual and pro forma-A; 14,166,573
shares issued and outstanding, pro forma-B;
17,166,573 shares issued and outstanding, pro
forma as adjusted................................. 12 12 14 17
Stock purchase warrant.............................. 3,654 3,654 -- --
Additional paid-in capital.......................... 3,761 1,145 18,563 44,760
Notes receivable from stock sales................... (725) (725) (725) (725)
Deferred stock compensation......................... (70) (70) (70) (70)
(Accumulated deficit) retained earnings............. (11,656) (11,656) (11,656) (11,656)
-------- -------- -------- --------
Total stockholders' equity........................ (5,024) (5,024) 6,126 32,326
-------- -------- -------- --------
Total capitalization............................ $ 367 $ 11,517 $ 11,517 $ 32,817
======== ======== ======== ========
</TABLE>
The outstanding share information excludes the following:
- 300,000 shares of common stock issuable upon the exercise of warrants
issued in connection with the issuance of Series A preferred stock in May
1999.
- Up to 200,000 shares of common stock issuable upon the exercise of
warrants issued in connection with the issuance of Series A preferred
stock in May 1999. These warrants expire unexercised upon the completion
of this offering at an offering price of $10.00 per share or more. See
"Description of Capital Stock."
21
<PAGE> 25
- 2,000,710 shares of common stock issuable on exercise of outstanding
options as of March 31, 1999 with a weighted average exercise price of
$3.93 per share,
- 367,471 shares of common stock reserved for grant and issuance under our
1996 Equity Incentive Plan as of March 31, 1999.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and the Notes thereto included elsewhere in this prospectus. See "Use
of Proceeds" and "Management--Employee Benefit Plans."
22
<PAGE> 26
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was
approximately $6.1 million, or approximately $0.43 per share. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the total number of shares of our common
stock outstanding on a pro forma basis. Pro forma net tangible book value
includes the net $11.15 million of proceeds we realized upon the sale of our
Series A preferred stock in May 1999, net of expenses. Pro forma share amounts
include common stock outstanding, 430,500 shares of common stock to be issued at
the closing of this offering upon net exercise of an outstanding warrant held by
Lucent Technologies and 1,461,454 shares of common stock convertible upon the
completion of this offering from shares of Series A Preferred Stock.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in the offering made hereby and the pro forma net tangible book value per
share of common stock immediately after completion of this offering. After
giving effect to our sale of 3,000,000 shares of common stock in this offering
at an assumed initial offering price of $10.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
and the application of the estimated net proceeds therefrom, our pro forma net
tangible book value as of March 31, 1999 would have been $32.3 million or $1.88
per share. This represents an immediate increase in net tangible book value of
$26.2 per share to existing stockholders and an immediate dilution of $8.12 per
share to purchasers of common stock in the offering, as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 10.00
Pro forma net tangible book value per share as of March
31, 1999............................................... $ 0.43
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.45
-------
Pro forma net tangible book value per share after the
offering.................................................. 1.88
-------
Dilution per share to new investors......................... $ 8.12
=======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the differences between existing stockholders and the new investors with respect
to the number of shares of common stock purchased from GlobeSpan, the total
consideration paid and the average price per share paid, before deducting the
underwriting discounts and commissions and estimated offering expenses payable
by GlobeSpan.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 12,274,619 71.5% $ 6,943,000 14.2% $ 0.57
Series A stockholders........... 1,461,454 8.5 12,000,000 24.5 8.21
Net exercise of warrant......... 430,500 2.5 -- -- --
New stockholders................ 3,000,000 17.5 30,000,000 61.3 $10.00
---------- ----- ----------- -----
Totals................ 17,166,573 100.0% $48,943,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
or warrants outstanding as of March 31, 1999. As of March 31, 1999, there were
options outstanding to purchase a total of 2,000,710 shares of common stock with
a weighted average exercise price of $3.93 per share, warrants to purchase
300,000 shares of common stock at an average exercise price of $13.75 and
warrants to purchase up to 200,000 shares of common stock which expire
unexercised upon completion of this offering at an assumed initial public
offering price of $10.00 per share. To the extent that options with exercise
prices below the price per share of this offering are exercised, there will be
an additional $0.02 dilution to new investors. To the extent that the additional
warrants are exercised, there will be further dilution to new investors. See
"Risk Factors--Our Current Stockholders will Benefit From This Offering,"
"Management--1999 Stock Option Plan," "Description of Capital Stock," and Note
10 of Notes to Financial Statements.
23
<PAGE> 27
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1997 and 1998, and
for the seven months ended July 31, 1996, the five months ended December 31,
1996 and the years ended December 31, 1997 and 1998, was derived from financial
statements audited by PricewaterhouseCoopers LLP, independent accountants. The
selected financial data as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 was derived from our unaudited financial statements and,
in the opinion of management, reflect and include all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of such results.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. The selected financial data for the years ended December 31,
1994 and 1995 of the Predecessor Company represent the financial position of the
Advanced Transmission Technology Division of AT&T Paradyne prior to the
divestiture in July 1996 and was derived from the unaudited financial statements
of the Predecessor Company. This information should be read in conjunction with
the financial statements, including the notes thereto, included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
-------------------------- --------------------------------------------------------------------
SEVEN
MONTHS FIVE
YEAR ENDED ENDED MONTHS YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, JULY ENDED DECEMBER 31, MARCH 31,
---------------- 31, DECEMBER 31, ------------------------- -------------------------
1994 1995 1996 1996 1997 1998 1998 1999
------- ------ ------- ------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................. $ 380 $6,685 $ 1,597 $ 2,360 $ 22,546 $ 31,464 $ 7,568 $ 8,641
Cost of sales................. -- -- -- 496 7,565 9,882 1,848 4,020
------- ------ ------- ----------- ----------- ----------- ----------- -----------
Gross profit.................. 380 6,685 1,597 1,864 14,981 21,582 5,720 4,621
Operating expenses
Research and development,
net....................... 2,808 3,725 2,524 1,616 8,358 18,694 3,249 5,380
Selling, general and
administrative............ 2,165 2,195 1,492 644 4,572 10,217 1,443 2,928
Amortization and other...... -- -- -- 404 1,000 583 250 --
------- ------ ------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses................ 4,973 5,920 4,016 2,664 13,930 29,494 4,942 8,308
------- ------ ------- ----------- ----------- ----------- ----------- -----------
(Loss) income from
operations.................. (4,593) 765 (2,419) (800) 1,051 (7,912) 778 (3,687)
Interest income (expense),
net......................... -- -- -- -- 91 (134) 14 (182)
------- ------ ------- ----------- ----------- ----------- ----------- -----------
(Loss) income before income
taxes....................... (4,593) 765 (2,419) (800) 1,142 (8,046) 792 (3,869)
Provision (benefit) for income
taxes....................... -- -- -- -- 300 (217) 276 --
------- ------ ------- ----------- ----------- ----------- ----------- -----------
Net (loss) income............. $(4,593) $ 765 $(2,419) $ (800) $ 842 $ (7,829) $ 516 $ (3,869)
======= ====== ======= =========== =========== =========== =========== ===========
(Loss) earnings per share:
Basic....................... $ (0.07) $ 0.07 $ (0.65) $ 0.04 $ (0.32)
=========== =========== =========== =========== ===========
Diluted..................... $ (0.07) $ 0.07 $ (0.65) $ 0.04 $ (0.32)
=========== =========== =========== =========== ===========
Shares used in computing
(loss) earnings per share:
Basic....................... 11,437,500 11,515,538 12,084,711 11,906,674 12,137,589
Diluted..................... 11,437,500 12,706,432 12,084,711 12,586,663 12,137,589
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 875 $ 12 $ 146
Working capital (deficit)............................................................... 2,423 (2,655) (5,882)
Total assets............................................................................ 10,215 13,430 14,261
Long-term liabilities, less current portion............................................. -- 5,506 5,391
Retained earnings (accumulated deficit)................................................. 42 (7,787) (11,656)
Total stockholders' equity (deficit).................................................... 6,448 (1,293) (5,024)
</TABLE>
See Note 9 of Notes to the Financial Statements for an explanation of the
method used to calculate earnings per share. Earnings per share data is not
presented for the Predecessor Company, since the Predecessor Company did not
have its own capital structure. As a result, this information would not be
meaningful.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Financial
Statements of GlobeSpan and the Notes thereto included elsewhere in this
prospectus. Our discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives and intentions. GlobeSpan's actual results may differ materially from
those indicated in such forward-looking statements. See "Note Regarding
Forward-Looking Statements."
OVERVIEW
GlobeSpan, Inc. 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. We sell our integrated circuits as chip sets to manufacturers of DSL
equipment for incorporation into products which are sold to telecommunications
service providers and end users. Our products target the rapidly growing market
for high-speed data transmission applications such as Internet access,
telecommuting and branch office internetworking. We currently outsource the
manufacturing of our integrated circuits, which enables us to concentrate our
resources on the design, development and marketing of our chip set solutions. To
date, we have shipped more than one million DSL chip sets to a broad base of
leading communications equipment manufacturers.
We were formed as an independent company in July 1996 as part of the
divestiture of AT&T Paradyne Corporation by Lucent Technologies and commenced
operations in August 1996. Prior to the divestiture, our business was operated
as the Advanced Transmission Technology Division of AT&T Paradyne Corporation.
This division was primarily engaged in the development of high-speed DSL
solutions. We refer to this division as our predecessor company, although it was
not operated as a separate entity.
The predecessor company generated substantially all of its revenues through
July 1996 from the license of DSL technology and related fees and customer
funded research and development. These revenues are not representative of our
current business, results of operations or prospects.
From the date of our formation in August 1996 through December 1996, we
continued to earn a substantial portion of our revenues from amounts paid by
third-party licensees of our technology. Beginning in early 1997, we
repositioned GlobeSpan as a product company focused on developing, marketing and
selling DSL chip sets and reference design guides. Since the repositioning,
royalty revenues from licensees have been a less significant part of our
business. In the pro forma year ended December 31, 1996, the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999, revenues
from licensees accounted for 76.0%, 8.6%, 1.0% and 0.6% of our net revenues,
respectively.
Today, substantially all of our net revenues are derived from the sale of
DSL chip sets and reference design guides. Our reference design guides are
technical specifications relating to the design of systems based on our chip
sets that enable our customers to develop products that incorporate our chip
sets. In our last fiscal year, the reference design guides accounted for .7% of
our total revenues. We recognize revenues at the time we ship our DSL products.
We typically sell our products with a 60 day warranty, and we reserve for
estimated product returns, which to date have not been significant. We have
historically generated substantially all of our revenues from our DSL products
that use the CAP line code. In 1998, we introduced a number of new chip sets
incorporating additional features and other line code technologies, including
2B1Q, DMT and PAM. These new product introductions have substantially expanded
our DSL product offerings, although revenues from such products have been
insignificant. In conjunction with repositioning GlobeSpan as a product
25
<PAGE> 29
company, we invested extensively in research and development projects and
personnel and have expanded our sales, marketing, general and administrative
capabilities. This investment has led to significant hiring which began in early
1997. Our overall headcount increased from 35 employees at December 31, 1996 to
178 employees at March 31, 1999. In particular, during this period we hired 97
additional engineers to develop new products and target future growth
opportunities.
Historically, a significant portion of our net revenues in any quarter or
annual period has been derived from sales to relatively few customers, and we
expect this trend to continue. In the five months ended December 31, 1996, the
years ended December 31, 1997 and 1998 and the three months ended March 31,
1999, our customers who individually represented at least five percent of our
net revenues accounted for 85.5%, 72.6%, 70.1% and 65.7% of our net revenues in
such periods, respectively. 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 three months ended March 31, 1999, our
top three customers were Cisco Systems, NEC Corporation and Ascom Hasler AG,
which accounted for 39.4%, 9.7% and 9.0% of our net revenues, respectively.
Members of the group comprising our largest customers change frequently due to
our lack of long term contracts with our customers, the timing of our customers'
product implementations, demand cycles in the sales of our customers' products,
our long sales cycle and our own product life cycles. We do not have purchase
contracts with any of our customers that obligate them to continue to purchase
our products, and they could cease purchasing products from us at any time.
Because fluctuations in orders from our major customers could cause our net
revenues to fluctuate significantly in any given quarter or annual period, we do
not believe that period-to-period comparisons of our financial results are
necessarily meaningful and should not be relied upon as an indication of future
performance.
Historically, a significant portion of our net revenues has been derived
from customers outside of North America, and we expect this trend to continue.
In 1998, approximately 32.6% of our net revenues were derived from customers
outside of the United States, of which 11.8% were derived from customers based
in Europe, 9.4% were derived from customers based in Asia and 11.4% were derived
from customers based in other international markets. In the three months ended
March 31, 1999, approximately 42.3% of our net revenues were derived from
customers outside of the United States, of which 17.5% were derived from
customers based in Mexico/Latin America, 12.4% were derived from customers based
in Europe and 12.4% were derived from customers based in other international
markets. All of our net revenues to date have been denominated in United States
dollars.
Competition and technological change in the rapidly evolving DSL market has
and may continue to influence our quarterly and annual net revenues and results
of operations. Average selling prices of our chip sets and associated gross
margins tend to be higher at the time we introduce new products and decline over
time due to competitive pressures. We expect this pattern to continue with
existing and future products. Further, our gross margins are impacted by our
customer concentration and product mix. For example, purchases from our major
customers are generally at lower average selling prices and certain of our
products, such as discrete components, are generally lower margin products.
Our product development and marketing strategy is focused on generating
design wins with DSL equipment manufacturers. The sales cycle for design wins
includes detailed testing and evaluation of our products, followed by a product
development cycle. Due to these cycles, which may be up to 12 months or longer,
and because the end-user market for DSL services is an emerging market, we
invest significantly in research and development and marketing in advance of
generating substantial revenues related to these investments. Additionally, the
rate and timing of customer orders may vary
26
<PAGE> 30
significantly from month to month. To date, our backlog has not been
significant, has fluctuated from quarter to quarter, and has not been predictive
of quarterly results. Accordingly, if sales of our products do not occur when we
expect and we are unable to predict or adjust our estimates on a timely basis,
our expenses and inventory levels may increase as a percentage of net revenues
and total assets, respectively.
Our net losses have resulted from our significant investment in our
research and development and in building sales and marketing and general and
administrative infrastructure. These expenses have exceeded our gross profits.
We expect to continue to invest significantly in this infrastructure in advance
of realizing revenues associated with such expenses. Accordingly, we expect to
incur substantial operating losses for the foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain statement
of operations data. Our results of operations are reported as a single business
segment.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY THE COMPANY
-------------- -------------------------------------------------------------------
SEVEN FIVE YEAR ENDED DECEMBER 31,
MONTHS MONTHS ------------------------------- THREE MONTHS
ENDED ENDED ENDED MARCH 31,
JULY 31, DECEMBER 31, PRO FORMA -----------------
1996 1996 1996 1997 1998 1998 1999
-------------- ------------- ----------- ------- ------- ------ -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net revenues......... $ 1,597 $2,360 $ 3,957 $22,546 $31,464 $7,568 $ 8,641
Cost of sales........ -- 496 496 7,565 9,882 1,848 2,905
Cost of sales related
to termination
charge............. -- -- -- -- -- -- 1,115
------- ------ ------- ------- ------- ------ -------
Gross profit......... 1,597 1,864 3,461 14,981 21,582 5,720 4,621
Operating expenses:
Research and
development...... 2,524 1,616 4,140 8,358 18,694 3,249 5,380
Selling, general
and
administrative... 1,492 644 2,136 4,572 10,217 1,443 2,928
Amortization and
other............ -- 404 404 1,000 583 250 --
------- ------ ------- ------- ------- ------ -------
Total operating
expenses....... 4,016 2,664 6,680 13,930 29,494 4,942 8,308
------- ------ ------- ------- ------- ------ -------
(Loss) income from
operations......... (2,419) (800) (3,219) 1,051 (7,912) 778 (3,687)
Interest income
(expense), net..... -- -- -- 91 (134) 14 (182)
------- ------ ------- ------- ------- ------ -------
(Loss) income before
income taxes....... (2,419) (800) (3,219) 1,142 (8,046) 792 (3,869)
Provision (benefit)
for income taxes... -- -- -- 300 (217) 276 --
------- ------ ------- ------- ------- ------ -------
Net (loss) income.... $(2,419) $ (800) $(3,219) $ 842 $(7,829) $ 516 $(3,869)
======= ====== ======= ======= ======= ====== =======
</TABLE>
27
<PAGE> 31
The following table sets forth, for the periods indicated, certain
statement of operations data as a percentage of net revenues. Our results of
operations are reported as a single business segment.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ---------------
PRO FORMA (UNAUDITED)
1996 1997 1998 1998 1999
STATEMENT OF OPERATIONS DATA: --------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................ 12.5 33.6 31.4 24.4 33.6
Cost of sales related to termination charge.......... 0.0 0.0 0.0 0.0 12.9
--------- ----- ----- ----- -----
Gross profit......................................... 87.5 66.4 68.6 75.6 53.5
--------- ----- ----- ----- -----
Operating expenses:
Research and development........................... 104.6 37.1 59.4 42.9 62.3
Selling, general and administrative................ 54.0 20.3 32.5 19.1 33.9
Amortization and other............................. 10.2 4.4 1.9 3.3 0.0
--------- ----- ----- ----- -----
Total operating expenses......................... 168.8 61.8 93.7 65.3 96.1
--------- ----- ----- ----- -----
(Loss) income from operations........................ (81.3) 4.7 (25.1) 10.3 (42.7)
Interest income (expense), net....................... 0.0 0.4 (0.4) 0.2 (2.1)
--------- ----- ----- ----- -----
(Loss) income before income taxes.................... (81.3) 5.1 (25.6) 10.5 (44.8)
Provision (benefit) for income taxes................. 0.0 1.3 (0.7) 3.6 0.0
--------- ----- ----- ----- -----
Net (loss) income.................................... (81.3)% 3.7% (24.9)% 6.8% (44.8)%
========= ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
Net Revenues. Our net revenues were $7.6 million and $8.6 million in the
three months ended March 31, 1998 and 1999, respectively. This amount represents
an increase of 14.2%. This increase in revenue was 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 20.2% and 42.3% of our net revenues in the
three months ended March 31, 1998 and 1999, respectively. Net revenues from
international customers increased as a percentage of net revenues from 1998 to
1999 as a result of greater shipments to existing customers in the Asian Pacific
Rim. We expect that revenue generated from international customers will continue
to account for a significant percentage of our net revenues. See "Risk
Factors -- Risks Associated with International Operations and Sales."
Cost of Sales and Gross Profit. Our gross profit was $5.7 million and $4.6
million in the three months ended March 31, 1998 and 1999, respectively. This
amount represents a decrease of 19.2%. Our gross margin was 75.6%, and 53.5% in
the three months ended March 31, 1998 and 1999, respectively. The decrease in
gross margin from 1998 to 1999 resulted primarily from a charge related to the
termination of a royalty agreement with Paradyne Corporation as discussed in
Note 14 of the Notes to Financial Statements. Without this termination charge,
our gross margin would have been 66.4% in the three months ended March 31, 1999.
The remainder of this decrease was related to lower 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 $3.2
million and $5.4 million in the three months ended March 31, 1998 and 1999,
respectively. This amount represents an increase of 65.6%. Research and
development expense represented 42.9% and 62.3% of net revenues for the three
months ended March 31, 1998 and 1999, 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. Our
28
<PAGE> 32
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 $1.4 million and $2.9 million in the three months
ended March 31, 1998 and 1999, respectively. This amount represents an increase
of 103%. Selling, general and administrative expense represented 19.1% and 33.9%
of net revenues for the three months ended March 31, 1998 and 1999,
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 March 31, 1998.
Other Income (Expense), Net. Interest expense increased $0.2 million for
the three months ended March 31, 1999. The increased interest expense resulted
from 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). Our effective
tax rate for the three months ended March 31, 1998 was 34.8%. Since we generated
a loss in the three months ended March 31, 1999 and had a loss carryforward for
1998, we did not record an income tax benefit.
RECENT DEVELOPMENTS
On May 6, 1999, in a private placement with Cisco Systems and Intel
Corporation, we issued 1,461,454 shares of our Series A preferred stock,
warrants to purchase up to 300,000 shares of our common stock at an average
exercise price of $13.75 per share and warrants to purchase up to 200,000 shares
of our common stock which will expire unexercised upon the completion of this
offering. The purchase price for the Series A preferred stock and warrants was
an aggregate amount of $12,000,001. In connection with the private placement, we
entered into a registration rights agreement with Intel Corporation, Cisco
Systems and Communication Partners, L.P. See "Description of Capital
Stock -- Registration Rights". Also in connection with the private placement, we
granted to Intel Corporation and Cisco Systems the right to sell back their
GlobeSpan shares under some circumstances. These rights to sell shares back to
us terminate upon the completion of this offering. See "Description of Capital
Stock -- Put Options." We also agreed with Intel Corporation not to bring legal
action against Intel Corporation for any infringement by it of our patent
rights. This agreement terminates if Intel Corporation brings any legal action
against us for any infringement by us of Intel Corporation's patent rights.
Because the Series A preferred stock is immediately exercisable into common
stock at less than the fair market value of the common stock on the date of
issuance, we will recognize a charge of approximately $2.6 million for the
beneficial conversion feature attributable to the common stockholders in our
second quarter 1999 financial statements.
RESULTS OF OPERATIONS IN THE PRO FORMA YEAR ENDED DECEMBER 31, 1996 AND THE
YEARS ENDED DECEMBER 31, 1997 AND 1998
Net Revenues. Our net revenues from product sales are recognized upon
shipment of DSL chip sets and reference design guides. Our net revenues were
$4.0 million, $22.5 million, and $31.5 million in the pro forma year ended
December 31, 1996 and the years ended December 31, 1997 and 1998, respectively.
These amounts represent increases of 470% from 1996 to 1997 and 39.6% from 1997
to 1998. The increase in revenues from 1996 to 1997 was primarily due to an
increase in product sales as we transitioned from generating revenues from
licensees to generating revenues from the sale of
29
<PAGE> 33
products. The increase in revenues from 1997 to 1998 was primarily due to the
increases in unit volume shipments to existing customers, the expansion of our
customer base and the introduction of new products. Net revenues from customers
outside of North America represented 40.0%, 49.2% and 32.6% of our net revenues
in the five months ended December 31, 1996 and the years ended December 31, 1997
and 1998, respectively. Net revenues from customers outside of North America
decreased as a percentage of net revenues from 1997 to 1998 as a result of
reduced shipments to existing customers in Asia due to an economic downturn in a
number of countries in this region. We expect that revenues generated from
customers outside of North America will continue to account for a significant
percentage of our net revenues. See "Risk Factors -- Sales to Customers Based
Outside of North America Have Accounted For a Significant Portion of Our
Revenues Which Exposes Us to Inherent Risks of International Business."
Cost of Sales and Gross Profit. Cost of sales consists of the costs of
having our chip sets manufactured on a turnkey basis by our suppliers. Gross
profit represents net revenues less cost of sales. Our gross profit was $3.5
million, $15.0 million and $21.6 million in the pro forma year ended December
31, 1996 and the years ended December 31, 1997 and 1998, respectively. These
amounts represent an increase of 333% from 1996 to 1997 and 44.1% from 1997 to
1998. Our gross margin was 87.5%, 66.4%, and 68.6% in the pro forma year ended
December 31, 1996 and the years ended December 31, 1997 and 1998, respectively.
The decrease in gross margin from 1996 to 1997 was directly related to a
reduction in revenues from licensees and to an increase in product revenues. The
increase in gross margin from 1997 to 1998 resulted from an expanded customer
base and lower supplier costs based on greater volumes purchased. The increase
in gross profit dollars was the result of higher unit sales. We expect that
gross margin will decrease due to a number of factors, including pressures on
average selling prices and customer and product mix. In consideration for
modifying pricing terms for the sale of GlobeSpan products under certain
cooperative development agreements with Paradyne Corporation, GlobeSpan agreed
to pay a license fee to Paradyne Corporation on products sold to all customers
up to an aggregate amount of $1.5 million. As of March 1999, GlobeSpan had
incurred and paid approximately $300,000 to Paradyne Corporation under such
arrangement. In connection with terminating the cooperative development
agreements and entering into a new Supply Agreement effective December 1998 with
Paradyne Corporation, GlobeSpan agreed to pay Paradyne Corporation the remaining
$1.2 million which was expected to be incurred during 1999. The $1.2 million was
expensed in the first quarter of 1999 as a cost of sales and will be paid during
1999.
Research and Development. Research and development expenditures is
primarily comprised of salaries and related expenses of employees engaged in
research, design and development activities. It also includes related supplies,
license fees for acquired technologies used in research and development,
equipment expenses and depreciation and amortization. Our research and
development expenditures were $4.1 million, $8.4 million and $18.7 million, in
the pro forma year ended December 31, 1996 and the years ended December 31, 1997
and 1998, respectively. These amounts represent increases of 102% from 1996 to
1997 and 124% from 1997 to 1998. Research and development expenditures
represented 105%, 37.1% and 59.4% of net revenues in the pro forma year ended
December 31, 1996 and the years ended December 31, 1997 and 1998, respectively.
The increase in dollars in 1997 resulted from increased headcount and
depreciation expense due to increased fixed assets. The decrease in research and
development expenditures as a percentage of net revenues in 1997 resulted from
higher net revenues. The increase in dollars and as a percentage of net revenues
in 1998 resulted from a significant increase in development efforts in advance
of anticipated revenues from such efforts. In particular, we added a significant
number of new personnel and related support. In 1999, our research and
development expenditures will increase due to planned increases in personnel,
material costs and depreciation resulting from increased capital investment.
Selling, General and Administrative. Selling, general and administrative
expense is primarily comprised of salaries and related costs for sales, general
and administrative personnel as well as general non-personnel related expenses.
Our selling, general and administrative expense was
30
<PAGE> 34
$2.1 million, $4.6 million and $10.2 million in the pro forma year ended
December 31, 1996 and the years ended December 31, 1997 and 1998, respectively.
These amounts represent increases of 114% from 1996 to 1997 and 123% from 1997
to 1998. Selling, general and administrative expense represented 54.0%, 20.3%,
and 32.5% of net revenues in the pro forma year ended December 31, 1996 and the
years ended December 31, 1997 and 1998, respectively. The increase in dollars in
1997 and 1998, and as a percentage of net revenues in 1998, resulted from the
addition of sales, marketing, management and administrative personnel and
related expenses, including increased commissions, and general business costs.
In 1999, we will increase the dollar amount we spend on selling, general and
administrative expense.
Amortization and Other. Amortization expense is related to the core
technology we acquired in connection with the divestiture by Lucent Technologies
of AT&T Paradyne. Amortization was provided on a straight-line basis commencing
in August 1996 through July 1998. Our expense for amortization of core
technology was $0.4 million, $1.0 million and $0.6 million, in the pro forma
year ended December 31, 1996 and the years ended December 31, 1997 and 1998,
respectively. These amounts represent an increase of 148% from 1996 to 1997 and
a decrease of 41.7% from 1997 to 1998.
Interest Income (Expense), Net. Interest income (expense), net is comprised
of interest expense from bank borrowings and other debt, net of interest earned
on invested cash, and other non-operating expenses. Interest income increased by
$0.1 million for the year ended December 31, 1997 due to higher levels of
invested cash and decreased by $0.2 million resulting in interest expense of
$0.1 million for the year ended December 31, 1998. The increase in interest
expense resulted from 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). Our effective
tax rate for the year ended December 31, 1997 was 26.3%, which differed from the
federal statutory rate primarily due to the utilization of the net operating
loss carryforwards generated in 1996 and a reduction of the valuation allowance
recorded against deferred tax assets. Since we generated a loss in 1998, a
benefit was recorded reflecting a loss carry-back for taxes paid in 1997.
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<PAGE> 35
QUARTERLY RESULTS
The following table sets forth certain unaudited selected quarterly results
of operations data for the eight quarters ended March 31, 1999, as well as such
data expressed as a percentage of our net revenues. This data has been derived
from unaudited financial statements that, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information when read in conjunction with our annual
audited financial statements and related notes thereto appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------
JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- -----------
(IN THOUSANDS AND AS A PERCENTAGE OF NET REVENUES) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues.................... $4,115 $7,670 $7,811 $7,568 $7,683 $7,765 $8,448 $ 8,641
Cost of sales................... 1,364 3,058 2,075 1,848 2,312 2,328 3,394 4,020
------ ------ ------ ------ ------- ------- ------- -------
Gross profit.................... 2,751 4,612 5,736 5,720 5,371 5,437 5,054 4,621
Operating expenses
Research and development...... 1,467 2,240 3,368 3,249 4,286 5,020 6,139 5,380
Selling, general and
administrative.............. 765 1,204 1,826 1,443 2,556 3,022 3,196 2,928
Amortization of core
technology.................. 250 250 250 250 250 83 0 --
------ ------ ------ ------ ------- ------- ------- -------
Total operating expenses.... 2,482 3,694 5,444 4,942 7,092 8,125 9,335 8,308
------ ------ ------ ------ ------- ------- ------- -------
(Loss) income from operations... $ 269 $ 918 $ 292 $ 778 $(1,721) $(2,688) $(4,281) $(3,687)
====== ====== ====== ====== ======= ======= ======= =======
AS A PERCENTAGE OF NET REVENUES
Net revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 33.1 39.9 26.6 24.4 30.1 30.0 40.2 46.5
------ ------ ------ ------ ------- ------- ------- -------
Gross profit.................... 66.9 60.1 73.4 75.6 69.9 70.0 59.8 53.5
Operating expenses
Research and development...... 35.7 29.2 43.1 42.9 55.8 64.6 72.7 62.3
Selling, general and
administrative.............. 18.6 15.7 23.4 19.1 33.3 38.9 37.8 33.9
Amortization of core
technology.................. 6.1 3.3 3.2 3.3 3.3 1.1 0.0 0.0
------ ------ ------ ------ ------- ------- ------- -------
Total operating expenses.... 60.3 48.2 69.7 65.3 92.3 104.6 110.5 96.1
------ ------ ------ ------ ------- ------- ------- -------
(Loss) income from operations... 6.5% 12.0% 3.7% 10.3% (22.4)% (34.6)% (50.7)% (42.7)%
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
Our quarterly operating results have varied significantly in the past and
will continue to do so in the future due to a number of factors including, but
not limited to, changes in average selling prices, product mix, customer mix and
pricing from foundries. In addition, the timing of reserves and level of
research and development expenditures could cause quarterly operating results to
fluctuate. Accordingly, our operating results for any given quarter or series of
quarters are not necessarily indicative of our results for any future period. To
date, our backlog has not been significant, has fluctuated from quarter to
quarter, and has not been predictive of quarterly results.
In the three months ended December 31, 1997, our cost of sales decreased in
dollars and as a percentage of revenues despite an increase in net revenues,
producing a higher gross profit and gross margin. This was primarily due to
higher average selling prices and lower costs on products purchased from our
foundry. In the three months ended June 1998, selling, general and
administrative expenses increased due primarily to the addition of executive
officers and related hiring expenses. In the three months ended September 1998,
our selling, general and administrative expenses increased due to increased
hiring and the sublease of office space from Paradyne Corporation. In connection
with the relocation of Paradyne Corporation's office, we reimbursed certain of
Paradyne Corporation's moving expenses. In the three months ended December 31,
1998, gross profit decreased in dollars and as a percentage of net revenues from
the prior quarter primarily due to a relative increase in sales volume of lower
margin products to a major customer. In addition, research and development
expenses increased in the three months ended December 31, 1998 primarily due to
increased hiring and license fees of approximately $750,000 to acquire
technology used in the development of our products.
32
<PAGE> 36
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations from initial contributions
of capital, borrowings on our lines of credit, and in 1997, from ongoing
operations. As of December 31, 1998 and March 31, 1999, we had a working capital
deficit of approximately $2.7 million and $5.9 million, respectively, and
$12,000 and $146,000 in cash and equivalents, respectively. We finance and
expect to continue to finance our operations from our recent sale of Series A
preferred stock and available credit facilities.
Net cash generated by operating activities was $0.9 million and $1.9
million in the year ended December 31, 1997 and the three months ended March 31,
1999. Net cash used in operating activities was $0.7 million and $3.4 million in
the five months ended December 31, 1996 and the year ended December 31, 1998,
respectively. The increase from 1996 to 1997 and from 1998 to 1999 and the
decrease from 1997 to 1998 was primarily due to the timing of expenditures.
Net cash used in investing activities was $2.0 million, $3.4 million, $4.8
million and $0.07 million in the five months ended December 31, 1996, the years
ended December 31, 1997 and 1998, and the three months ended March 31, 1999,
respectively, and related primarily to capital expenditures to support our
expanded operations. We may increase our capital expenditures in 1999.
Net cash provided from financing activities was $6.0 million, $0.06 million
and $7.3 million in the five months ended December 31, 1996 and the years ended
December 31, 1997 and 1998, respectively, and was provided by an equity
investment from Communication Partners, L.P., bank borrowings and other debt.
Net cash used in financing activities was $1.7 million in the three months ended
March 31, 1999, and was used in repayment of bank borrowings and other debt. We
have 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%. As of December 31, 1998 and March 31, 1999, approximately $2.5 million and
$0.8 million, respectively, was outstanding under the Credit Line. We also had a
subordinated borrowings line from Communication Partners, L.P. (the
"Subordinated Line") of up to $10.0 million bearing interest at 8.0%, of which
approximately $5.0 million and $4.9 million was outstanding at December 31, 1998
and March 31, 1999, respectively. We will use a portion of the proceeds of this
offering to repay all outstanding indebtedness under both the Credit Line and
the Subordinated Line, each of which will be available for future borrowings
following such repayment. We have no plans to borrow under either the Credit
Line or the Subordinated Line immediately following this offering. 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 January
2000; and $5.0 million of the Subordinated Line expires on March 2000 and $5.0
million on May 2003. See "Use of Proceeds."
We believe that the net proceeds from this offering, our existing cash and
cash generated from operations, if any, will be adequate to meet our anticipated
cash needs for working capital and capital expenditures through at least the end
of 1999. Our future capital requirements will depend on many factors, including
the timing and amount of our revenues and investment commitments which will
affect our ability to generate additional cash. Thereafter, if cash generated
from operations and financing activities is insufficient to satisfy our working
capital requirements, we may need to borrow funds under our Credit Line and/or
Subordinated Line, or seek additional funding through additional bank
borrowings, sales of securities or other means. There can be no assurance that
we will be able to raise any such capital on terms acceptable to us if at all.
33
<PAGE> 37
ALTHOUGH WE ARE NOT PRIMARILY A SUPPLIER OF SOFTWARE, OUR BUSINESS COULD BE
AFFECTED BY YEAR 2000 ISSUES
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 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
34
<PAGE> 38
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.
35
<PAGE> 39
BUSINESS
INDUSTRY BACKGROUND
The Local Loop Has Become the Bottleneck to High-Speed Data Access
Vast amounts of data are carried over the Internet and private
communications networks. International Data Corporation estimates that the
number of Internet users worldwide was approximately 69 million in 1997 and will
reach approximately 320 million in 2002. As the number of end users accessing
these networks grows and their use of data-intensive applications increases, the
volume of data transmitted over these networks will also continue to grow.
In order to accommodate increasingly high volumes of data,
telecommunications service providers have invested significant resources to
upgrade central office switching centers and the interconnecting infrastructure,
known as the backbone. While these capacity constraints continue to be addressed
through the use of high-speed digital and fiber-optic equipment, the network of
twisted pair copper telephone wires that connects end users to central office
switching centers, known as the local loop, remains a bottleneck that limits
high-speed data transmission.
[Graphic depicting impairment of high-speed data transmission over copper
telephone
wires connecting end users to telecommunications service providers' central
office switching centers.]
According to the International Telecommunications Union, more than 700
million copper telephone wires have been installed worldwide primarily by local
telecommunications service providers. This local loop infrastructure was
originally designed for lower-speed voice traffic rather than higher-speed data
transmission. As a result, access to the Internet and private communications
networks using standard dial-up connections over the local loop has typically
been limited to data transmission rates of only 28.8 Kbps to 56 Kbps, often
requiring several minutes to several hours to download large data-intensive
files. This bottleneck has frustrated end users and limited the capability of
service providers to deliver high-speed applications such as efficient Internet
access, telecommuting and branch office internetworking.
New Competition to Provide High-Speed Data Access
The Telecommunications Act of 1996 has enabled new entrants, such as
competitive local exchange carriers (CLECs) and Internet service providers
(ISPs), to offer data and voice services over the local loop. In addition, other
telecommunications service providers, including cable, wireless and direct
broadcast satellite companies, are providing high-speed data transmission
services outside of the existing telephone network. Cable companies provide
high-speed data transmission over the existing cable television network at
transmission rates of up to 40 Mbps. Wireless companies provide high-speed data
transmission over a microwave network at speeds of more than 1 Mbps. Direct
broadcast satellite systems transmit digital data from a stationary satellite to
small dish antennae at speeds of more than 1 Mbps. As the volume of data traffic
increases, all of these traditional and emerging telecommunications service
providers are rushing to deploy high-speed data services, which has become a key
competitive service offering.
DSL Technology Enables High-Speed Data Transmission Over Copper Telephone Wire
Digital subscriber line (DSL) technology utilizes sophisticated digital
signal processing techniques to achieve high-speed data transmission over
existing copper telephone wires. DSL equipment, when deployed at each end of a
copper telephone wire, enables data transmission speeds of 128 Kbps to 52 Mbps,
depending on the length and condition of the copper telephone wire.
DSL technology addresses different high-speed data transmission service
requirements resulting in several configuration options. Symmetric transmission
technologies, such as high bit rate DSL (HDSL), symmetric DSL (SDSL) and
multi-rate symmetric DSL (MSDSL), provide equal data
36
<PAGE> 40
transmission rates between the central office and the end user. These
configurations are therefore most ideally suited for applications such as
telecommuting and branch office internetworking, which require equal data
transmission rates in both directions. Asymmetric transmission technologies,
such as asymmetric DSL (ADSL) and rate-adaptive asymmetric DSL (RADSL), provide
greater downstream transmission rates towards the end user than upstream from
the end user. Applications most efficiently served by asymmetric technologies
include Internet access where data traffic flows primarily downstream.
In a typical deployment of DSL services, a DSL modem is connected to a
personal computer in a residence or to a router in a business where multiple
personal computers may be connected. The end user is connected to the
telecommunications service providers' central office over a copper telephone
wire and is terminated by either a stand-alone DSL modem or by a digital
subscriber line access multiplier (DSLAM) terminating up to hundreds of
connections to many users. DSL chip sets are used in the DSL modems at each end
of the connecting copper telephone wire. In an Internet access application, the
DSLAM concentrates the Internet connections for many users and passes them to a
data switch for connection to the Internet. In this application, the end user is
not required to dial a call to make an Internet connection because the DSL
connection to the DSLAM is always enabled. To provide voice service on the same
copper telephone wire, the telecommunications service provider may optionally
install special filters in the end user's location and its central office that
separate the voice and data information on the copper telephone wire.
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 (2B1Q), carrierless amplitude phase modulation (CAP), discrete
multitone modulation (DMT), and pulse amplitude modulation (PAM). 2B1Q, CAP and
PAM are used for symmetric applications. CAP and DMT are used for asymmetric
applications. To date, most large volume DSL service deployments have used CAP
and 2B1Q line codes.
The Demands of DSL Service Providers
DSL services are in the initial phases of worldwide deployment. To present
a compelling alternative to other data transmission services, DSL services must:
- Reach a large potential end user base;
- Provide low equipment, installation and maintenance costs; and
- Be tested and proven through field deployment.
Telecommunications service providers rely on DSL equipment manufacturers to
meet these requirements.
The Opportunity for Developers of DSL Integrated Circuits
DSL equipment manufacturers are striving to meet the requirements of
telecommunications service providers by designing high performance DSL products.
In order to minimize time-to-market, development costs and product size, DSL
equipment manufacturers use increasingly complex integrated circuits which
account for a large portion of the value-added proprietary content of such
products. However, DSL equipment manufacturers often lack the core technology
expertise in signal processing, signal conversion and communications algorithms
that is required to develop these integrated circuits. In addition, these
solutions must overcome real-world impairments of the local loop, such as line
noise, which could otherwise degrade data transmission performance. As a result
of these factors, DSL equipment manufacturers are turning to a new breed of
integrated circuit developers that possess the core technology and expertise
required to develop DSL chip sets. Successful solutions must offer field-proven
technology, high performance, high levels of system
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<PAGE> 41
integration, low power consumption, flexibility to enhance features and
performance, rapid time-to-market and competitive total system cost.
THE GLOBESPAN SOLUTION
GlobeSpan, Inc. is a leading worldwide developer of DSL integrated circuits
which enable high-speed data transmission over the local loop. We sell our
integrated circuits to manufacturers of DSL equipment for incorporation into
products which are sold to telecommunications service providers and end users.
We believe we provide our customers with significant value created by our
leading DSL integrated circuit chip sets, our long heritage in the DSL market,
our understanding of DSL equipment manufacturers, service provider and end user
needs, and our strong sales and support organizations. Key elements of our
solution include:
Long History of DSL Experience. We have leveraged six years of field
experience in implementing DSL technology to successfully bring proven DSL chip
set solutions to market. Our core engineering team includes several individuals
who were early developers of DSL technology at AT&T Bell Labs in 1988.
One Million Chip Sets Sold. We have established a proven track record,
having shipped more than one million DSL chip sets. This represents a
significant share of the emerging DSL integrated circuit market.
Broad Suite of DSL Chip Sets. We offer a broad suite of DSL solutions,
including ADSL, RADSL, HDSL, HDSL2, SDSL and MSDSL chip sets which use the 2B1Q,
CAP, DMT and PAM line codes.
Complete System-on-a-Chip. Our system-on-a-chip solutions provide
significant density, power and cost advantages by integrating the functionality
of multiple discrete components, such as memory, microprocessors or framers,
onto a single chip.
High Performance. Our chip sets are capable of performing billions of
operations per second. We believe the high performance capability of our chip
sets enables us to deliver one of the industry's longest reach per data
transmission rate which allows telecommunications service providers to offer
services to a larger customer base.
Software Flexibility. Our chip sets are highly programmable. Our customers
are able to enhance or reconfigure their products through downloads of our
software rather than through costly replacement or modification of their
installed DSL system products. This flexibility enables telecommunications
service providers to optimize performance and keep pace with changing industry
requirements, including features and standards compliance.
Competitive Total System Cost. Our high levels of integration lead to low
power consumption and density advantages, thereby maximizing the number of
transceivers that can be incorporated into a DSL central office system. Higher
transceiver density enables telecommunications service providers to connect a
larger number of end users with their central office equipment thereby reducing
total cost per end user.
Advanced Systems-Level Expertise. Our systems-level expertise enables us to
offer chip sets which can be cost effectively incorporated into complete DSL
systems and which contribute to optimizing the performance of these systems in
the local loop environment. As a result we provide comprehensive step-by-step
DSL reference design guides that enable our customers to rapidly bring robust
DSL systems to market.
Strong Technical Support. We provide superior technical support throughout
the design and test process to minimize our customers' cost and time to deploy.
We also provide comprehensive field support to ensure that our customers'
products perform optimally in real world environments.
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<PAGE> 42
Standards Compliance. We actively participate in the formulation of DSL
standards which enables us to monitor industry trends and refine our product
development efforts to bring standards-compliant solutions to market.
We believe these compelling advantages and design attributes position us as
the preferred design partner and supplier of integrated circuits for all DSL
applications.
STRATEGY
Our objective is to be the leading provider of integrated circuits for all
DSL applications. Key elements of our strategy include:
Maximize Design Win Market Share. Our strategy is to maximize the number of
design wins with both new and existing customers. A design win represents a
customer's initial commitment to develop a product incorporating our chip sets.
We believe design wins are strategically important because once a customer has
designed our chip sets into its product, that customer is more likely to
continue to choose our solutions for additional products. Furthermore, achieving
the broadest number of design wins creates an opportunity to capitalize on the
success of any one of our customers' DSL products. We maximize our ability to
compete for design wins by leveraging our extensive sales representative
organization to access the greatest number of customers and further penetrate
our existing customer base.
Target All Applications Within the DSL Market. Our strategy is to provide
the necessary technologies to enable all applications within the DSL market. We
have introduced or announced chip sets based upon ADSL, RADSL, HDSL, HDSL2, SDSL
and MSDSL technologies which use 2B1Q, CAP, DMT and PAM line codes. Our chip
sets are used in both central office and customer locations to enable high speed
data applications such as Internet access, telecommuting and branch office
internetworking. We will continue to monitor industry trends and refine our
product development efforts to target emerging DSL applications.
Strengthen and Broaden Technology Leadership. Our strategy is to continue
to build upon our strong technology core competencies to maintain our position
as a technology leader in the DSL market. We are currently investing substantial
development resources in system-level knowledge, communications algorithms,
signal processing and signal conversion. Specifically, we are devoting resources
to extend reach by enhancing our high performance algorithms and to increase
system integration by embedding more system functions on a single integrated
circuit. We invest significant resources in research and development and will
continue to work closely with our customers to develop new and enhanced
solutions that address next-generation DSL market opportunities.
Leverage Advanced Systems-Level Expertise. Our strategy is to leverage our
advanced systems-level expertise to develop and market chip sets that can be
cost effectively and rapidly incorporated into complete DSL systems manufactured
by our customers. This strategy enables our customers to optimize
time-to-market, performance and system cost. By working closely with our
customers throughout the design and deployment process, we gain valuable
insights and are often able to anticipate their needs and incorporate
value-added functionality onto our chip sets. We gain additional insights by
continually testing our solutions against real-world models of DSL networks to
verify their performance in harsh and unpredictable deployment environments. We
have built a state-of-the-art system test facility which we use to validate the
performance of our chip sets and which we make readily available to our
customers to test their DSL systems. We plan to continue to expand and improve
this capability. Furthermore, we will continue to provide comprehensive
reference design guides that enable our customers to apply our systems-level
expertise to their products.
Drive Industry Standards. We actively participate in the formulation of
critical standards for high-speed data transmission markets. We believe such
participation accelerates and expands the development of markets for our
products and provides valuable insights and relationships which assist us in
directing our product development efforts to target emerging market
opportunities.
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TECHNOLOGY CORE COMPETENCY
Our key competitive advantage is founded in our technology expertise
encompassing the entire DSL design process from the development of custom
integrated circuits to their integration into a system solution. To address the
technology challenges of DSL transmission, we have developed and will continue
to build upon our primary technology core competencies, including systems-level
knowledge, communications algorithms, digital signal processing and signal
conversion.
Systems-Level Knowledge. Our systems-level knowledge has been developed
through years of field installation experience and working relationships with
over 100 equipment manufacturer customers. As a result, we have an advantage in
understanding the harsh and varying conditions of the local loop. This
environment is characterized by various impairments that impact DSL operations
and make reliable high-speed data transmission difficult to achieve. These
factors include bridge taps, cross-talk from adjacent wires in the same wire
bundle, signal attenuation and impulse noise spikes, among others. To minimize
the effects of these impairments, we will continue to incorporate our
understanding of these factors into our DSL chip set designs. We have also
leveraged our systems-level expertise to create a state-of-the-art system test
facility to validate the performance and operation of new DSL designs. We have
invested significant resources in automating our test facility to maximize the
efficiency and repeatability of our tests. We will continue to make our test
facility readily available to our customers to verify the performance of their
DSL products.
Communications Algorithms. A key component of our continued success is the
expertise that we have developed in the areas of communications theory and
algorithms. Communications algorithms are the processes and techniques used to
transform a digital data stream into a specially-conditioned analog signal
suitable for transmission across copper telephone wires. At the receiving end of
the copper telephone wire, our algorithms process the analog signal and
transform this data into a digital form without introducing data errors. We
invest significant resources to maintain our technology leadership in the
development of communications system algorithms in the areas of start-up
training, coding for forward error correction, line codes, echo cancellation,
adaptive equalizers, digital filter design and transmission line analysis. Our
broad theoretical knowledge base, coupled with our extensive DSL field
experience, has enabled our technology team to generate comprehensive DSL system
models utilizing computer-aided design tools. These models are used to design
our complex algorithms and to determine performance and architectural
requirements for our digital communications processor and analog front end
chips. Ultimately, the knowledge gained from these simulations, combined with
the advantages of our programmable platform, enables us to optimize algorithm
designs for specific DSL applications across a broad range of local loop
conditions.
Digital Signal Processing. Digital signal processing, as it relates to DSL
applications, is a means of encoding digital data for transmission over
bandwidth limited media, such as copper telephone wires, and recovering the
encoded data at the receiving end. This process requires very high-speed, high-
precision silicon engines to meet the performance specifications of
telecommunications service providers. We are a leader in the design of
high-performance, low-power, silicon-efficient, digital communications
processors which optimize digital signal processing for DSL applications. Our
digital communications processor is based on a proprietary architecture that
incorporates concurrent multi-tasking, multi-processor digital signal processing
engines. Our digital communications processor architecture provides system
design flexibility without the inherent power and costs normally associated with
conventional, general purpose digital signal processors. The performance and
flexibility of our digital communications processor enables our customers to
implement multiple DSL configurations using different line codes through a
simple software download.
Signal Conversion. Signal conversion is a component of our solution that
transforms digital signals into analog signals that are suitable for
transmission over copper telephone wires. Our analog front end includes a custom
integrated circuit that performs the signal conversion function, as well as a
combination of discrete components such as resistors, capacitors, linear
amplifiers and transformers. Our analog front end provides several programmable
analog functions critical to achieving high-speed
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and long-reach performance. Our analog front end is capable of operating over a
wide array of signal amplitudes and frequency ranges associated with different
line codes.
PRODUCTS
We offer a broad suite of DSL chip set solutions. A typical product
offering includes a chip set, consisting of a digital communications processor
and an analog front end, a DSL reference design guide and software.
Our DSL chip sets are software programmable, enabling a broad range of data
transmission rates, performance enhancements, feature upgrades and compliance
with industry standards. We have been producing high volumes of our current chip
sets for over two years and have shipped more than one million chip sets. Our
comprehensive step-by-step DSL reference design guides include schematics, bills
of materials, circuit board layouts, application interface programs and debug
guides. Our DSL reference design guides enable equipment manufacturers to bring
robust systems to market quickly and cost-effectively.
Our chip sets and reference design guides are optimized for specific DSL
applications, resulting in a variety of configuration options. Our products
offer alternative packaging and bus interface options, and standards-based line
codes.
HDSL. High bit rate digital subscriber line (HDSL) is a cost-effective
alternative to traditional repeatered T1 and E1 data services for business
applications. HDSL provides symmetric transmission over two pairs of copper
telephone wires at data transmission rates of T1 (1.544 Mbps)/ E1 (2.048 Mbps).
We currently offer HDSL chip sets using CAP or 2B1Q line codes which incorporate
a single or dual channel digital communications processor and an analog front
end. Our HDSL product is the first chip set capable of implementing both line
codes recommended by the American National Standards Institute Technical Report
TR28 draft 2 and the International Telecommunications Union standard G.991.
HDSL2. HDSL2 is a next generation HDSL configuration that provides
symmetric transmission over one pair of copper telephone wires rather than two
pairs, resulting in a more network-efficient and cost-effective solution. We
currently offer HDSL2 chip sets using the PAM line code which incorporate a
single channel digital communications processor and an analog front end. Our
HDSL2 chip set is designed to meet the HDSL2 draft standard T1E1 4/99-006 R1
currently being defined in the United States by the American National Standards
Institute.
SDSL. Symmetric digital subscriber line (SDSL) is a cost-effective
alternative to traditional repeatered T1 and E1 data services for business
applications. SDSL provides symmetric transmission over one pair of copper
telephone wires and provides T1/E1 data rates. We currently offer SDSL chip sets
using the CAP line code which incorporate a single or dual channel digital
communications processor and an analog front end. Our SDSL chip set is designed
to meet the International Telecommunications Union G.991.1 standard.
MSDSL. Multi-rate symmetric digital subscriber line (MSDSL) is used to
provide cost-effective symmetric transmission over one pair of copper telephone
wires at data transmission rates ranging from 144 Kbps to 2.3 Mbps depending
upon the available data transmission rates of the relevant service provider. We
currently offer MSDSL chip sets using the CAP or 2B1Q line codes which
incorporate a single or dual channel digital communications processor and an
analog front end.
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ADSL and RADSL. Asymmetric digital subscriber line (ADSL) and rate adaptive
asymmetric digital subscriber line (RADSL) are used to provide cost effective,
high-speed local loop access for Internet and other applications where data
flows downstream to the end user faster than it does upstream from the end user.
ADSL provides asymmetric transmission over one pair of copper telephone wires
with downstream data transmission rates ranging from 90 Kbps to 8.0 Mbps and
upstream data transmission rates ranging from 45 Kbps to 1.1 Mbps. ADSL allows
the telephone line to be used simultaneously for voice and data transmission. We
currently offer ADSL chip sets which incorporate an analog front-end and a dual
channel digital communications processor chip using the CAP line code or a
single channel digital communications processor chip using the DMT line code, or
a single channel digital communications processor using both CAP and DMT line
codes. Our ADSL chip sets are designed to meet the American National Standards
Institute standard specification T1.413 for the 8 Mbps DMT line code
configuration and the International Telecommunications Union standard G.992.2
for the 1.5 Mbps DMT line code configuration (commonly called G.lite).
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The following table summarizes our DSL product families, their key
functions, data transmission rates and introduction dates.
<TABLE>
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
PRODUCT DATA INTRO.
FAMILY FUNCTION TRANSMISSION RATES DATE
- -------------------------------------------------------------------------------------------------------------------
GS9070 ASIC chip used to connect our G2710, G7060, or Not Applicable 1Q99
G7061 chip sets to PCI bus and V.90 voice band
modems for PC applications.
- -------------------------------------------------------------------------------------------------------------------
G7070 Multi-mode RADSL single channel chip set for Downstream -- 90 Kbps to 8.0 Mbps 4Q98
asymmetric transmission over one wire pair using Upstream -- 45 Kbps to 1.1 Mbps
DMT or CAP line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G7060 RADSL single channel chip set for asymmetric Downstream -- 90 Kbps to 8.0 Mbps 4Q98
transmission over one wire pair using DMT line Upstream -- 45 Kbps to 1.1 Mbps
code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G7061 RADSL (G.lite) single channel chip set for Downstream -- 90 Kbps to 1.5 Mbps 4Q98
asymmetric transmission over one wire pair using Upstream -- 45 Kbps to 540 Kbps
DMT line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2237 HDSL2 single channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 4Q98
transmission over one wire pair using PAM line
code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2232 SDSL single or dual channel chip set for T1 (1.544 Mbps)/E1 (2.048 Mbps) 4Q98
symmetric transmission over one wire pair using
CAP line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2216 MSDSL single or dual channel chip set for 144 Kbps to 1.1 Mbps 4Q98
symmetric transmission over one wire pair using
2B1Q line code. Includes integrated framer and
analog front end.
- -------------------------------------------------------------------------------------------------------------------
G2214 MSDSL single or dual channel chip set for 144 Kbps to 2.3 Mbps 4Q98
symmetric transmission over one wire pair using
CAP line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2710 RADSL single or dual channel chip set for Downstream -- 90 Kbps to 7.2 Mbps 3Q98
asymmetric transmission over one wire pair using Upstream -- 45 Kbps to 1.1 Mbps
CAP line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2213 HDSL dual channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 3Q98
transmission over two wire pairs using CAP line
code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2212 HDSL dual channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 3Q98
transmission over two wire pairs using 2B1Q line
code. Includes integrated framer and analog front
end.
- -------------------------------------------------------------------------------------------------------------------
MDT-x6-01 MSDSL single channel chip set for symmetric 144 Kbps to 1.1 Mbps 3Q98
transmission over one wire pair using 2B1Q line
code.
- -------------------------------------------------------------------------------------------------------------------
HDT-12-0x HDSL single channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 4Q97
transmission over two wire pairs using 2B1Q line
code.
- -------------------------------------------------------------------------------------------------------------------
MDT-x4-01 MSDSL single channel chip set for symmetric 144 Kbps to 2.3 Mbps 2Q97
transmission over one wire pair using CAP line
code.
- -------------------------------------------------------------------------------------------------------------------
SDT-32-03 SDSL single channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 1Q97
transmission over one wire pair using CAP line
code.
- -------------------------------------------------------------------------------------------------------------------
HDT-13-0x HDSL single channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 2Q96
transmission over two wire pairs using CAP line
code.
- -------------------------------------------------------------------------------------------------------------------
RDT-x0-01 RADSL single channel chip set for asymmetric Downstream -- 90 Kbps to 7.2 Mbps 2Q96
transmission over one wire pair using CAP line Upstream -- 45 Kbps to 1.1 Mbps
code.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 47
SALES, MARKETING AND TECHNICAL SUPPORT
Our strategy is to expand the breadth of our customer base by leveraging
our extensive worldwide sales representative organization, comprised of
approximately 31 firms with over 250 professionals. This organization is
directed by our six sales managers and is supported by our technical marketing
professionals, applications engineers and development engineers. Our sales
effort has resulted in a customer base of more than 100 DSL equipment
manufacturers who have purchased chip sets and DSL reference design guides. Our
strategy has enabled us to spread our sales efforts across a much larger base of
customers than would otherwise be possible using only a direct sales model.
Furthermore, it has been our experience that once we successfully penetrate a
new account, we become better positioned to secure additional design wins.
Providing comprehensive DSL reference design guides to our customers is
integral to our sales strategy. Our design materials are intended to enable our
customers to effectively incorporate our chip sets into their DSL systems and to
achieve a faster time-to-market. This reduces the necessary level of customer
support and allows for a greater allocation of our sales effort to target future
design wins.
We provide superior technical support throughout the design and test
process to accelerate our customers' time-to-market. We also provide
comprehensive field support to ensure that our customers' products perform
optimally in real world deployment environments.
CUSTOMERS
We sell our products worldwide to over 100 companies that manufacture data
communications products. Customers from which we recognized at least $500,000 in
revenues in 1998 include Ascom Hasler AG, C-Com Corporation, Cisco Systems, LG
Information & Communications, NEC Corporation, Paradyne Corporation, Schmid
Telecommunications and Westell Technologies. Our chip sets are incorporated by
our customers into the following products:
- Digital subscriber line access multiplexers (DSLAMs), which are used to
terminate up to hundreds of lines in a central office and aggregate them
onto high-speed lines for transmission to the communications backbone;
- DSL modems, which are customer premises products that enable high-speed
data transmission over the local loop;
- DSL-compatible routers, which are used to connect one or more personal
computers to the local loop; and
- Personal computer DSL cards, which are used to connect a personal
computer directly to the local loop.
Our customers market their products to public and private
telecommunications service providers. These service providers include
traditional telephone companies, competitive local exchange carriers, Internet
service providers, businesses and government entities.
We depend on a relatively small number of customers for a large percentage
of our revenues. In the five months ended December 31, 1996, the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999, our
customers who individually represented at least five percent of our net revenues
accounted for 85.5%, 72.6%, 70.1% and 65.7%, respectively, of our total 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
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<PAGE> 48
Ascom Hasler AG, which accounted for 48.3%, 12.6% and 9.2% of our net revenues,
respectively. In the three months ended March 31, 1999, our top three customers
were Cisco Systems, NEC Corporation and Ascom Hasler AG, which accounted for
39.4%, 9.7% and 9.0% 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. See "Risk Factors--The Loss of One or More of Our Key Customers Would
Adversely Affect Our Business and Results of Operations."
RESEARCH AND DEVELOPMENT
Our core engineering team, including several individuals who were early
developers of DSL technology at AT&T Bell Labs, has substantial expertise in DSL
technology. Since our founding in August 1996, we have invested significant
resources to expand our research and development group. As of March 31, 1999,
approximately 79 of our approximately 122 research and development engineers had
advanced degrees, including approximately 24 with Ph.Ds. These engineers are
involved in advancing our technology core competencies and our product
development activities. Recently, we have been devoting a significant portion of
our research and development expenditures to products incorporating new features
and line codes, such as 2B1Q, DMT and PAM.
We believe that we must continually enhance the performance and flexibility
of our current products, and successfully introduce new products to maintain our
leadership position. In 1999, our research and development expenditures will
increase due to planned increases in personnel, material costs and depreciation
resulting from higher capital expenditures. Our research and development
expenditures in the pro forma year ended December 31, 1996, the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999 were $4.1
million, $8.4 million, $18.7 and $5.4 million, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MANUFACTURING
Our manufacturing objective is to produce reliable, high quality integrated
circuits at competitive prices and to achieve on-time delivery of our products
to our customers. We outsource the manufacturing of our integrated circuits
which enables us to concentrate our resources on the design, development and
marketing of our products where we believe we have greater competitive
advantages, and to eliminate the high cost of owning and operating a
semiconductor wafer fabrication facility.
Our long-term strategy is to qualify new foundries to provide additional
manufacturing capacity and to access diverse manufacturing technologies. We
intend to secure multiple sources of wafer fabrication to reduce our dependence
on any single foundry. There can be no assurance that we will be able to
successfully qualify and implement such arrangements.
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. Under this agreement, Lucent Technologies will fill our
orders for our current chip sets in accordance with agreed-upon quantity, price,
lead-time and other terms. The agreement also contains procedures for
establishing Lucent Technologies as a manufacturer of future chip sets for us.
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. Further, although the March 1999 agreement
has a term of three years for the supply of current chip sets, Lucent
Technologies has the right to discontinue the supply of any chip set upon 12
months' notice (as long as Lucent Technologies fills our orders for commercially
reasonable quantities of that
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<PAGE> 49
chip set during the notice period). In addition, Lucent Technologies' ability to
manufacture our chip sets is limited by its available capacity, and under some
circumstances Lucent Technologies may allocate its available capacity to its
other customers. 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.
COMPETITION
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:
- For ADSL products based on the American National Standards Institute
standard T1.413, Alcatel, Analog Devices Inc., Motorola and Texas
Instruments, among others;
- For G.lite products based on the International Telecommunications Union
standard G.992.2, Alcatel, Analog Devices Inc., Centillium Technology
Corporation, Lucent Technologies and Texas Instruments, among others; and
- For HDSL, SDSL, MSDSL and HDSL2 products, Conexant Systems, Level One
Communications and MetaLink, among others.
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.
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, and our
business, financial condition and results of operations would be seriously
harmed.
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 in addition to the
above-listed factors, 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.
As the DSL market matures, the industry may become subject to increasing
price competition driven by the lowest cost providers of chip sets. We
anticipate that average per unit selling prices of DSL chip sets will continue
to decline as product technologies mature. If we are unable to reduce our costs
sufficiently to offset declines in the average per unit selling prices or are
unable to introduce new higher performance products with higher average per unit
selling prices, our operating results will be seriously harmed. Since we do not
manufacture our own products, we may be unable to negotiate volume discounts
with our foundries in order to reduce the costs of manufacturing our chip sets
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
46
<PAGE> 50
vulnerable to price competition. Our inability to achieve manufacturing
efficiencies would have an adverse impact on our operating results.
COMPETITIVE HIGH-SPEED DATA TRANSMISSION TECHNOLOGIES
DSL services are competing with a variety of different high-speed data
transmission technologies, including:
Cable. Cable companies provide high-speed data transmission over the
existing cable network. Cable companies are expected to compete effectively for
residential end users, including by offering services at low prices. Cable
high-speed data transmission services share the available bandwidth in the cable
network among multiple users. Accordingly, we believe cable companies may
compete less effectively for business end users, where guaranteed, security,
bandwidth and equal upstream and downstream data transmission rates are
required.
Fiber. Telecommunications service providers are delivering high-speed data
transmission services to large businesses in major metropolitan areas over local
installed fiber networks. Although we believe fiber networks have not generally
been cost effective to deploy for small business and residential end users,
fiber networks will compete effectively in the market for high-speed data
transmission services, including for large business end users.
Wireless and Satellite. Wireless systems, such as microwave networks, and
satellite systems offer high-speed data transmission without the use of existing
telephone, cable or local fiber networks. Although we believe wireless and
satellite systems have yet to be deployed on a large scale, these systems may
compete effectively in the market for high-speed data transmission services in
the future.
Telecommunications service providers deploying the various high-speed data
transmission technologies, including DSL, compete on the basis of price,
reliability, performance and customer reach, among other factors. We believe
that telecommunications services providers deploying DSL services compete
effectively with respect to these factors. DSL technology:
- Uses the existing copper wire telephone infrastructure;
- Supports two-way, high-speed data transmission;
- Enables a dedicated and secure individual high-speed data transmission
connection; and
- Enables telecommunications service providers to deliver voice services
and Internet data services on a single copper telephone wire.
All of our chip sets are deployed for use in the DSL services that use
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 less expensive, more reliable, faster, 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.
INTELLECTUAL PROPERTY
Our success depends significantly upon our ability to protect our
intellectual property. 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. In the past, competitors have
recruited our employees who have had access to our proprietary technologies,
processes and operations. Our competitors' recruiting efforts, which we expect
will continue, expose us to the risk that such employees will misappropriate our
intellectual property. For example, in June 1998, we filed
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suit against three former employees who recently began employment with one of
our competitors. Our lawsuit alleges misappropriation of trade secrets. See
"-- Litigation."
We rely in part on patents to protect our intellectual property. We have 28
patents in the United States and 15 patents in other countries. Our patents
principally cover various aspects of systems and features relating to
telecommunications technologies and telecommunications products, including
certain aspects specifically pertaining to particular DSL algorithms and DSL
communications systems. Our patents have expiration dates ranging from 2009 to
2017. In addition, we have 42 patent applications pending in the United States
Patent and Trademark Office. We also have 53 patent applications pending in
various countries other than the United States. These patents may never be
issued. Even if these patents are issued, taken together with our existing
patents, they may not provide sufficiently broad protection to protect our
proprietary rights, or they may prove to be unenforceable. To protect our
proprietary rights, we also rely on a combination of copyrights, trademarks,
trade secret laws, contractual provisions, licenses and maskwork protection
under the Federal Semiconductor Chip Protection Act of 1984. 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.
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.
Another company, Singapore Telecommunications Limited (Singapore Telecom),
also has prior rights to the GlobeSpan mark in one or more countries outside the
United States, in connection with services involving the transmission and
broadcast of satellite communications. Singapore Telecom's rights in the
GlobeSpan mark may limit our ability to use or market under the GlobeSpan name
in certain territorial regions outside the United States.
EMPLOYEES
As of March 31, 1999, we had 178 full-time employees, including 122
employees engaged in research and development, 29 engaged in sales and marketing
and 27 engaged in general and administrative activities. Our employees are not
represented by any collective bargaining agreements, and we have never
experienced a work stoppage. We believe our employee relations are good.
PROPERTIES
We sublease our facility in Red Bank, New Jersey, which has approximately
50,000 square feet, pursuant to a sublease agreement that expires April 2002.
This facility comprises our headquarters, administration, sales and marketing
and research and development departments. We believe we have adequate space, and
any additional space required will be available to us on commercially reasonable
terms.
LITIGATION
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
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<PAGE> 52
Level One Communications, a competitor in the DSL industry. No counterclaim has
been asserted against us. Due to the nature of litigation and because the
lawsuit is at an early stage, we cannot ascertain the availability of injunctive
relief or other equitable remedies or estimate the total expenses, possible
recovery or settlement value, if any, that may be ultimately awarded or incurred
in connection with this suit. 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.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of GlobeSpan, and their
ages as of May 5, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Armando Geday(a)........................ 37 President, Chief Executive Officer and
Director
Robert McMullan......................... 44 Chief Financial Officer, Vice President,
Treasurer and Secretary
Thomas Sennhauser....................... 44 Chief Operating Officer
Nicholas Aretakis....................... 37 Vice President, Worldwide Sales
Clete Gardenhour........................ 60 Vice President, Business Development
Daniel Amrany........................... 47 Chief Technology Officer
Angelo Stephano......................... 37 Vice President, Worldwide Marketing
Russ Bell............................... 42 Vice President, Technology Planning
George Malek............................ 62 Vice President, Engineering
James Coulter(a)(b)..................... 39 Director
Dipanjan Deb(a)(c)...................... 29 Director
Thomas Epley(a)(b)...................... 58 Director
Keith Geeslin(c)........................ 46 Director
David Stanton(b)........................ 36 Director
</TABLE>
- ------------------------------
(a) Member of Executive Committee
(b) Member of Compensation Committee
(c) Member of Audit Committee
Armando Geday has served as President and Chief Executive Officer of
GlobeSpan since April 1997 and as a director of GlobeSpan since April 1997. From
June 1986 to March 1997, Mr. Geday was Vice President and General Manager of the
Multimedia Communications Division of Rockwell Semiconductor Systems, a
developer and manufacturer of semiconductor systems. Prior to June 1986, Mr.
Geday held several other marketing and general management positions at Rockwell.
Prior to Rockwell, Mr. Geday was product marketing manager at Harris
Semiconductor. Mr. Geday received a B.S. in Electrical Engineering from the
Florida Institute of Technology.
Robert McMullan has served as Chief Financial Officer of GlobeSpan since
July 1998. From November 1990 to March 1998, Mr. McMullan was employed by The
BISYS Group, Inc., an outsourcer to the financial services industry, where he
served as Executive Vice President and Chief Financial Officer. Mr. McMullan
received a B.A. in Business Administration from St. Michael's College.
Thomas Sennhauser has served as Chief Operating Officer of GlobeSpan since
June 1998. From November 1993 to May 1998, Mr. Sennhauser was at Siemens
Microelectronics, Inc., a semiconductor company, where he was Vice President of
Signal Processing Integrated Circuits. From 1990 to 1992, Mr. Sennhauser was
Managing Director of the largest foreign subsidiary of Societe Suisse de
Microelectronique et Horlogerie, and from 1980 to 1989, worked at Intel
Corporation, a developer and manufacturer of semiconductor systems, in various
marketing and manufacturing positions. Mr. Sennhauser received two Masters
degrees, one in International Management from the American Graduate School of
International Management, and the other in Electrical Engineering from the Swiss
Federal Institute of Technology, Zurich, Switzerland.
Nicholas Aretakis has served as Vice President, Worldwide Sales of
GlobeSpan since May 1998. From July 1994 to April 1998, Mr. Aretakis served as
Vice President of Marketing and Sales at ESS
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Technology, Inc., a developer of audio, digital video and modem/fax
communication semiconductors and software products for the personal computing
industry. Prior to joining ESS Technology Inc., Mr. Aretakis held senior sales
and marketing positions at SEEQ Technology, Inc., a developer of LAN and memory
semiconductors and software, and Microchip Technology, a manufacturer of RISC-
based microcontrollers and specialized memory products. Mr. Aretakis received a
B.A. in Mathematics from Hobart College and a B.S. in Electrical Engineering
from Columbia University.
Clete Gardenhour has served as Vice President, Business Development of
GlobeSpan since May 1998. From August 1996 to August 1998, Mr. Gardenhour was
Executive Director of Worldwide Sales for GlobeSpan. From January 1992 to August
1996, Mr. Gardenhour was responsible for technology planning and business
development of DSL technology with AT&T Paradyne Corporation, a developer and
manufacturer of telecommunications products, and served as Senior Vice President
and General Manager of Paradyne's Modem and Network Management business. Mr.
Gardenhour received a B.S. in Electrical Engineering from the Georgia Institute
of Technology and a Masters degree in Management of Technology from the
University of Miami.
Daniel Amrany has served as Chief Technology Officer of GlobeSpan since
October 1998. From August 1996 to October 1998, Mr. Amrany was director of VLSI
development for GlobeSpan. In January 1985, Mr. Amrany founded Amra-Tech, a VLSI
consulting firm, which developed the VLSI devices for Bell Labs' voice band
modems and DSL products. Mr. Amrany served as Vice President of Amra-Tech from
January 1985 to August 1996. Prior to 1985, Mr. Amrany worked at Perkin-Elmer, a
developer and manufacturer of life science products, ITT Industries, a designer
and manufacturer of electronics products, and Intel Corporation, a developer and
manufacturer of semiconductor systems. Mr. Amrany holds more than ten patents in
various telecom, digital TV, and semiconductor disciplines and received a B.S.
in Electrical Engineering from Tel Aviv University.
Angelo Stephano has served as Vice President, Marketing of GlobeSpan since
August 1998. From June 1996 to August 1998, Mr. Stephano was the Director of
Marketing for Rockwell Semiconductor Systems' Multimedia Communications
Division. From June 1994 to June 1996, Mr. Stephano was the Manager of Marketing
for the same division of Rockwell International. Mr. Stephano received a B.S. in
Electrical Engineering from Syracuse University.
Russ Bell has served as Vice President, Technology Planning of GlobeSpan
since March 1999. From January 1998 to March 1999, Mr. Bell was Director,
Technology Planning of GlobeSpan. From July 1984 to January 1998 Mr. Bell held a
number of positions at Advanced Micro Devices, a developer and manufacturer of
integrated circuits including Director of Communications Technology, Director of
Corporate Strategic Marketing and Director of Applications Engineering. Mr. Bell
received a B.S. in Electrical Engineering from the Southern Technical Institute
and a Masters degree in Information and Computer Science from the Georgia
Institute of Technology.
George Malek has served as Vice President, Engineering of GlobeSpan since
August 1996. From March 1963 to August 1996, Mr. Malek was at AT&T Bell Labs, a
communications company, and Lucent Technologies, a communications company, where
he served in various positions, including as head of the data communications
department. Mr. Malek received a B.S. in Electrical Engineering from Monmouth
University and a Masters degree in Electrical Engineering from New York
University.
James Coulter has served as a director of GlobeSpan since May 1998. Mr.
Coulter has served as a managing partner of Texas Pacific Group, an investment
firm, since 1992. Mr. Coulter currently serves as a director of America West
Holdings Corp., Beringer Wine Estates Holdings, Inc., Oxford Health Plans Inc.,
and several privately held companies. Mr. Coulter received a B.A. in Business
from Dartmouth College and an M.B.A. from the Stanford Graduate School of
Business.
Dipanjan Deb has served as a director of GlobeSpan since March 1999. Mr.
Deb has been employed by Texas Pacific Group, an investment firm, since November
1998 where he is responsible
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for technology-related investments. From August 1991 to June 1994, Mr. Deb was
employed at BancBoston Robertson Stephens. Mr. Deb rejoined BancBoston Robertson
Stephens in June 1996 and served as their Director of Semiconductor Banking
until October 1998. Prior to rejoining BancBoston Robertson Stephens in 1996,
Mr. Deb worked as a management consultant at McKinsey & Company. Mr. Deb
received a B.S. from the University of California at Berkeley in Electrical
Engineering and an M.B.A. from the Stanford Graduate School of Business.
Thomas Epley has served as a director of GlobeSpan since August 1996 and
Chairman of the Board from August 1996 to March 1999. Mr. Epley has also served
as President of Paradyne Credit Corporation, a related party of GlobeSpan, since
August 1996. Mr. Epley was the CEO and President of GlobeSpan from August 1996
to April 1997, and the President and CEO of Paradyne Corporation, a developer
and manufacturer of telecommunications products and a related party of
GlobeSpan, from August 1996 to April 1997. From May 1991 to April 1996, Mr.
Epley was the CEO of Technicolor, an entertainment media company. Mr. Epley
currently serves as Chairman of Paradyne Corporation and as Chairman of MEM
Solutions, a microelectrical and mechanical systems company. Mr. Epley received
a B.S. in Mechanical Engineering from the University of Cincinnati and an M.B.A.
from Northwestern University.
Keith Geeslin has served as a director of GlobeSpan since August 1996. Mr.
Geeslin is a General Partner of The Sprout Group, a venture capital firm, where
he has been employed since July 1984. In addition, he is a general or limited
partner of a series of investment funds associated with The Sprout Group, a
division of DLJ Capital Corporation, a subsidiary of Donaldson, Lufkin &
Jenrette. Mr. Geeslin is a director of SDL, Inc. and several privately held
companies, including Paradyne Corporation, a related party to GlobeSpan. Mr.
Geeslin received a B.S.E.E. degree from Stanford University, an M.A. degree in
Philosophy, Politics and Economics from Oxford, and an M.S. degree in
Engineering and Economic Systems from Stanford University.
David Stanton has served as a director of GlobeSpan since June 1996. Mr.
Stanton is a partner of Texas Pacific Group, an investment firm, where he has
been employed since 1994. Prior to joining Texas Pacific Group, Mr. Stanton was
a venture capitalist with Trinity Ventures, where he specialized in information
technology, software and telecommunications investing. Mr. Stanton currently
serves as a director of Denbury Resources, Inc., and several private companies,
including Paradyne Corporation, a related party of GlobeSpan. Mr. Stanton
received a B.S. in Chemical Engineering from Stanford University and an M.B.A.
from the Stanford Graduate School of Business.
BOARD OF DIRECTORS AND COMMITTEES
Following the offering, our board of directors will consist of six
directors, each holding office until the next annual meeting of stockholders.
The board of directors has a Compensation Committee, an Audit Committee and
an Executive Committee.
Executive Committee. Our board of directors has created an Executive
Committee consisting of Messrs. Coulter, Deb, Epley and Geday. The Executive
Committee is authorized to act with respect to all matters arising before the
board, except for matters which require stockholder approval or where prohibited
by Delaware law, including a sale of our company.
Compensation Committee. The Compensation Committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to the executive officers and directors of GlobeSpan and
its subsidiaries including stock compensation and loans. In addition, the
Compensation Committee reviews and makes recommendations on stock compensation
arrangements for all employees of GlobeSpan. As part of the foregoing, the
Compensation Committee also administers our 1999 Equity Incentive Plan and
Employee Stock Purchase Plan. The current members of the Compensation Committee
are James Coulter, Thomas Epley and David Stanton.
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<PAGE> 56
Audit Committee. The Audit Committee of the board of directors reviews and
monitors the corporate financial reporting and the internal and external audits
of GlobeSpan, including, among other things, our internal audit and control
functions, the results and scope of the annual audit and other services provided
by our independent auditors and our compliance with legal matters that have a
significant impact on our financial reports. The Audit Committee also consults
with our management and our independent auditors prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our financial affairs. In addition, the Audit Committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with our independent auditors. The current members of the Audit
Committee are Dipanjan Deb and Keith Geeslin.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Directors of GlobeSpan who are not employees receive $1,500 for
participation in meetings of the board of directors. Non-employee directors of
GlobeSpan who also serve on either the Compensation or the Audit Committees
receive $750 for participation in the committee meetings. Upon and following
this offering, directors will be eligible for automatic option grants under our
1999 Director Stock Plan. See "1999 Director Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of December 31, 1998, the Compensation Committee of the board of
directors consisted of Messrs. Epley and Stanton and Mr. William Stensrud. In
March 1999, Mr. Stensrud resigned from the board of directors and was replaced
by Mr. Coulter on the Compensation Committee.
Mr. Epley is a current director of GlobeSpan, was Chairman of our board of
directors from August 1996 to March 1999 and was CEO and President of GlobeSpan
from August 1996 to April 1997. Mr. Epley is also a director of Paradyne
Corporation, is Chairman of their board of directors, is a member of their
compensation committee and was their CEO and President from August 1996 to April
1997. Mr. Epley also has a pecuniary interest in the GlobeSpan shares held by
Communication Partners, L.P., which as of May 1999 held over 93% of our common
stock and 85% of the common stock of Paradyne Corporation. In May 1999,
Communication Partners, L.P. distributed its GlobeSpan shares to its limited
partners. Mr. Epley and Epley Investors, L.L.C. are limited partners of
Communication Partners, L.P. and received an aggregate of 1,002,405 GlobeSpan
shares in the distribution.
Mr. Stanton has a pecuniary interest in the GlobeSpan shares held by
Communication Partners, L.P., which as of May 1999 held 93% of our common stock
and 85% of the common stock of Paradyne Corporation. In May 1999, Communication
Partners, L.P. distributed its GlobeSpan shares to its limited partners. TPG
Partners, L.P. and TPG Parallel I, L.P., limited partners of Communication
Partners, L.P. and Communication GenPar, Inc., the general partner of
Communication Partners, L.P., received an aggregate of 8,680,148 GlobeSpan
shares in the distribution. Mr. Stanton is the sole director and president of
Communication GenPar, Inc. and is a partner of Texas Pacific Group, which
organized TPG Partners, L.P. and TPG Parallel I, L.P.
Mr. Stensrud has a pecuniary interest in the GlobeSpan shares held by
Communication Partners, L.P., which as of May 1999 held 93% of our common stock
and 85% of the common stock of Paradyne Corporation. In May 1999, Communication
Partners, L.P. distributed its GlobeSpan shares to its limited partners. Mr.
Stensrud and the Stensrud Family Trust are limited partners of Communication
Partners, L.P. and received an aggregate of 219,151 GlobeSpan shares in the
distribution.
For a further description of interlocking transactions, see "Certain
Transactions."
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EXECUTIVE COMPENSATION
The following table sets forth compensation information for the fiscal year
ended December 31, 1998 paid by us for services by our Chief Executive Officer
and our two other highest-paid executive officers whose total salary and bonus
for such fiscal year exceeded $100,000, collectively referred to below as the
Named Executive Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
--------------------------- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C>
Armando Geday................... $215,004 $110,000(a) -- --
President and Chief Executive
Officer
Thomas Sennhauser(c)............ 80,780 60,000(b) 77,775 $37,396(e)
Chief Operating Officer
Nicholas Aretakis(d)............ 87,704 60,000(b) 77,775 79,227(e)
Vice President, Worldwide
Sales
</TABLE>
- ------------------------------
(a) The board has not determined Mr. Geday's entire bonus for 1998.
(b) GlobeSpan has not determined Mr. Sennhauser's or Mr. Aretakis' entire bonus
for 1998.
(c) Mr. Sennhauser started employment with us in June 1998.
(d) Mr. Aretakis started employment with us in May 1998.
(e) Represents reimbursed relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1998 to each of the Named Executive Officers. No
stock appreciation rights were granted to these individuals during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES STOCK
UNDERLYING % OF TOTAL PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE FOR OPTION TERM(D)
GRANTED TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (A) 1998(B) (C) DATE 5% 10%
---- ---------- --------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Armando Geday........................ -- -- -- -- -- --
Thomas Sennhauser.................... 77,775 12.6% $12.00 5/31/08 $586,947 $1,487,440
Nicholas Aretakis.................... 77,775 12.6 12.00 5/27/08 586,947 1,487,440
</TABLE>
- ------------------------------
(a) Each of the options listed in the table is immediately exercisable. The
shares purchasable under the options may be repurchased by us at the
original exercise price paid per share if the optionee ceases service before
vesting in such shares. The repurchase right lapses for Mr. Sennhauser's
option, and he vests as to 25% of the option shares upon completion of 12
months of service from the vesting start date; he vests as to 6.25% of the
option shares upon the completion of every three-month period of service
over the next three years thereafter. The repurchase right lapses for Mr.
Aretakis' option and he vests as to 33 1/3% of the option shares upon
completion of 12 months of service from the vesting start date; he vests as
to 8.33% of the option shares upon the completion of every three-month
period of service over the next two years thereafter. Each of the options
has a ten-year term, but the term may end earlier if the optionee ceases
service with us.
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(b) Based on a total of 618,625 option shares granted to our employees under our
1996 Equity Incentive Plan during 1998.
(c) The exercise price was equal to the fair market value of our common stock as
valued by our board of directors on the date of grant. The exercise price
may be paid in cash or through a cashless exercise procedure involving a
same-day sale of the purchased shares.
(d) The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the exercise price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the year-end number
and value of unexercised options for each of the Named Executive Officers. No
options or stock appreciation rights were exercised by these executive officers
in 1998, and no stock appreciation rights were outstanding at the end of that
year.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
HELD AT HELD AT
DECEMBER 31, 1998(A) DECEMBER 31, 1998(B)
--------------------- ------------------------
NAME VESTED(B) UNVESTED VESTED UNVESTED
---- --------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Armando Geday.......................... 203,569 261,731 $2,239,259 $2,879,041
Thomas Sennhauser...................... -- 77,775 -- --
Nicholas Aretakis...................... -- 77,775 -- --
</TABLE>
- ------------------------------
(a) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options may be repurchased by us at the
original exercise price paid per share, if the optionee ceases service with
us before vesting in such shares. The heading "Vested" refers to shares that
are no longer subject to repurchase; the heading "Unvested" refers to shares
subject to repurchase as of December 31, 1998.
(b) Based on the fair market value of our common stock as determined by our
board of directors at the end of 1998 of $12.00 per share, less the exercise
price payable for such shares.
CHANGE OF CONTROL ARRANGEMENTS AND EMPLOYMENT AGREEMENTS
Upon certain defined events causing a change in control of GlobeSpan, an
option or other award under the 1999 Equity Incentive Plan will become fully
exercisable and fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another award on substantially the same terms.
Except for Mr. Armando Geday, our President and Chief Executive Officer,
none of our executive officers have an employment agreement with GlobeSpan, and
they may resign at any time and GlobeSpan may terminate their employment at any
time. GlobeSpan entered into an employment agreement with Mr. Geday, dated April
1, 1997.
The employment agreement with Mr. Geday provided for a base salary of
$200,000 per year in 1997. Mr. Geday is eligible to earn quarterly and two-level
revenue bonuses based upon goals and revenue targets as determined by our board
of directors and Mr. Geday. Under the employment agreement, we granted to Mr.
Geday an option for 465,300 shares of our common stock. If a corporate
transaction occurs in which more than 50.0% of our stock is transferred, then
50.0% of Mr. Geday's unvested options will become vested. If we are valued at
more than $100.0 million in
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such corporate transaction, then 100% of Mr. Geday's unvested options will
become vested. If we terminate Mr. Geday's employment without cause or he
resigns for good reason, then he will be paid as severance any bonuses that have
been earned by him and will continue to receive his base salary until the
earlier of the date that is 12 months from his termination date or the date on
which he starts comparable employment. The aggregate severance payment will not
be less than $500,000 prorated for the number of months that Mr. Geday is
entitled to receive his base salary as a severance benefit. In addition, if we
terminate Mr. Geday without cause or he resigns for good reason, his option will
become vested, as if he provided another 18 months of service following his
termination date, and his vested option will have a 10-year term from the date
of his employment agreement.
Mr. McMullan, our Chief Financial Officer, Vice President and Secretary,
received an offer letter from us in which we promised that if a change in
control occurs within 18 months after his employment start date and Mr. McMullan
is not offered a comparable position with comparable responsibilities with the
acquiring entity, then any portion of his option that is not yet exercisable or
vested will become fully exercisable or vested. If the change in control occurs
outside of the 18-month period following his employment start date and Mr.
McMullan is not offered a comparable position with comparable responsibilities
with the acquiring entity, then his option becomes vested for 50.0% of his
unvested shares.
EMPLOYEE BENEFIT PLANS
1999 Equity Incentive Plan. Our board of directors adopted GlobeSpan's
1999 Equity Incentive Plan in March 1999 and our stockholders approved the
adoption of the plan in May 1999. We have reserved 1,000,000 shares of common
stock for issuance under the 1999 Equity Incentive Plan. Any shares not yet
issued under our 1996 Equity Incentive Plan as of the date of this offering will
also be available for grant under the 1999 Equity Incentive Plan. As of each
year, commencing with the date of this offering and continuing on each May 1 in
2000 through 2002, the number of shares reserved for issuance under the 1999
Equity Incentive Plan will be increased automatically by 5.0% of the total
number of shares of common stock then outstanding or, if less, by 1,000,000
shares. We have not granted any options under the 1999 Equity Incentive Plan.
Under the 1999 Equity Incentive Plan, the eligible individuals are: employees,
non-employee members of the board of directors and consultants. The types of
awards that may be made under the 1999 Equity Incentive Plan are options to
purchase shares of common stock, stock appreciation rights, restricted shares
and stock units. Options may be incentive stock options that qualify for
favorable tax treatment for the optionee under Section 422 of the Internal
Revenue Code of 1986 or nonstatutory stock options not designed to qualify for
such favorable tax treatment. With limited restrictions, if shares awarded under
the 1999 Equity Incentive Plan or the 1996 Equity Incentive Plan are forfeited,
then those shares will again become available for new awards under the 1999
Equity Incentive Plan.
The Compensation Committee of our board of directors administers the 1999
Equity Incentive Plan. The Committee has complete discretion to make all
decisions relating to the interpretation and operation of the 1999 Equity
Incentive Plan, including the discretion to determine which eligible individuals
are to receive any award, and to determine the type, number, vesting
requirements and other features and conditions of each award.
The exercise price for incentive stock options granted under the 1999
Equity Incentive Plan may not be less than 100% of the fair market value of the
common stock on the option grant date. The exercise price for non-qualified
options granted under the 1999 Equity Incentive Plan may not be less than 85% of
the fair market value of the common stock on the option grant date. The exercise
price may be paid in cash or in outstanding shares of common stock. The exercise
price may also be paid by using a cashless exercise method, a pledge of shares
to a broker or promissory note. The purchase price for newly issued restricted
shares awarded under the 1999 Equity Incentive Plan may be paid in cash, by
promissory note or by the rendering of past or future services.
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The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.
Upon certain defined events causing a change in control of GlobeSpan, an
option or other award under the 1999 Equity Incentive Plan will become fully
exercisable and fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another option or award on substantially the same
terms. If an optionee or other participant under this Plan is involuntarily
terminated within 12 months after a change in control in which the option or
award was assumed or substituted, then the option or award becomes fully
exercisable and vested. A change in control includes:
- A merger or consolidation of GlobeSpan after which our then current
stockholders own less than 50.0% of the surviving corporation;
- Sale of all or substantially all of the assets of GlobeSpan;
- A proxy contest that results in replacement of more than one-third of the
directors over a 24-month period; or
- An acquisition of 50.0% or more of GlobeSpan's outstanding stock by a
person other than by a person related to GlobeSpan, such as a corporation
owned by the stockholders of GlobeSpan.
If a merger or other reorganization occurs, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be continued by us if we were a surviving corporation, shall have
accelerated vesting and then expire early, or shall be cancelled for a cash
payment.
Our board of directors may amend or terminate our 1999 Equity Incentive
Plan at any time. If the board amends the Plan, stockholder approval of the
amendment will be sought only if required by an applicable law. The 1999 Equity
Incentive Plan will continue in effect indefinitely unless the board decides to
terminate the Plan earlier.
Employee Stock Purchase Plan. Our board of directors adopted our Employee
Stock Purchase Plan in March 1999, and our stockholders approved the adoption of
the plan in May 1999. We have reserved 400,000 shares of common stock for
issuance under the Employee Stock Purchase Plan. As of February 1 each year
beginning in 2000, 2001 and 2002, the number of shares reserved for issuance
under the Employee Stock Purchase Plan will be increased automatically by 2.0%
of the total number of shares of common stock outstanding or, if less, 400,000
shares. The Employee Stock Purchase Plan is intended to qualify under Section
423 of the Internal Revenue Code. Two overlapping offering periods each with a
duration of 24 months will commence on February 1 and August 1 each calendar
year. However, the first offering period will commence on the effective date of
this offering and end on July 31, 2001. Purchases of common stock will occur on
January 31 and July 31 each calendar year during an offering period. The
Compensation Committee of our board of directors administers our Employee Stock
Purchase Plan. Each employee of GlobeSpan is eligible to participate if he or
she is employed by us for more than 20 hours per week and for more than five
months per year.
The Employee Stock Purchase Plan permits each eligible employee to purchase
common stock through payroll deductions. Each employee's payroll deductions may
not exceed 15.0% of the employee's cash compensation. The initial period during
which payroll deductions will be accumulated will begin on the effective date of
this offering and end on January 31, 2000. No more than 1,000 shares may be
purchased on any purchase date. The price of each share of common stock
purchased under the Employee Stock Purchase Plan will be 85.0% of the lower of
(A) the fair market value per share of common stock on the date immediately
before the first date of the applicable offering period or (B) the fair market
value per share of common stock on the purchase date. In the case of the first
offering period, the price per share under the plan will be 85.0% of the price
offered to
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the public in this offering. Employees may end their participation in the
Employee Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with us.
If a change in control of GlobeSpan occurs, the Employee Stock Purchase
Plan will end and shares will be purchased with the payroll deductions
accumulated to date by participating employees, unless this Plan is assumed by
the surviving corporation or its parent. Our board of directors may amend or
terminate the Employee Stock Purchase Plan at any time. If our board of
directors increases the number of shares of common stock reserved for issuance
under the Employee Stock Purchase Plan, it must seek the approval of our
stockholders.
1999 Director Stock Plan. Our board of directors adopted our 1999 Director
Stock Plan in March 1999, and our stockholders approved the adoption of the plan
in May 1999. Under the 1999 Director Stock Plan, non-employee members of our
board of directors will be eligible for option grants and other awards.
A maximum of 250,000 shares of common stock has been authorized for
issuance under the 1999 Director Stock Plan. No shares have been issued yet
under the 1999 Director Stock Plan.
We may grant options to purchase shares of common stock under the 1999
Director Stock Plan. Options may only be nonstatutory stock options not designed
to qualify for favorable tax treatment. With limited restrictions, if shares
awarded under the 1999 Director Stock Plan are forfeited, then those shares will
again become available for new awards under the 1999 Director Stock Plan.
The exercise price for options granted under the 1999 Director Stock Plan
may not be less than 100% of the fair market value of the common stock on the
option grant date. Optionees may pay the exercise price in cash or in
outstanding shares of common stock. Optionees may also pay the exercise price by
using a cashless exercise method or a pledge of shares to a broker. Each option
will have a maximum term of ten years, but will terminate earlier if the
optionee ceases to be a member of the board of directors.
The committee may reprice options and may modify, extend or assume
outstanding options. The committee may accept the cancellation of outstanding
options in return for the grant of new options. The new option may have the same
or a different number of shares and the same or a different exercise price.
Upon certain defined events causing a change in control of GlobeSpan, an
option or other award granted under the 1999 Director Stock Plan will become
fully exercisable and fully vested and will terminate unless the option or award
is not assumed by the surviving corporation or its parent. Change in control has
the same definition as under the 1999 Equity Incentive Plan.
The 1999 Director Stock Plan grants options to non-employee directors
pursuant to an automatic grant provision at defined intervals beginning on the
effective date of this offering. The 1999 Director Stock Plan grants to each
non-employee director an option to purchase 10,000 shares of common stock on the
effective date of this offering at the initial public offering price; and the
plan will grant to each such director another option to purchase 5,000 shares of
common stock at the fair market value on the date of grant on the date of the
2000 annual stockholders' meeting and another option to purchase 5,000 shares of
common stock on the date of the 2001 annual stockholders' meeting, if the
director continues serving on the board following this annual stockholders'
meeting. The 1999 Director Stock Plan grants to each person who becomes a
non-employee director following the effective date of this offering an option to
purchase 10,000 shares of common stock on the date on which he or she is
initially elected or appointed to the board; and each such new director will be
granted another option to purchase 5,000 shares of common stock at each of the
first two annual stockholders' meeting in the calendar years following the year
in which he or she initially became a board member. However, a new director will
not receive an option to purchase 5,000 shares of common stock if he or she
resigns at that annual stockholders' meeting. At each annual stockholders'
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meeting following the annual meeting during which each non-employee director
received the second option to purchase 5,000 shares of common stock, the 1999
Director Stock Plan grants to each continuing director an option to purchase
2,500 shares of common stock. Each initial option becomes exercisable and vested
as to 50% of the shares immediately and as to 50% upon the director's completion
of 12 months of service during which he or she attended at least 75% of the
board meetings.
Our board of directors may amend or modify the 1999 Director Stock Plan at
any time. The 1999 Director Stock Plan will terminate in March 2009, unless the
board of directors decides to terminate the plan sooner.
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CERTAIN TRANSACTIONS
INITIAL FORMATION
We were formed in August 1996 as part of the divestiture of AT&T Paradyne
Corporation by Lucent Technologies. Prior to this divestiture, AT&T Paradyne
Corporation operated a communications technologies business. Communication
Partners, L.P. was formed in connection with the divestiture for the primary
purpose of holding investments in GlobeSpan and Paradyne Corporation. In the
divestiture, Communication Partners, L.P. (which at the time was our principal
stockholder) (i) formed a subsidiary, Paradyne Acquisition Corp., to acquire
AT&T Paradyne Corporation (later renamed Paradyne Corporation); and (ii) formed
another subsidiary, CAP Acquisition Group (later renamed GlobeSpan, Inc.), to
acquire certain other assets from AT&T Paradyne Corporation and from Lucent
Technologies. Also in the divestiture, Communication Partners, L.P. formed other
subsidiaries to acquire certain other assets of Lucent Technologies and/or AT&T
Paradyne Corporation.
The following table illustrates the corporate structure of Globespan and
Paradyne Corporation both before and after the divestiture by Lucent
Technologies, prior to the close of this offering. See "Principal Stockholders."
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP OF PERCENTAGE PERCENTAGE
GLOBESPAN OWNERSHIP OF OWNERSHIP OF
AND PARADYNE GLOBESPAN PARADYNE
PRIOR FOLLOWING FOLLOWING
TO FORMATION FORMATION FORMATION
------------- ------------- -------------
<S> <C> <C> <C>
Lucent Technologies........................... 100%(1) 8.7%
Limited Partners of Communication Partners,
L.P.
Entities Associated with Texas Pacific
Group.................................... 63.2% 64.5%
Entities Associated with Sprout Group....... 11.1% 11.4%
Entities Associated with Thomas Epley....... 7.3% 7.5%
Entities Associated with William Stensrud... 1.6% 1.6%
</TABLE>
- ---------------
(1) Prior to the divestiture, our business was operated as the Advanced
Transmission Technology Division of AT&T Paradyne Corporation by Lucent
Technologies.
In addition to their common ownership, Lucent, GlobeSpan and Paradyne
Corporation have continuing business relationships with each other.
Our current board of directors consists of Messrs. Coulter, Deb, Epley,
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 directors of both GlobeSpan and Paradyne Corporation.
Mr. Stensrud was a member of the board of directors of both GlobeSpan and
Paradyne Corporation until his resignation from GlobeSpan's board of directors
in March 1999. Mr. Stensrud will continue as a board member of Paradyne
Corporation.
As of May 1999, Communication Partners, L.P. owned approximately 93.2% of
our outstanding common stock and approximately 85.0% of the outstanding capital
stock of Paradyne Corporation. In May 1999, Communication Partners, L.P.
distributed its GlobeSpan shares and its Paradyne Corporation shares to its
limited partners. After this offering, the limited partners of Communication
Partners, L.P. will own approximately 67% of our outstanding common stock and
85% of the outstanding common stock of Paradyne Corporation (subject to the sale
of any shares of Paradyne Corporation in Paradyne Corporation's initial public
offering).
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Mr. Stanton is the sole director and president of Communication GenPar,
Inc., the general partner of Communication Partners, L.P., and is a partner of
TPG Partners, L.P. and TPG Parallel I, L.P., each a limited partner of
Communication Partners, L.P. and the shareholders of Communication GenPar, Inc.
Messrs. Coulter, Epley, Geeslin and Stensrud, either directly or through various
investment partnerships and corporations, are limited partners of Communication
Partners, L.P.
DIVESTITURE TRANSACTIONS
In the divestiture, Communication Partners, L.P., through GlobeSpan and
Paradyne Corporation, paid $2.0 million in cash to Lucent Technologies for the
assets that we acquired. In addition, we issued Lucent Technologies a warrant to
purchase our common stock. The warrant, as amended, expires upon the first to
occur of June 30, 2001 or the sale of our company or all of our assets. The
warrant is currently exercisable for 1,312,500 shares of our common stock at an
exercise price of $6.72 per share. This warrant can either be exercised by
payment of the exercise price in cash or by a "net exercise." A "net exercise"
means that the aggregate exercise price of the warrant is deemed to be paid by
the warrant holder by giving up our common stock, in lieu of paying cash, based
on the fair market value of such shares at the time of net exercise.
In this prospectus we have assumed that the warrant will be net exercised.
By its terms, the warrant will be deemed to be automatically net exercised at
the closing of this offering if the price of our common stock in this offering
is $8.07 per share or higher. We have assumed that the price will be at the
mid-point of the anticipated price range, $10.00 per share, and that the warrant
will be net exercised for 430,500 shares. However, at any time prior to the
closing of this offering, Lucent Technologies can exercise the warrant for up to
1,312,500 shares of our common stock by payment of the exercise price in cash.
Further, if the price of our common stock in this offering is equal to or less
than $8.07 per share, then the warrant will remain outstanding and exercisable
for up to 1,312,500 shares of our common stock and will remain net exercisable.
Lucent Technologies has registration rights for any shares of common stock
issued upon exercise of the warrant. The registration rights include one right
to demand that we register the shares for sale to the public on a registration
statement and an unlimited number of "piggyback" registration rights. These
"piggyback" rights mean that Lucent Technologies can request that we register
its shares on most registration statements that we otherwise elect to file.
The warrant also has a covenant 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. and there can be no
assurance that Lucent Technologies would consider that all of these transactions
were on terms obtainable in a comparable arms' length transaction. If Lucent
Technologies believes that these transactions violated our covenant, they could
bring a claim for damages under the agreement against us. Any dispute with
Lucent Technologies would be expensive, time-consuming and, if we do not
prevail, would likely cause serious harm to our business, financial condition
and results of operations.
Lucent Technologies Intellectual Property Agreement. As part of the
divestiture, we entered into an intellectual property agreement with Lucent
Technologies and Paradyne Corporation. Under this agreement, Lucent Technologies
irrevocably assigned to us and our successors all rights in particular listed
patents related to CAP line code technology. We, in turn, granted to Lucent
Technologies a non-exclusive, non-transferable, irrevocable worldwide,
royalty-free license to develop, manufacture, test or repair any products or
services using the assigned patents.
Under this agreement, Lucent Technologies also granted to us other
intellectual property rights and immunities, subject to a number of restrictions
and/or conditions. Specifically, Lucent
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Technologies granted us a non-exclusive, non-transferable, irrevocable,
worldwide, royalty-free license under certain patents owned or controlled by
Lucent Technologies as of the date of the divestiture to develop, manufacture,
sell, test or repair our products, or convey to any customer of our products the
right to use and resell such products. Lucent Technologies also granted us the
right to extend immunity to our licensees and customers under particular listed
Lucent Technologies patents when those licensees and customers need to use
technical information claimed in those patents to manufacture our products.
These other intellectual property rights are subject to several conditions and
restrictions on what kind of products are within the scope of the rights and
immunities, when the rights and immunities can be exercised and for how long,
and whether the rights and immunities can be transferred to other parties and
when. These other intellectual property rights will become subject to a
predetermined royalty if we sell all or part of our business that exercises
these rights and more than six years have elapsed from the date of the
divestiture. Some of these conditions and restrictions relating to the exercise
of the other intellectual property rights are ambiguous, and could be
interpreted in more than one way. We believe that the ambiguous, conditions and
restrictions will not affect our current and proposed business in a material
manner, either because we no longer rely on the rights and immunities granted by
Lucent Technologies, or because the amount of our business that would be
affected is not material. Nevertheless, these ambiguous conditions and
restrictions could require us to negotiate with Lucent Technologies for
additional rights, or to defend against assertions by Lucent Technologies that
our business exceeds the scope of the rights and immunities. If we are
unsuccessful in such negotiations or defense, we might not be able to sell some
of our products, or such sales might be subject to limitations on how those
products can be used.
All three parties to this agreement granted to each other reciprocal rights
in their respective technical information only to the extent reasonably
necessary to support the other rights and licenses granted to each party under
the agreement.
Lucent Technologies Noncompetition Agreement. As part of the divestiture,
we entered into a Noncompetition Agreement with Lucent Technologies and Paradyne
Corporation. Under this agreement, Lucent Technologies agreed not to compete
with us (with a separate agreement not to compete with Paradyne Corporation), in
strictly limited circumstances subject to several exemptions and exclusions.
AT&T Trademark and Patent License. As part of the divestiture, AT&T
Corporation (Lucent Technologies' sole stockholder at the time), entered into a
Trademark and Patent Agreement with us and Paradyne Corporation. Under this
agreement, AT&T granted us a license under particular listed AT&T patents to
develop, manufacture, test or repair our products existing as of the date of the
divestiture.
ADDITIONAL TRANSACTIONS WITH LUCENT TECHNOLOGIES
Lucent Technologies Supply Agreement. As part of the divestiture, we
entered into a Supply Agreement with Lucent Technologies and Paradyne
Corporation. This agreement remains in effect for four years from the date of
the divestiture. Under this agreement, we and Paradyne Corporation agreed to
sell listed products (and modifications specific to the listed products) to
Lucent Technologies. Lucent Technologies may purchase such products for prices
and at discounts that are at least as good as those offered by us to any of our
other customers for comparable products under comparable terms. We must give
Lucent Technologies one year's notice of discontinuation of any of the listed
products. We believe that none of the products listed in this agreement are
currently products that we currently sell.
Lucent Technologies currently manufactures substantially all of our chip
sets. In the five months ended December 31, 1996, the years ended December 31,
1997 and 1998 and the three months ended March 31, 1999, we purchased from
Lucent Technologies, for a total of $0.5 million, $7.7 million, $8.6 million and
$2.7 million, respectively, chip sets, including components, computer equipment
and
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software, training and consulting, maintenance and repairs. In March 1999 we
entered into a manufacturing agreement with Lucent Technologies under which
Lucent Technologies has agreed to manufacture our chip sets in accordance with
certain pricing quotations and volume forecasts. This agreement may be
terminated by Lucent Technologies upon one year's notice. Lucent Technologies
currently manufactures substantially all of our chip sets, and we expect that
Lucent Technologies will continue to manufacture substantially all of our chip
sets for the foreseeable future.
As part of our previous business model, Lucent Technologies paid us certain
fees in connection with the manufacture and sale of chip sets to GlobeSpan
customers. During the five months ended December 31, 1996 and the year ended
December 31, 1997, Lucent Technologies paid us a total of $635,000 and $185,000,
respectively, for such fees pursuant to standard terms and conditions. In the
year ended December 31, 1997, Lucent Technologies paid us $10,000 for chip set
sales related to Lucent Technologies' development of certain DSL products.
ADDITIONAL TRANSACTIONS WITH COMMUNICATION PARTNERS, L.P.
Sale of Common Stock. In addition to the 7,437,500 shares of stock issued
to Communication Partners, L.P. as part of the formation of GlobeSpan, we issued
a total of 4,000,000 shares of common stock to Communication Partners, L.P. at a
price of $1.00 per share on November 27, 1996. In May 1999, Communication
Partners, L.P. distributed these shares to its general partner and limited
partners according to their pro rata interest in Communication Partners, L.P.
Communication Partners, L.P. no longer holds any common stock of Globespan.
Subordinated Revolving Promissory Note. On December 15, 1998, we amended
our existing Subordinated Revolving Promissory Note with Communication Partners,
L.P. The note had an outstanding principal balance of $5.0 million at the time
of such amendment. The amendment provides that we can borrow up to an additional
$5.0 million under the note. Subject to the terms and conditions of the amended
note, the amount remaining on the note over $5.0 million becomes due and payable
on March 31, 2000. The remaining $5.0 million is payable on May 1, 2003. Amounts
outstanding may be repaid and reborrowed at any time during the term of the
note, and the interest rate is set at 8% per annum. We intend to use the
proceeds from this offering to retire this debt.
Amendment of the Lucent Technologies Warrant. In August 1998 we agreed to
amend the warrant held by Lucent Technologies. As originally issued, the warrant
would have expired upon the repayment by Paradyne Corporation of its outstanding
long-term debt to Lucent Technologies. In August 1998, Paradyne Corporation and
Lucent Technologies agreed to settle this long-term debt in an aggregate
principal and interest amount of approximately $65.7 million. As a term of such
settlement, we agreed to amend the warrant so that it did not expire upon the
repayment of the indebtedness. The amendment also extended the term of the
warrant by an additional year. We agreed to this warrant amendment in
consideration of $100,000 in loan forgiveness from Communication Partners, L.P.
which we received in March 1999. Because the warrant amendment was deemed to
have indirectly benefited Communication Partners, L.P., we have accounted for
the amendment as a $3.7 million distribution to Communication Partners, L.P.
which was reflected as an adjustment to our paid-in capital. See Note 7 of the
Notes to Financial Statements. This value was based on the increase in the fair
market value of the warrant resulting from the extension of the outstanding
warrant term.
Registration Rights. In connection with out sale of preferred stock in May
1999, we granted to Communication Partners, L.P. the right to require that we
register its shares for sale to the public. In May 1999, Communication Partners,
L.P. distributed its shares of our common stock, and these registration rights
can be exercised by the general partner and the limited partners of
Communication Partners, L.P.
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ADDITIONAL TRANSACTIONS WITH PARADYNE CORPORATION
Paradyne Corporation Cross License. As part of the divestiture, we entered
into a cross-license agreement with Paradyne Corporation. We believe the purpose
of this agreement was to ensure that both we and Paradyne Corporation had the
same intellectual property rights in connection with our and their respective
products both before and after the divestiture. Under the agreement each party
granted to the other party a non-exclusive, royalty-free license to the patents
Lucent Technologies assigned to the granting party in the divestiture, for use
in the other party's products that existed as of the date of the divestiture,
and modifications to those products. Under the agreement each party also granted
to the other party a non-exclusive, royalty-free license to the granting party's
other technical information and intellectual property for the same use. These
grants apply to technical information and other intellectual property in
existence at the date of the divestiture, or developed later and relating to the
other party's products that existed at the divestiture or modifications to these
products. Paradyne Corporation also granted us a non-exclusive, irrevocable,
royalty-free license to use several listed trademarks. The rights granted are
perpetual, subject to the expiration of patent and copyright terms.
Royalty Payments by Paradyne Corporation. As part of our earlier business
model and in conjunction with their license to reproduce GlobeSpan software,
Paradyne Corporation paid GlobeSpan a total of $235,000 in royalty payments in
1996. This payment reflected the cost of a chip set reference design guide and a
right to use fee. The rates were determined in accordance with a License
Agreement dated September 11, 1995.
Reimbursement for Chip Set Purchases. In 1996, as our business model
shifted from licensing to selling chip sets, we purchased chip sets from Lucent
Technologies through Paradyne Corporation for sale to our customers through
Paradyne Corporation. Paradyne Corporation paid Lucent Technologies for these
chip sets on our behalf and we reimbursed Paradyne Corporation for their cost.
In connection with purchases made by Paradyne Corporation on our behalf in 1996,
we paid Paradyne Corporation a total of $194,000 in 1997.
Cooperative Development Agreement/Termination Agreement/Supply
Agreement. In November 1996, we entered into a Cooperative Development Agreement
and a related rider agreement with Paradyne Corporation. Under the terms of
these agreements, we provided Paradyne Corporation with a broad, royalty-free,
unrestricted license to use our technical information and patents for any
purpose related to Paradyne Corporation's products. We also granted to Paradyne
Corporation the right to acquire our chip sets at prices not to exceed cost plus
15%. The term of these agreements was 10 years, and Paradyne Corporation had the
right to extend it for an additional 10 year term. In addition, Paradyne
Corporation leased certain assets and equipment to us for an annual lease fee of
$1.00. Effective December 1998, GlobeSpan and Paradyne Corporation terminated
these agreements pursuant to a Termination Agreement whereby both parties
affirmed that the technology licensing provisions were never implemented. The
Termination Agreement further provided that we agreed, effective July 1998, to
pay Paradyne $1.5 million in license fees, that the parties agreed that $316,000
of these fees had been paid as of the effective date of the Termination
Agreement, and that we will pay to Paradyne Corporation the $1,184,000 balance
within 30 days of the effective date of this initial public offering. In
conjunction with the signing of the Termination Agreement, we entered into a
four year Supply Agreement which gives Paradyne Corporation preferential pricing
and other terms in connection with the purchase of our products by Paradyne
Corporation. Under the terms of this Supply Agreement, we are required to honor
Paradyne Corporation's orders for our products in quantities at least consistent
with Paradyne Corporation's past ordering practices and must afford Paradyne
Corporation at least the same priority for its orders as we afford other
similarly situated customers. We also granted Paradyne Corporation immunity
under our intellectual property rights for all Paradyne Corporation customers
that purchase Paradyne Corporation products that incorporate our products. We
have been selling products to Paradyne Corporation pursuant to these terms since
July
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1998. In 1997 and 1998, Paradyne Corporation paid to us a total of $373,000 and
$962,000, respectively, for products purchased from us pursuant to the
agreements described in this paragraph.
Inventory Repurchases from Paradyne Corporation. In December 1997 and
September 1998, we purchased from Paradyne Corporation certain GlobeSpan chip
sets which it held in its inventory in the amounts of $98,000 and $29,000,
respectively. We purchased these chip sets for resale to other customers.
Payments to Paradyne Corporation. For a period following the divestiture,
Paradyne Corporation agreed to provide us with certain staffing services,
including legal and human resources; certain administrative services, including
risk management, patent management, tax management, and accounting support;
certain operational services, including office communications and
telecommunications systems management, facilities management and rent, and other
services until such time as we could provide similar services on our own. Though
certain services are now provided directly by GlobeSpan facilities and
employees, other services, group insurance and retirement administration are
still provided by Paradyne Corporation. This agreement can be terminated by
GlobeSpan on 60 days' notice. For these services, we paid Paradyne Corporation,
a total of $155,000, $231,000 and $0 for the years ended December 31, 1997 and
1998. Because we do not expect to rely on Paradyne Corporation for these
services after this offering, we anticipate that these expenses will not
continue in fiscal year 1999. In 1998, we subleased additional office space from
Paradyne Corporation. In connection with the relocation of the Paradyne
Corporation offices, we reimbursed approximately $392,000 of Paradyne
Corporation's moving expenses.
Purchase of Fixed Assets. In 1997 we purchased fixed assets from Paradyne
Corporation approximating $350,000. In 1998, we agreed to purchase certain fixed
assets from Paradyne Corporation related to the subleased Red Bank facility.
This payment totaled $1.4 million and included costs to remodel offices
previously used by Paradyne Corporation, the purchase of furniture and certain
fixtures within the office facility. These assets were transferred at their net
book value since the transaction involved entities under common control.
Various Insurance Policies. Pursuant to insurance policies issued by
insurers who are Best 'A' rated covering liability, director and officer's
insurance, property and casualty and workers' compensation, the directors and
officers of Communication Partners, L.P., Communication GenPar, Inc., Paradyne
Corporation, Paradyne Acquisition Corp., Paradyne Credit Corp. and GlobeSpan are
all covered under the same insurance policy with up to $10.0 million of
liability collectively. The term of the policy is from August 1, 1998 to July
31, 1999 and GlobeSpan's portion of the premium amount is approximately $85,000.
We expect that we will not share insurance policies with Paradyne Corporation
after this offering. We will have our own Director and Officer's Insurance
policy in effect prior to the close of this offering.
401(k) Plan. GlobeSpan currently participates in a 401(k) plan covering
substantially all employees which is maintained by Paradyne Corporation.
Effective April 1, 1999, GlobeSpan will adopt its own 401(k) plan for its
employees. Contributions paid by Paradyne Corporation on behalf of GlobeSpan
amounted to approximately $45,000, $242,000, $348,000 and $126,000 for the five
months ended December 31, 1996, the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1999, respectively. All payments made by
Paradyne Corporation on behalf of GlobeSpan have been reimbursed to Paradyne
Corporation. We are now making direct contributions to Paradyne Corporation's
401(k) plan on behalf of our employees, but we expect to initiate our own 401(k)
plan in 1999.
Real Property Agreements. In an agreement dated August 1997 and
subsequently amended in August 1998, we entered into a sublease with Paradyne
Corporation at 100 Schulz Drive, Red Bank, New Jersey. We currently pay Paradyne
Corporation approximately $68,000 a month for approximately 50,000 rentable
square feet. After October 2001, the rent will increase to
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approximately $79,000 a month for a period of six months. We are also
responsible for the cost of our own utilities. The sublease will expire in April
2002.
EMPLOYMENT RELATED AGREEMENTS
We entered into an employment agreement with Armando Geday, our President
and Chief Executive Officer and a Director. See "Risk Factors--Management of
Growth; Dependence on Key Personnel" and "Management--Employment Agreements."
We entered into an employment agreement on August 29, 1997 with Thomas
Epley, who served as our Chairman of the board of directors through March 1999
and who is a director. Mr. Epley's employment agreement is at-will and provides
for an annualized base salary of $150,000 for the first twelve months of the
agreement and an annualized salary of $100,000 for the second twelve months of
the agreement. If Mr. Epley's employment is terminated without cause or for
"good reason" including assignment to a lesser position, a reduction in base
salary or a change in control of GlobeSpan, Mr. Epley will receive the remainder
of his base salary and benefits through July 31, 1999. Mr. Epley is subject to a
covenant not to compete and a noninterference requirement as long as GlobeSpan
is making payments to him under this contract.
LOANS TO CERTAIN EXECUTIVES
On November 3, 1997, we loaned $149,850 to George Malek, Vice President of
Engineering in connection with his purchase of 150,000 shares of our common
stock. The full recourse note covering this loan accrues interest at the rate of
5.94% per annum. The principal balance of this note and the accrued interest are
payable at either the earlier of termination of employment or five years from
the date of the promissory note. The loan is secured by the shares of common
stock acquired with the loan, and those shares are held in escrow by GlobeSpan.
All such shares purchased pursuant to this loan are subject to repurchase by
GlobeSpan if Mr. Malek terminates his employment prior to becoming fully vested
in these shares. The largest aggregate amount of indebtedness outstanding during
1998 was approximately $160,000 and the balance due as of March 31, 1999 was
approximately $162,000.
On October 28, 1997, we loaned $149,850 to Daniel Amrany, Chief Technology
Officer in connection with his purchase of 150,000 shares of our common stock.
The full recourse note covering this loan accrues interest at the rate of 6.06%
per annum. The principal balance of this note and the accrued interest are
payable at either the earlier of termination of employment or five years from
the date of the promissory note. The loan is secured by the shares of common
stock acquired with the loan, and those shares are held in escrow by GlobeSpan.
All such shares purchased pursuant to this loan are subject to repurchase by
GlobeSpan if Mr. Amrany terminates his employment prior to becoming fully vested
in these shares. The largest aggregate amount of indebtedness outstanding during
1998 was approximately $161,000 and the balance due as of March 31, 1999 was
approximately $163,000.
INDEMNIFICATION PROVISIONS
Our amended and restated certificate of incorporation limits the liability
of our directors for monetary damages arising from a breach of their fiduciary
duty as directors, except to the extent otherwise required by the Delaware
General Corporation Law. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we shall indemnify our directors and officers to
the fullest extent permitted by Delaware law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. Prior to
the close of this offering, we will enter into indemnification agreements with
our officers and directors containing provisions that may require us, among
other
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things, to indemnify such officers and directors against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms.
All future transactions, including any loans from GlobeSpan to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested member of the board of directors or, if required by law, a
majority of disinterested stockholders. These transactions, if any, will be on
terms no less favorable to GlobeSpan than could be obtained from unaffiliated
third parties.
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PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of GlobeSpan's common stock as of May 6, 1999, by the following individuals or
groups:
- Each person or entity who is known by GlobeSpan to own beneficially more
than 5.0% of GlobeSpan's outstanding stock;
- Each of the Named Executive Officers;
- Each director of GlobeSpan; and
- All directors and executive officers as a group.
Unless otherwise indicated, the address of each of the individuals listed
in the table is c/o GlobeSpan, Inc., 100 Schulz Drive, Red Bank, NJ 07701.
Except as otherwise indicated, and subject to community property laws where
applicable, the persons named in the table have sole voting and investment power
with respect to all shares of common stock shown held by them.
Applicable percentage ownership in the following table is based on
13,745,375 shares of common stock outstanding as of May 6, 1999. To the extent
that any shares are issued upon exercise of options, warrants or other rights to
acquire GlobeSpan's capital stock that are presently outstanding or granted in
the future or reserved for future issuance under GlobeSpan's stock plans, there
will be further dilution to new public investors. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities, subject to community property laws, where applicable. Shares of our
common stock subject to options that are presently exercisable or exercisable
within 60 days of May 6, 1999 are deemed to be outstanding and beneficially
owned by the person holding such options for the purpose of computing the
percentage of ownership of such person but are not treated as outstanding for
the purpose of computing the percentage of any other person.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- -----------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Entities Associated with Texas Pacific
Group(1)................................. 8,680,148 63.2% 8,680,148 50.5%
Entities Associated with Sprout Group(2).... 1,535,795 11.2% 1,535,795 8.9%
Intel Corporation(3)........................ 1,002,515 8.3% 1,002,515 6.7%
Cisco Systems, Inc.(4)...................... 758,939 6.5% 758,939 5.2%
Lucent Technologies Inc.(5)................. 1,312,500 8.7% 1,312,500 7.1%
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
James Coulter(6)............................ -- -- -- --
Dipanjan Deb................................ -- -- -- --
Thomas Epley(7)............................. 1,002,405 7.3% 1,002,405 5.8%
Keith Geeslin(8)............................ 1,535,795 11.2% 1,535,795 8.9%
David Stanton(9)............................ 8,680,148 63.2% 8,680,148 50.5%
Armando Geday(10)........................... 465,300 3.3% 465,300 2.6%
Nicholas Aretakis(11)....................... 77,775 * 77,775 *
Thomas Sennhauser(11)....................... 77,775 * 77,775 *
All directors and officers as a group(12) (8
persons)................................. 11,218,349 82.5% 11,218,349 66.7%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1.0%
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(1) Consists of 114,195 shares held by Communication GenPar, Inc., 7,789,353
shares held by TPG Partners, L.P. and 776,600 shares held by TPG Parallel
I, L.P. TPG Partners, L.P. and TPG Parallel I, L.P., affiliates of Texas
Pacific Group, are shareholders in Communication GenPar, Inc. David
Stanton, one of our directors, is the sole director and President of
Communication GenPar, Inc. and a partner in Texas Pacific Group. The
address of Texas Pacific Group is 345 California Street, Ste. 3300, San
Francisco, CA 94104.
(2) Consists of 30,713 shares held by DLJ Capital Corporation, 604,050 shares
held by Sprout Growth II, L.P., 738,875 shares held by Sprout Growth VII,
L.P., 8,583 shares held by The Sprout CEO Fund, L.P., and 153,574 shares
held by DLJ First ESC, L.L.C. The address of Sprout Group is 3000 Sand Hill
Road, Bldg. 3, Ste. 170, Menlo Park, CA 94025.
(3) Includes 150,000 shares subject to warrants which are exercisable within 60
days of May 6, 1999. The address of Intel Corporation is 2200 Mission
College Blvd., Santa Clara, CA 95052.
(4) Includes 150,000 shares subject to warrants which are exercisable within 60
days of May 6, 1999. The address of Cisco Systems, Inc. is 170 Tasman
Drive, San Jose, CA 95134-1706.
(5) Represents a warrant held by Lucent to purchase 1,312,500 shares of our
common stock and assumes a cash exercise of the warrant. If Lucent
exercises the warrant pursuant to a net exercise provision, they will own
430,500 shares before the offering, representing 3.0% of the total
outstanding shares of Globespan, and 430,500 shares after the offering,
representing 2.4% of the total outstanding shares of Globespan. The address
of Lucent Technologies is 600 Mountain Avenue, Murray Hill, NJ 07974.
(6) Mr. Coulter, through various investment partnerships and corporations has a
pecuniary interest in the shares held by Texas Pacific Group.
(7) Includes 767,931 shares held by Epley Investors, L.L.C. and 234,474 shares
held by Mr. Epley individually.
(8) Mr. Geeslin, through various investment partnerships and corporations has a
pecuniary interest in the shares held by Sprout Group.
(9) Mr. Stanton is the sole director and President of Communication GenPar,
Inc., a stockholder in Globespan. Mr. Stanton, through various investment
partnerships and corporations, also has a pecuniary interest in the shares
held by TPG Partners, L.P. and TPG Parallel I, L.P.
(10) Includes 465,300 shares subject to options which are exercisable within 60
days of May 6, 1999.
(11) Includes 77,775 shares subject to options which are exercisable within 60
days of May 6, 1999.
(12) Includes 698,625 shares subject to options which are exercisable within 60
days of May 6, 1999.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
On the closing of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
Preferred Stock, $.001 par value.
COMMON STOCK
As of March 31, 1999, there were 12,274,619 shares of common stock
outstanding that were held of record by approximately 56 stockholders. There
will be 17,166,573 shares of common stock outstanding (assuming no exercise of
the underwriters' over-allotment option and assuming no exercise after March 31,
1999, of outstanding options, and including 1,461,454 shares of common stock to
be issued to Intel Corporation and Cisco Systems upon conversion of the Series A
preferred stock and 430,500 shares of common stock issuable upon the net
exercise of the warrant held by Lucent Technologies) after giving effect to the
sale of the shares of common stock to the public offered hereby.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of common stock are
entitled to receive dividends on a pro rata basis, if any, declared from time to
time by the board of directors out of legally available funds. See "Dividend
Policy." In the event of the liquidation, dissolution or winding up of
GlobeSpan, the holders of common stock are entitled to share on a pro rata basis
in all assets remaining after payment of liabilities. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
On the closing of this offering, 10,000,000 shares of preferred stock will
be authorized and no shares will be outstanding. The board of directors has the
authority to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions of the preferred stock,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
GlobeSpan without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. At present, we have no plans to issue any of the preferred
stock.
WARRANTS
As of March 31, 1999, Lucent Technologies held a warrant to purchase
1,312,500 shares of our common stock at an exercise price of $6.72 per share.
This warrant can either be exercised by payment of the exercise price in cash or
by a net exercise. By its terms, the warrant will be deemed to be automatically
net exercised at the closing of this offering if the price of our common stock
in this offering is $8.07 per share or higher. We have assumed that the warrant
will be at the mid-point of the anticipated price range, $10.00 per share, and
that the warrant will be net exercised for 430,500 shares. However, at any time
prior to the closing of this offering, Lucent Technologies can exercise the
warrant for up to 1,312,500 shares of our common stock by payment of the
exercise price in cash. Further, if the price of our common stock in this
offering is below $8.07 per share, then the warrant
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will remain outstanding and exercisable for up to 1,312,500 shares of our common
stock and will remain net exercisable.
In May 1999, each of Cisco Systems, Inc. and Intel Corporation was issued a
warrant to purchase an aggregate of 150,000 shares of our common stock, with a
five year term after the closing of this offering, at an exercise price
determined as follows:
- For the first 37,500 shares, the exercise price shall be equal to the
initial offering price of our common stock in this offering;
- For the second 37,500 shares, the exercise price shall be 125% of the
initial offering price of our common stock in this offering;
- For the third 37,500 shares, the exercise price shall be 150% of the
initial offering price of our common stock in this offering;
- For the fourth 37,500 shares, the exercise price shall be 175% of the
initial offering price of our common stock in this offering.
Each of the foregoing warrants can either be exercised by payment of the
warrants in cash or by a net exercise.
In addition, in May 1999, each of Cisco Systems, Inc. and Intel Corporation
was issued a warrant, with a five year term after the closing of this offering,
to purchase our common stock at an exercise price equal to the price of our
shares in this offering. The number of shares for which each such warrant is
exercisable is determined as follows, based on the price of our shares in this
offering:
- The warrants will expire unexercised if the initial offering price of our
common stock in this offering is $10.00 per share or greater;
- 10,000 shares if the initial offering price of our common stock in this
offering is from $9.00 to $9.99;
- 20,000 shares if the initial offering price of our common stock in this
offering is from $8.00 to $8.99;
- 30,000 shares if the initial offering price of our common stock in this
offering is from $7.00 to $7.99;
- 100,000 shares if the initial offering price of our common stock in this
offering is less than $7.00.
Each of the foregoing warrants can either be exercised by payment of the
warrants in cash or by a net exercise.
REGISTRATION RIGHTS
Pursuant to the terms of the warrant held by Lucent Technologies, Lucent
Technologies is entitled to certain rights with respect to the registration of
the shares issuable upon the exercise of the warrant under the Securities Act.
If we propose to register any of our securities under the Securities Act, either
for our own account or for the account of other security holders, Lucent
Technologies is entitled to notice of such registration and to include the
shares of common stock issuable upon exercise of the warrant in such
registration at our expense. Additionally, Lucent Technologies may require us to
file one additional registration statement within one year of our initial public
offering. These registration rights are subject to certain conditions and
limitations, among them the lock-up agreement effective for 180 days following
the closing of this offering and the right of the underwriters of an offering to
limit the number of shares included in such registration.
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Concurrently with the purchase of our Series A preferred stock by Intel
Corporation and Cisco Systems, Inc., we entered into a registration rights
agreement with Intel Corporation, Cisco Systems, Inc. and Communication
Partners, L.P. on May 6, 1999. At any time after 180 days following the date of
this prospectus, the holders of 30% of the shares held by Intel Corporation,
Cisco Systems, Inc. and the general partner and the limited partners of
Communication Partners, L.P. may demand that we file a registration statement
under the Securities Act covering all or a portion of the securities of
GlobeSpan held by them. However, the securities to be registered must have an
anticipated aggregate public offering price of at least $10.0 million. The
holders of 30% of the shares held by Intel Corporation, Cisco Systems, Inc. and
the general partner and the limited partners of Communication Partners, L.P.
have the right to demand registration of their securities on two occasions.
When we are eligible to utilize a registration statement on Form S-3 to
register an offering of our securities, holders of 15% of the shares held by
Intel Corporation, Cisco Systems, Inc. and the limited partners of Communication
Partners, L.P. may request that we file a registration statement on Form S-3,
covering all or a portion of securities of GlobeSpan held by them, provided that
the aggregate public offering price is at least $500,000. These holders can
request two S-3 registrations per year.
These registration rights will be subject to the Company's right to delay
the filing of a registration statement in certain circumstances, not more than
once in any 12-month period, for not more than 45 days after the appropriate
number of holders have requested we file a Registration Statement.
In addition, Intel Corporation, Cisco Systems, Inc. and the general partner
and limited partners of Communication Partners, L.P. will have certain
"piggyback" registration rights. If we propose to register any common stock
under the Securities Act, other than pursuant to the registration rights noted
above, Intel Corporation, Cisco Systems, Inc. and the general partner and
limited partners of the Communication Partners, L.P. may require us to include
all or a portion of their securities in the registration. However, the managing
underwriter, if any, of any offering has the right to limit the number of
securities proposed to be included in the registration.
We are required to bear all registration expenses incurred in connection
with these registrations. Intel Corporation, Cisco Systems, Inc. and the general
partner and limited partners of Communication Partners, L.P. would pay all
underwriting discounts and selling commissions applicable to the sale of their
securities.
We also agreed to indemnify Intel Corporation, Cisco Systems, Inc. and the
general partner and limited partners of Communication Partners, L.P. for any
damages they suffer due to any untrue statement or omission that we make in a
registration statement covering their shares or any breach by us of our
agreement with them.
The registration rights of Intel Corporation, Cisco Systems, Inc. and the
general partner and limited partners of Communication Partners, L.P. under the
registration rights agreement will terminate five years after the offering or,
as to each of them, when it may sell all its shares in a three-month period
under Rule 144 of the Securities Act.
PUT OPTIONS
In connection with the sale of Series A preferred stock to Intel
Corporation and Cisco Systems Inc., GlobeSpan granted each of them the right to
sell back their GlobeSpan shares and warrants at cost upon certain events. Cisco
Systems Inc., has the right to sell back all of its GlobeSpan shares and
warrants at cost if on or prior to September 30, 1999, (A) GlobeSpan and Cisco
Systems, Inc., have not entered into a development agreement, (B) if GlobeSpan
enters into a merger or a sale of all or substantially all of its assets or (C)
if Intel gives notice of its intent to sell back its shares and
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warrants at cost. Intel Corporation has the right to sell back all of its
GlobeSpan shares and warrants at cost if either (A) Cisco Systems Inc., gives
notice of its intent to sell back its shares and warrants at cost, or (B)
GlobeSpan has not completed an initial public offering prior to December 31,
1999. Both put options terminate upon the earlier of a transfer of the shares
and warrants, a merger, a sale of all or substantially all of its assets or the
completion of this offering.
ANTITAKEOVER EFFECTS OF DELAWARE LAW AND PROVISIONS OF OUR AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND BYLAWS
Amended and Restated Certificate of Incorporation and Bylaws. Our amended
and restated certificate of incorporation provides that, effective upon the
closing of this offering, all stockholder actions must be effected at a duly
called meeting and not by a consent in writing. Our bylaws provide that our
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 25.0% of our capital stock. These provisions of our
amended and restated certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of GlobeSpan. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of our board of directors and in the
policies formulated by our board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of
GlobeSpan. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to discourage
certain tactics that may be used in proxy fights. However, such provisions could
have the effect of discouraging others from making tender offers for our shares
and, as a consequence, they also may inhibit fluctuations in the market price of
our shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
Delaware Antitakeover Law. GlobeSpan is subject to Section 203 of the
Delaware General Corporation Law, an antitakeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with affiliates
and associates, owns or within three years prior to the determination of
interested stockholder status, did own, 15.0% or more of a corporation's voting
stock. The existence of this provision may have an antitakeover effect with
respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock of
GlobeSpan, and there can be no assurance that a significant public market for
the common stock will develop or be sustained after this offering. Future sales
of substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair GlobeSpan's ability to raise capital through sale of its equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of common stock
of GlobeSpan in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of GlobeSpan to raise equity
capital in the future.
Upon completion of this offering, GlobeSpan will have outstanding
17,166,573 shares of common stock based upon shares outstanding as of March 31,
1999, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants prior to completion of this
offering. Of these shares, the 3,000,000 shares sold in this offering will be
freely tradable without restriction under the Securities Act except for any
shares purchased by "affiliates" of GlobeSpan as that term is defined in Rule
144 of the Securities Act. The remaining 14,166,573 shares of common stock held
by existing stockholders are "restricted shares" as that term is defined in Rule
144. All such restricted shares are subject to lock-up agreements providing
that, with certain limited exceptions, the stockholder will not offer, sell,
contract to sell or otherwise dispose of any common stock or any securities that
are convertible into common stock for a period of 180 days after the date of
this prospectus without the prior written consent of BancBoston Robertson
Stephens Inc. As a result of these lock-up agreements, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701,
none of these shares will be eligible for resale until 181 days after the date
of this prospectus. Beginning 181 days after the date of this prospectus,
approximately 11,437,500 restricted shares will be eligible for sale in the
public market, all of which are subject to volume limitations under Rule 144.
Additionally, 248,750 shares will be eligible for sale without restrictions
under Rule 144(k) and 1,533,238 shares will be eligible for sale under Rule 701.
BancBoston Robertson Stephens Inc. may, at their sole discretion, and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements.
In general, the volume limitations under Rule 144, as currently in effect,
provide that beginning 90 days after the date of this prospectus, a person who
has beneficially owned restricted shares for at least one year including the
holding period of any prior owner except an affiliate would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1.0% of the number of shares of GlobeSpan common stock then
outstanding which will equal approximately 171,666 shares immediately after
this offering; or
- the average weekly trading volume of the GlobeSpan common stock
during the four calendar weeks preceding the filing of Form 144 with
respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about GlobeSpan. Under Rule 144(k), a person who is not deemed to have been an
affiliate of GlobeSpan at any time during the three months preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement of Rule 144. Any employee, officer or director of or
consultant to GlobeSpan who purchased shares under a written
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compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. Absent an
ability to sell shares in compliance with Rule 144(k), all holders of Rule 701
shares are required to wait until 90 days after the date of this prospectus
before selling such shares. However, all Rule 701 shares are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after the
offering upon obtaining the prior written consent of BancBoston Robertson
Stephens Inc.
Within 90 days following the effectiveness of this offering, GlobeSpan will
file a Registration Statement on Form S-8 registering shares of common stock
subject to outstanding options or reserved for future issuance under its stock
plans. As of March 31, 1999, options to purchase a total of 2,000,710 shares
were outstanding and 367,471 shares were reserved for future issuance under
GlobeSpan's 1996 Equity Incentive Plan, 1,000,000 shares were reserved for
issuance under the 1999 Equity Incentive Plan, 400,000 shares of common stock
were reserved for issuance under the Employee Stock Purchase Plan and 250,000
shares were reserved for issuance under the 1999 Director Stock Plan. All such
options are subject to lock-up agreements. Common stock issued upon exercise of
outstanding vested options or issued under GlobeSpan's purchase plan, other than
common stock issued to affiliates of GlobeSpan, will be available for resale in
the open market 181 days after the close of this offering.
Lucent Technologies holds a warrant to purchase 1,312,500 shares of common
stock, assuming the warrant is cash exercised, and 430,500 shares of common
stock if the warrant is net exercised. Intel Corporation and Cisco Systems, Inc.
each hold a warrant to purchase 450,000 shares of common stock. Each warrant is
subject to a lock-up agreement. Beginning six months after the date of this
offering, Lucent Technologies, Intel Corporation and Cisco Systems, Inc. will be
entitled to certain registration rights for sale of the warrant shares in the
public market. See "Description of Capital Stock--Registration Rights."
Registration of such shares under the Securities Act would result in such shares
becoming freely tradable without restriction under the Securities Act, except
for shares purchased by affiliates, immediately upon the effectiveness of such
registration.
75
<PAGE> 79
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, SG Cowen Securities Corporation and Thomas Weisel Partners LLC,
have severally agreed with GlobeSpan, subject to the terms and conditions set
forth in the underwriting agreement, to purchase from GlobeSpan the number of
shares of common stock set forth opposite their names below. The underwriters
are committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Donaldson, Lufkin & Jenrette Securities Corporation.........
SG Cowen Securities Corporation.............................
Thomas Weisel Partners LLC..................................
---------
Total............................................. 3,000,000
=========
</TABLE>
GlobeSpan has been advised by the representatives of the underwriters that
the underwriters propose to offer the shares of common stock to the public at
the initial public offering price set forth on the cover page of this prospectus
and to certain dealers at such price less a concession of not in excess of
$ per share, of which $ may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and reallowance
to dealers may be reduced by the representatives. No such reduction shall change
the amount of proceeds to be received by GlobeSpan as set forth on the cover
page of this prospectus. The common stock is offered by the underwriters as
stated herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option. GlobeSpan has granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 450,000 additional shares of common stock at the same price per
share as GlobeSpan will receive for the 3,000,000 shares that the underwriters
have agreed to purchase. To the extent that the underwriters exercise this
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of common stock to be purchased by it shown in the above table represents
as a percentage of the shares offered hereby. If purchased, such additional
shares will be sold by the underwriters on the same terms as those on which the
3,000,000 shares are being sold. GlobeSpan will be obligated, pursuant to the
option, to sell shares to the extent the option is exercised. The underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of the shares of common stock offered hereby. If such option is
exercised in full, the total public offering price, underwriting discounts and
commissions and proceeds to GlobeSpan will be $ , $ and
$ , respectively.
The following table summarizes the compensation and expenses we will pay.
<TABLE>
<CAPTION>
TOTAL
--------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
---------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
us.............................................. $ $ $
Expenses payable by us............................ $ $ $
</TABLE>
76
<PAGE> 80
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and GlobeSpan against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-up Agreements. Each of GlobeSpan's executive officers, directors,
director-nominees, stockholders of record, optionholders, warrantholders and
holders of convertible notes has agreed with the representatives of the
underwriters, for a period of 180 days after the date of this prospectus,
subject to certain exceptions, not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of common stock, any options or warrants to purchase any shares of common
stock, or any securities convertible into or exchangeable for shares of common
stock owned as of the date of this prospectus or thereafter acquired directly by
such holders or with respect to which they have or hereafter acquire the power
of disposition, without the prior written consent of BancBoston Robertson
Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to the lock-up agreements. There are no agreements between
the representatives and any of GlobeSpan's stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the lock-up
period.
Future Sales. In addition, GlobeSpan has agreed that during the lock-up
period GlobeSpan will not, without the consent of BancBoston Robertson Stephens
Inc., subject to certain exceptions,
- consent to the disposition of any shares held by stockholders subject to
lock-up agreements prior to the expiration of the lock-up period or
- issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares
of common stock other than GlobeSpan's sale of shares in this offering,
the issuance of common stock upon the exercise of outstanding options,
and the issuance of options under existing stock option and incentive
plans provided such options do not vest prior to the expiration of the
lock-up period. See "Shares Eligible for Future Sale."
Listing. The common stock has been approved for quotation on the Nasdaq
National Market under the symbol "GSPN."
No Prior Public Market. Prior to this offering, there has been no public
market for the common stock of GlobeSpan. Consequently, the initial public
offering price for the common stock offered hereby will be determined through
negotiations between GlobeSpan and the representatives of the underwriters.
Among the factors to be considered in such negotiations are prevailing market
conditions, certain financial information of GlobeSpan, market valuations of
other companies that GlobeSpan and the representatives believe to be comparable
to GlobeSpan, estimates of the business potential of GlobeSpan, the present
state of GlobeSpan's development and other factors deemed relevant.
Stabilization. The representatives of the underwriters have advised
GlobeSpan that, pursuant to Regulation M under the Securities Act, certain
persons participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, that may have the effect of stabilizing or maintaining the market price of
the common stock at a level above that which might otherwise prevail in the open
market. A "stabilizing bid" is a bid for or the purchase of the common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering, if the common stock originally sold by such
underwriter or
77
<PAGE> 81
syndicate member is purchased by the representatives in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter or
syndicate member. The representatives have advised GlobeSpan that such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
Directed Share Program
At the request of Globespan, the underwriters have reserved up to five
percent of the shares of common stock to be issued by Globespan and offered
hereby for sale, at the initial public offering price, to directors, officers,
employees, business associates and related persons of Globespan. The number of
shares of common stock available for sale to the general public will be reduced
to the extent such individuals purchase such reserved shares. Any reserved
shares which are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered hereby.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 26 filed
public offerings of equity securities, of which 10 have been completed, and has
acted as a syndicate member in an additional 10 public offerings of equity
securities. Thomas Weisel partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.
Under Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc., GlobeSpan is considered an affiliate of Donaldson,
Lufkin & Jenrette Securities Corporation. This offering is being conducted in
accordance with Rule 2720, which provides that, among other things, when an NASD
member participates in the underwriting of an affiliate's equity securities, the
offering price can be no higher than that recommended by a "qualified
independent underwriter" (QIU) meeting certain standards. In accordance with
this requirement, BancBoston Robertson Stephens Inc. has assumed the
responsibilities of acting as QIU and will recommend a price in compliance with
the requirements of Rule 2720. In connection with this offering BancBoston
Robertson Stephens Inc. is performing due diligence investigations and reviewing
and participating in the preparation of this prospectus and the registration
statement of which this prospectus forms a part.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
GlobeSpan by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. Certain legal matters in connection with the offering
will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements of GlobeSpan, Inc. as of December 31, 1997 and
1998, and for the five months ended December 31, 1996 and for each of the two
years in the period ended December 31, 1998 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants given on the authority of said firm as experts in
auditing and accounting.
78
<PAGE> 82
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
GlobeSpan and such common stock offered hereby, reference is made to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the registration statement. Each such statement
is qualified in all respects by such reference to such exhibit. You may inspect
a copy of the registration statement without charge at the Securities and
Exchange Commission's principal office in Washington, D.C. and obtain copies of
all or any part thereof upon payment of certain fees from the Public Reference
Room of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at the Securities and Exchange Commission's regional
offices in New York, located at 7 World Trade Center, Suite 1300, New York, New
York 10048, or in Chicago, located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The Securities and Exchange Commission's World Wide Web
address is www.sec.gov.
GlobeSpan intends to furnish holders of its common stock with annual
reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. GlobeSpan intends to furnish such other reports as
it may determine or as may be required by law.
79
<PAGE> 83
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ADVANCED TRANSMISSION TECHNOLOGY DIVISION (A DIVISION OF
AT&T PARADYNE):
Report of Independent Accountants......................... F-2
Statement of Net Assets................................... F-3
Statement of Operations and Changes in Net Assets......... F-4
Statement of Cash Flows................................... F-5
Notes to Financial Statements............................. F-6
GLOBESPAN, INC.:
Report of Independent Accountants......................... F-8
Balance Sheets............................................ F-9
Statements of Operations.................................. F-10
Statements of Changes in Stockholders' Equity............. F-11
Statements of Cash Flows.................................. F-12
Notes to Financial Statements............................. F-13
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GlobeSpan, Inc.
In our opinion, the accompanying statement of net assets and the related
statement of operations and of cash flows present fairly, in all material
respects, the financial position of the Advanced Transmission Technology
Division of AT&T Paradyne Corporation, ("ATT"), the predecessor entity of
GlobeSpan, Inc., at July 31, 1996 and the results of its operations and its cash
flows for the period from January 1, 1996 through July 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of ATT's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Tampa, Florida
August 28, 1998
F-2
<PAGE> 85
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
STATEMENT OF NET ASSETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JULY 31,
1996
--------
<S> <C>
Current assets:
Contract receivable (Note 3).............................. $ --
----
$ --
====
LIABILITIES AND DIVISION DEFICIT
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES..................... $ 69
CONTINGENCY (NOTE 3)...................................... --
----
NET ASSETS............................................. $(69)
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 86
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
JULY 31,
1996
------------
<S> <C>
Revenues.................................................... $1,597
Expenses:
Research and development.................................. 2,524
General and administrative................................ 1,492
------
Total expenses......................................... 4,016
------
Net loss.................................................... (2,419)
Net assets, beginning of period............................. 992
Advances from AT&T Paradyne............................... 1,358
------
Net assets, end of period................................. $ (69)
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 87
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
JULY 31,
1996
--------------
<S> <C>
Cash flow used in operating activities:
Net loss.................................................. $(2,419)
Decrease in receivables................................ 1,000
Increase in accrued expenses........................... 61
-------
Net cash used in operating activities....................... (1,358)
-------
Cash flow from financing activities -- advances from
Paradyne............................................... 1,358
-------
Net cash flows.............................................. $ --
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 88
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION, SUBSEQUENT ACQUISITION AND RELATED PARTY TRANSACTIONS
Pursuant to a Purchase Agreement dated June 18, 1996, three direct
wholly-owned subsidiaries and two indirect wholly-owned subsidiaries of
Communication Partners, L.P. (formerly known as Paradyne Partners, L.P.)
acquired certain assets of AT&T Paradyne Corporation from its parent company,
Lucent Technologies Inc. ("Lucent"), in exchange for $146 million in cash and
notes and the assumption of certain liabilities effective July 31, 1996. The
assets and liabilities were purchased by four separate operating subsidiaries of
Communication Partners, L.P. including GlobeSpan Technologies (subsequently
GlobeSpan, Inc.) (the "Company").
Assets acquired by the Company for $2.0 million consisted of certain
research and development activities, patents and customer licenses related to
carrierless amplitude phase modulation technique (generally referred to as "CAP
Technology") which is used to transmit data over copper telephone wires. In
addition, certain customer rent and lease agreements of AT&T Paradyne
Corporation were acquired directly by Rental Acquisition Corp. and Lease
Acquisition Corp., and certain net assets relating to the manufacturing,
marketing and research activities for data communications and networking
products for commercial end users and network service providers were acquired by
Paradyne Corporation (all of which are direct or indirect subsidiaries of
Communication Partners, L.P.). Paradyne Corporation also entered into a product
distribution agreement with Lucent. Additionally, certain assets and liabilities
of AT&T Paradyne Corporation were retained by Lucent or disposed of prior to the
transaction. All assets and liabilities and activities acquired by subsidiaries
of Communication Partners, L.P., other than the Company, or retained by Lucent
have been excluded from the accompanying financial statements.
Prior to July 31, 1996, the CAP Technology was developed through the
Advanced Transmission Technology Division ("ATT") of AT&T Paradyne Corporation,
a wholly-owned subsidiary of Lucent Technologies, which is the "predecessor
entity" to the Company. The accompanying financial statements reflect the
historical financial condition, results of operations and cash flows of ATT
which were acquired by the Company, on a carve out basis, as if it had been an
independent reporting entity for the period presented.
2. SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting principles and practices used in the preparation
of the accompanying financial statements are summarized below:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods presented. Actual results could differ from those estimates.
F-6
<PAGE> 89
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
REVENUE RECOGNITION
Licensing fees are recognized when ATT has completed delivery of technical
specifications and performed all required services under the related agreements.
Commissions and right to use fees are recognized upon shipment of product by the
licensees, in accordance with the agreements.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and approximated
$2.5 million for the seven months ended July 31, 1996.
ALLOCATION OF RELATED PARTY EXPENSES
The accompanying financial statements include $689 of other expenses that
have been charged to the Company from AT&T Paradyne Corporation. Rent expense
was allocated on a pro rata basis computed on the number of employees. Other
fees were allocated based on negotiations with the related party. Management
believes that such amounts include all significant costs incurred to support the
Company.
3. TECHNOLOGY DEVELOPMENT AGREEMENT AND CONTINGENCY
In July 1995, AT&T Paradyne entered into a technology development agreement
with Bell Atlantic Network Services, Inc. ("Bell Atlantic"). Under the terms of
the agreement, ATT provided use of certain DSL technologies to third party
suppliers for the purpose of development of DSL network access products
incorporating CAP Technology. Bell Atlantic paid $5.0 million under the
agreement in return for the right to receive up to $7.0 million of commission
fees based on future sales of products to Bell Atlantic and other qualified
third party companies, as defined in the agreement. While the Company could be
liable for paying a commission fee to Bell Atlantic, the triggering of this fee
would result from future revenue. No fees have yet been paid under this
agreement. All research and development requirements of the agreement were
completed by ATT in 1995 and the final $1.0 million of cash was received in
January 1996.
F-7
<PAGE> 90
The reverse stock split and recapitalization described in Note 14 to the
financial statements has not been consummated at March 12, 1999. When it has
been consummated, we expect to be in a position to render the following report:
PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 12, 1999, except as to Note 14 which is as of March 12, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GlobeSpan, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of GlobeSpan, Inc. (the "Company")
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from inception through December 31, 1996 and for each of
the two years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Florham Park, New Jersey
February 12, 1999, except as to Note 14 which is as of March 12, 1999
F-8
<PAGE> 91
GLOBESPAN, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1997 1998 1999
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 875 $ 12 $ 146
Accounts receivable, less allowance for doubtful
accounts of $49, $61 and $61, respectively........... 4,520 3,823 2,307
Accounts receivable from affiliates..................... 447 73 666
Inventories............................................. 119 912 2,600
Prepaid income taxes.................................... -- 1,178 1,053
Prepaid expenses and other current assets............... 229 564 1,240
------- ------- --------
Total current assets................................. 6,190 6,562 8,012
Deferred tax asset........................................ 500 -- --
Property and equipment, net............................... 2,941 6,680 6,092
Core technology........................................... 584 -- --
Other assets.............................................. -- 188 157
------- ------- --------
Total assets......................................... $10,215 $13,430 $ 14,261
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit......................... $ -- $ 2,466 $ 788
Accounts payable........................................ 1,488 2,131 5,442
Accounts payable to affiliates.......................... 1,164 327 1,902
Accrued expenses and other liabilities.................. 32 1,482 2,918
Payroll and benefit related liabilities................. 1,083 2,519 2,541
Current portion of capital lease obligations............ -- 292 303
------- ------- --------
Total current liabilities............................ 3,767 9,217 13,894
------- ------- --------
Subordinated note payable to Communication Partners,
L.P. ................................................... -- 5,000 4,900
Capital lease obligations, less current portion........... -- 506 491
------- ------- --------
Total liabilities.................................... 3,767 14,723 19,285
------- ------- --------
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, par value $0.001; 3,000,000 shares
authorized; none issued or outstanding............... -- -- --
Common stock, par value $0.001; 15,555,300 shares
authorized; 12,286,674, 12,265,265 and 12,274,619
shares issued and outstanding, respectively.......... 12 12 12
Stock purchase warrant.................................. 1 3,654 3,654
Additional paid-in capital.............................. 7,239 3,629 3,761
Notes receivable from stock sales....................... (794) (725) (725)
Deferred stock compensation............................. (52) (76) (70)
Retained earnings (accumulated deficit)................. 42 (7,787) (11,656)
------- ------- --------
Total stockholders' equity (deficit)................. 6,448 (1,293) (5,024)
------- ------- --------
Total liabilities and stockholders' equity........... $10,215 $13,430 $ 14,261
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 92
GLOBESPAN, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED THREE MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales (including related
party amounts of $0, $373, $962,
$377 and $662 for 1996, 1997 and
1998 and the three months ended
March 31, 1998 and 1999,
respectively)....................... $ 951 $ 20,615 $ 31,154 $ 7,412 $ 8,588
Other revenues (including related
party amounts of $235, $0, $0, $0
and $0 for 1996, 1997 and 1998 and
the three months ended March 31,
1998 and 1999, respectively)........ 1,409 1,931 310 156 53
----------- ----------- ----------- ----------- -----------
Total revenues...................... 2,360 22,546 31,464 7,568 8,641
Cost of sales (including related party
amounts of $0, $293, $1,042, $340 and
$1,286 for 1996, 1997 and 1998 and the
three months ended March 31, 1998 and
1999, respectively)................... 496 7,565 9,882 1,848 4,020
----------- ----------- ----------- ----------- -----------
Gross profit............................ 1,864 14,981 21,582 5,720 4,621
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development (Note 2)..... 1,616 8,358 18,694 3,249 5,380
Selling, general and administrative
(Note 12)........................... 644 4,572 10,217 1,443 2,928
Amortization and other (Note 2)....... 404 1,000 583 250 --
----------- ----------- ----------- ----------- -----------
Total operating expenses............ 2,664 13,930 29,494 4,942 8,308
----------- ----------- ----------- ----------- -----------
(Loss) income from operations........... (800) 1,051 (7,912) 778 (3,687)
Interest income (expense), net.......... -- 91 (134) 14 (182)
----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes....... (800) 1,142 (8,046) 792 (3,869)
Income tax provision (benefit).......... -- 300 (217) 276 --
----------- ----------- ----------- ----------- -----------
Net (loss) income....................... $ (800) $ 842 $ (7,829) $ 516 $ (3,869)
=========== =========== =========== =========== ===========
(Loss) earnings per share:
Basic................................. $ (0.07) $ 0.07 $ (0.65) $ 0.04 $ (0.32)
=========== =========== =========== =========== ===========
Diluted............................... $ (0.07) $ 0.07 $ (0.65) $ 0.04 $ (0.32)
=========== =========== =========== =========== ===========
Shares used in computing net (loss)
earnings per share (Note 9)
Basic................................. 11,437,500 11,515,538 12,084,711 11,906,674 12,137,589
Diluted............................... 11,437,500 12,706,432 12,084,711 12,586,663 12,137,589
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 93
GLOBESPAN, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES RETAINED
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED EARNINGS
------------------- STOCK PAID-IN FROM STOCK (ACCUMULATED
SHARES AMOUNT WARRANT CAPITAL STOCK SALES COMPENSATION DEFICIT)
---------- ------ ------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in the Company by
Communication Partners,
L.P........................ 11,437,500 $11 $ 1 $ 5,989 $ -- $ -- $ --
Net loss................... -- -- -- -- -- -- (800)
Asset allocation charge.... -- -- -- 106 -- -- --
---------- --- ------ ------- ----- ---- --------
Balance at December 31,
1996....................... 11,437,500 11 1 6,095 -- -- (800)
Net income................. -- -- -- -- -- -- 842
Asset allocation charge.... -- -- -- 244 -- -- --
Exercise of employee stock
options.................. 849,174 1 -- 848 (794) -- --
Non-employee stock
options.................. -- -- -- 52 -- (52) --
---------- --- ------ ------- ----- ---- --------
Balance at December 31,
1997....................... 12,286,674 12 1 7,239 (794) (52) 42
Net loss................... -- -- -- -- -- -- (7,829)
Distribution to
Communication Partners,
L.P. (Note 7)............ -- -- 3,653 (3,653) -- -- --
Exercise of employee stock
options.................. 42,654 -- -- 61 -- -- --
Non-employee stock
options.................. -- -- -- 44 -- (44) --
Amortization of
non-employee stock
options.................. -- -- -- -- -- 20 --
Benefit from exercise of
nonqualified stock
options.................. -- -- -- 2 -- -- --
Repayment of note
receivable............... -- -- -- -- 5 -- --
Forfeiture of restricted
stock.................... (64,063) -- -- (64) 64 -- --
---------- --- ------ ------- ----- ---- --------
Balance at December 31,
1998....................... 12,265,265 12 3,654 3,629 (725) (76) (7,787)
Net loss................... -- -- -- -- -- -- (3,869)
Exercise of employee stock
options.................. 9,354 -- -- 32 -- -- --
Forgiveness of subordinated
note payable............. -- -- -- 100 -- -- --
Amortization of
non-employee stock
options.................. -- -- -- -- -- 6 --
---------- --- ------ ------- ----- ---- --------
Balance at March 31, 1999
(unaudited)................ 12,274,619 $12 $3,654 $ 3,761 $(725) $(70) $(11,656)
========== === ====== ======= ===== ==== ========
The accompanying notes are an integral part of these financial statements.
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Investments in the Company by
Communication Partners,
L.P........................ $ 6,001
Net loss................... (800)
Asset allocation charge.... 106
-------
Balance at December 31,
1996....................... 5,307
Net income................. 842
Asset allocation charge.... 244
Exercise of employee stock
options.................. 55
Non-employee stock
options.................. --
-------
Balance at December 31,
1997....................... 6,448
Net loss................... (7,829)
Distribution to
Communication Partners,
L.P. (Note 7)............ --
Exercise of employee stock
options.................. 61
Non-employee stock
options.................. --
Amortization of
non-employee stock
options.................. 20
Benefit from exercise of
nonqualified stock
options.................. 2
Repayment of note
receivable............... 5
Forfeiture of restricted
stock.................... --
-------
Balance at December 31,
1998....................... (1,293)
Net loss................... (3,869)
Exercise of employee stock
options.................. 32
Forgiveness of subordinated
note payable............. 100
Amortization of
non-employee stock
options.................. 6
-------
Balance at March 31, 1999
(unaudited)................ $(5,024)
=======
The accompanying notes are an
</TABLE>
F-11
<PAGE> 94
GLOBESPAN, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ----------------- -----------------
1996 1997 1998 1998 1999
------------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow (used in) provided by operating
activities:
Net (loss) income.......................... $ (800) $ 842 $(7,829) $ 516 $(3,869)
Adjustments to reconcile net (loss) income
to cash (used in) provided by operating
activities:
Deferred income taxes................... -- (500) 500 (125) --
Provision for bad debts................. -- 49 12 49 --
Provision for inventory obsolescence.... -- -- 95 -- --
Amortization and depreciation........... 523 1,702 2,657 388 746
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable............................ (1,701) (3,315) 1,059 (128) 923
(Increase) in inventories............... -- (119) (888) (484) (1,688)
(Increase) in prepaid expenses and other
current assets........................ -- (229) (1,698) (373) (520)
Increase (decrease) in accounts
payable............................... 1,086 1,589 (194) 1,407 4,886
Increase in accrued expenses and other
current liabilities................... 218 874 2,886 304 1,458
------- ------- ------- ------- -------
Net cash (used in) provided by operating
activities................................. (674) 893 (3,400) 1,554 1,936
------- ------- ------- ------- -------
Cash flows used in investing activities:
Capital expenditures....................... (40) (3,359) (4,810) (1,597) (67)
Purchase of net assets of the Company...... (2,000) -- -- -- --
------- ------- ------- ------- -------
Net cash used in investing activities........ (2,040) (3,359) (4,810) (1,597) (67)
------- ------- ------- ------- -------
Cash flows provided by financing activities:
Proceeds from borrowings under subordinated
note payable............................ -- -- 5,000 -- --
Proceeds from (repayments of) borrowings
under line of credit.................... -- -- 2,466 -- (1,678)
Proceeds from issuance of common stock..... 4,000 55 61 3 32
Proceeds from repayment of notes
receivable.............................. -- -- 5 -- --
Repayments of capital lease borrowings..... -- -- (185) -- (89)
Equity investments in the Company.......... 2,000 -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities................................. 6,000 55 7,347 3 (1,735)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ 3,286 (2,411) (863) (40) 134
Cash and cash equivalents at beginning of
period..................................... -- 3,286 875 875 12
------- ------- ------- ------- -------
Cash and cash equivalents at end of period... $ 3,286 $ 875 $ 12 $ 835 $ 146
======= ======= ======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid:
Interest................................ $ -- $ -- $ 145 $ -- $ 154
======= ======= ======= ======= =======
Income taxes............................ $ -- $ 1,000 $ 492 $ 35 $ --
======= ======= ======= ======= =======
Supplemental noncash financing activities:
Notes receivable for sale of stock......... $ -- $ 794 $ -- $ -- $ --
======= ======= ======= ======= =======
Forgiveness of subordinated note payable... $ -- $ -- $ -- $ -- $ 100
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 95
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Pursuant to a Purchase Agreement dated June 18, 1996, three direct
wholly-owned subsidiaries and two indirect wholly-owned subsidiaries of
Communication Partners, L.P. (formerly Paradyne Partners, L.P.), acquired
certain assets of AT&T Paradyne Corporation from its parent company, Lucent
Technologies Inc. ("Lucent"), in exchange for $146 million in cash and notes and
the assumption of certain liabilities effective July 31, 1996. The assets and
liabilities were purchased by four separate operating subsidiaries of
Communication Partners, L.P., including GlobeSpan Technologies (subsequently
GlobeSpan, Inc.) (the "Company").
Assets acquired by the Company for $2.0 million consisted of certain
research and development activities, patents and customer licenses related to
carrierless amplitude phase modulation technique (generally referred to as "CAP
Technology") which is used to transmit data over copper telephone wires. In
addition, certain customer rent and lease agreements of AT&T Paradyne
Corporation were acquired directly by Rental Acquisition Corp. and Lease
Acquisition Corp., and certain net assets relating to the manufacturing,
marketing and research activities for data communications and networking
products for commercial end users and network service providers were acquired by
Paradyne Corporation (all of which are direct or indirect subsidiaries of
Communication Partners, L.P.). Paradyne Corporation also entered into a product
distribution agreement with Lucent. Additionally, certain assets and liabilities
of AT&T Paradyne Corporation were retained by Lucent or disposed of prior to the
transaction. All assets and liabilities and activities acquired by subsidiaries
of Communication Partners, L.P., other than the Company, or retained by Lucent
have been excluded from the accompanying financial statements.
The accompanying financial statements include the accounts of the Company.
See discussion of related party transactions in Notes 7 and 12. As of December
31, 1998 and March 31, 1999, Communication Partners, L.P. owned a substantial
portion of the Company's outstanding stock.
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. The
Company 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.
The Company has sustained net losses during the year ended December 31,
1998 and the three months ended March 31, 1999 and, as of March 31, 1999, had an
accumulated deficit of $11,656. The Company's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to meet its
operations and raise additional financing through public or private equity
financings or other sources of financing to fund operations. Management believes
that its current funds will be sufficient to enable the Company to meet its
planned expenditures through at least December 31, 1999. If anticipated
operating results are not achieved, management has the intent and believes it
has the ability to delay or reduce expenditures so as not to require additional
financial resources, if such resources were not available on terms acceptable to
the Company.
F-13
<PAGE> 96
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting principles and practices used in the preparation
of the accompanying financial statements are summarized below:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods presented. These estimates include assessing the
collectability of accounts receivable, the use and recoverability of inventory,
the realizability of deferred tax assets and useful lives or amortization
periods of intangible assets. Actual results could differ from those estimates.
The markets for the Company's products are characterized by intense competition,
rapid technological development and frequent new product introductions, all of
which could impact the future value of the Company's assets.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment to the customer,
when no significant vendor obligations exist and collection of the resulting
receivable is probable. Licensing fees are recognized when the Company has
completed delivery of technical specifications and performed all required
services under the related agreements. Commissions and right to use fees are
recognized upon shipment of product by the licensees, in accordance with the
agreements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, substantially all of which are finished goods, are stated at
the lower of cost or market. Cost is determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the terms of the leases or the estimated
useful lives of the assets. Gains or losses on disposals of property and
equipment are recorded in current operations.
CORE TECHNOLOGY
Core technology, which consists of patents, trademarks and technical
know-how of $2,000 acquired by the Company at inception (see Note 1) is stated
at acquisition cost, which approximates
F-14
<PAGE> 97
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
fair value. Amortization is provided on a straight-line basis over the estimated
useful life of two years. The estimated useful life was based primarily on the
expected utilization of the assets and rapid technological changes in the
integrated circuit and telecommunications industries. Amortization expense
associated with such core technology was $417, $1,000, $583 and $250 for the
five months ended December 31, 1996, the years ended December 31, 1997 and 1998
and for the three months ended March 31, 1998, respectively. As of December 31,
1998 this core technology was fully amortized.
The recoverability of carrying values is evaluated on a recurring basis
with consideration of changes in circumstances based on an evaluation of such
factors as the industry and environment in which the Company operates and the
expected future cash flows from the core technology. If the total of the
expected future undiscounted cash flows is less than the carrying amount of the
asset, a loss is recognized for the difference between the fair value (computed
based on the expected future discounted cash flows) and the carrying value of
the asset.
FINANCIAL INSTRUMENTS
The carrying value of accounts receivable, accounts payable and borrowings
under the revolving credit agreement approximate their fair values due to the
relatively short-term nature of these instruments. The estimated fair value of
the outstanding borrowings under the subordinated note payable at December 31,
1998 and March 31, 1999 was approximately $4,906 and $4,830, respectively.
PRODUCT WARRANTIES
The Company provides purchasers of its products with certain warranties
that correspond with the warranties from its contract manufacturers. Warranty
expense has been immaterial for all periods presented.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in connection with the research and development of the
Company's products and enhancements to existing products are expensed as
incurred unless technological feasibility has been established. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have not been material. Accordingly, research and development
costs have been expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires use of the asset and liability method. Deferred income taxes are
recorded for temporary differences between financial statement carrying amounts
and the tax bases of assets and liabilities. Deferred tax assets and liabilities
reflect the tax rates expected to be in effect for the years in which the
differences are expected to reverse. A valuation allowance is provided if it is
more likely than not that some or all of the deferred tax asset will not be
realized.
F-15
<PAGE> 98
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STOCK SPLITS
In 1996, the board of directors approved an 8.75 to 1 stock split. In
November 1997, the board of directors approved a 2 to 1 stock split. In February
1998, the board of directors approved a 1.5 to 1 stock split. All share, stock
option and stock warrant information included in the accompanying financial
statements and related notes have been restated for all periods to reflect these
stock splits. (See Note 14).
INTERIM FINANCIAL DATA
The unaudited financial data as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 has been prepared by management and includes all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation of the financial position, results of operations and
cash flows of the Company. The results of operations for the three months ended
March 31, 1999 are not necessarily indicative of the operating results to be
expected for the year ending December 31, 1999.
3. CONCENTRATION OF RISK AND CUSTOMER INFORMATION
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash equivalents and trade receivables.
The Company does not generally require collateral from its customers and
substantially all of its trade receivables are unsecured. At December 31, 1997
and 1998 and March 31, 1999, five of the Company's customers accounted for
$3,582 (79.2%), $3,492 (91.3%) and $1,552 (67.3%) of net accounts receivable,
respectively.
Sales to three customers amounted to approximately $1,301 (55.1%), $9,818
(43.5%), $22,042 (70.1%), $5,141 (67.9%) and $5,021 (58.1%) of total revenues
for the five months ended December 31, 1996, the years ended December 31, 1997
and 1998 and the three months ended March 31, 1998 and 1999, respectively.
Revenues from customers who represented more than 10% of net revenues were as
follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED THREE MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------- -------------------
1996 1997 1998 1998 1999
------------- ------ ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Customer A....................... $ 642 $ -- $ -- $ -- $ --
Customer B....................... 376 4,832 -- -- --
Customer C....................... 283 2,811 -- -- --
Customer D....................... 248 -- -- 1,051 --
Customer E....................... -- -- 15,190 1,973 3,410
Customer F....................... -- -- 3,974 2,117 --
</TABLE>
F-16
<PAGE> 99
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company's sales to overseas customers are denominated in the U.S.
dollar. Revenues by geographic region for the five months ended December 31,
1996, the years ended December 31, 1997 and 1998 and the three months ended
March 31, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED THREE MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------ ------------------
1996 1997 1998 1998 1999
------------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
United States..................... $1,417 $11,458 $21,214 $6,037 $4,983
Europe............................ 313 3,940 3,712 1,032 1,073
Mexico/Latin America.............. -- 98 3,063 80 1,508
Asia.............................. 406 6,964 2,973 407 979
Australia......................... 224 86 502 12 98
------ ------- ------- ------ ------
$2,360 $22,546 $31,464 $7,568 $8,641
====== ======= ======= ====== ======
</TABLE>
A single vendor manufactures substantially all of the chip sets sold by the
Company. Purchases from this vendor approximated 94%, 98%, 81%, 96% and 62% of
total inventory purchases for the five months ended December 31, 1996, the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1998 and
1999, respectively. If this vendor were to become unwilling or unable to
continue to manufacture these chip sets in required volumes, the Company would
have to identify and qualify acceptable alternative vendors. The inability to
develop alternative sources, if required in the future, could result in delays
or reductions in product shipments.
4. TECHNOLOGY LICENSING AGREEMENTS
The Company entered into technology licensing and right to use agreements
whereby the Company receives fees for the use and/or sale of specific patented
technology. Revenues from these agreements amounted to $1,409, $1,931, $310,
$156 and $53 for the five months ended December 31, 1996, the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1998 and 1999,
respectively. (See Note 12).
F-17
<PAGE> 100
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1997 1998 1999
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computers and equipment..................................... $3,028 $ 5,110 $ 5,140
Office furniture and fixtures............................... 68 131 143
Software.................................................... 266 1,991 2,016
Leasehold improvements...................................... 37 1,099 1,099
Property under capital leases............................... -- 861 946
------ ------- -------
3,399 9,192 9,344
Less: accumulated depreciation.............................. (458) (2,512) (3,252)
------ ------- -------
$2,941 $ 6,680 $ 6,092
====== ======= =======
</TABLE>
Included in operating expenses is depreciation expense of $106, $702,
$2,054, $388 and $740 for the five months ended December 31, 1996, the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1998 and
1999, respectively. Of such amounts, $106 and $244 for the five months ended
December 31, 1996 and the year ended December 31, 1997, respectively, represent
a non-cash allocation of depreciation expense from Paradyne for the use of
specified assets, which was recorded as a capital contribution. Accumulated
amortization on assets accounted for as capital leases, amounted to
approximately $47 and $131 as of December 31, 1998 and March 31, 1999,
respectively.
6. REVOLVING CREDIT AGREEMENT
In May 1998, the Company entered into a revolving credit agreement with
BankAmerica Business Credit, Inc. ("BABC") pursuant to which the Company may
borrow the lesser of a borrowing base or $5.0 million ("the Available
Facility"). The borrowing base is equal to 85.0% of eligible receivables, as
defined. Outstanding borrowings on the Company's revolving credit facility bear
interest, payable on a monthly basis, at a rate of 1.0% in excess of the
reference rate announced by BABC. For the year ended December 31, 1998, the
weighted average interest rate was 9.1%. Interest related to this facility was
approximately $50 and $55 for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively. The revolving credit agreement
expires on January 31, 2000 and is automatically renewable for additional
one-year terms unless terminated by the Company or BABC.
A portion of the revolving credit facility is available for the issuance of
merchandise or standby letters of credit provided that the aggregate undrawn
amount of all such outstanding merchandise and standby letters of credit does
not exceed $1.0 million. The Company is charged a fee equal to 1.5% per annum on
the aggregate face amount of each outstanding standby letter of credit and 0.75%
per annum on the aggregate face amount of each outstanding merchandise letter of
credit, which is payable on a monthly basis. As of December 31, 1998, the
Company had no outstanding letters of credit under this agreement.
F-18
<PAGE> 101
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company is charged a commitment fee of 0.5% per annum, payable on a
quarterly basis, on the difference between $5.0 million and the sum of the
average daily outstanding amount of the revolving credit facility and the
average undrawn face amount of all outstanding letters of credit. Commitment
fees relating to the above facility amounted to $13 and $3 for the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively. (See
Note 12 for related party borrowings).
Substantially all of the Company's assets are pledged as collateral under
the BABC revolving credit agreement. Under the terms of the credit agreement,
the Company is required to maintain an account with BABC to which all customer
payments are remitted and applied against the outstanding balance under the
revolving credit agreement. Accordingly, the entire outstanding balance has been
classified as a current liability as of December 31, 1998. The credit agreement
also contains various covenants which, among other things, restrict certain
corporate actions including, but not limited to, mergers, sales of assets and
payment of dividends. As discussed in Note 12, the Company purchased certain
assets from Paradyne Corporation in December 1998, which constituted a violation
of the revolving credit agreement. This violation was waived by BABC.
7. STOCK PURCHASE WARRANT
In connection with the Company's inception (see Note 1), the Company issued
a warrant to acquire 1,312,500 shares of its common stock at an exercise price
of $6.72 per share to Lucent. The warrant was due to expire upon payment or
transfer by Paradyne Corporation, an affiliated company ("Paradyne"), of
Paradyne's long-term debt maturing June 30, 2000 and upon the sale or merger of
the Company (as provided in the Stock Warrant Agreement) at a price less than
the exercise price. The warrant includes other provisions, including certain
anti-dilution provisions.
In August 1998, Paradyne settled its outstanding long-term debt due June
30, 2000. As a term of such settlement, the Company agreed to extend the
exercise period of the outstanding stock purchase warrant to the earlier of June
30, 2001 or the consummation of a qualifying business combination, as defined.
In connection therewith, the Company recorded a $3,653 distribution to the
Parent based on the increase in the fair value of the warrant resulting from the
extension of the outstanding warrant term. (See Note 14).
F-19
<PAGE> 102
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- -----------
1997 1998 1999
----- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Amortization of intangibles............................... $ 491 $ 670 $ 657
Inventory obsolescence reserve............................ -- 38 38
Depreciation.............................................. (52) (190) (119)
Accrued expenses.......................................... -- 386 705
Other..................................................... 61 25 64
Net operating loss carryforwards.......................... -- 2,121 3,211
----- ------- -------
500 3,050 4,556
Less valuation allowance.................................. -- (3,050) (4,556)
----- ------- -------
Net deferred tax asset.................................... $ 500 $ -- $ --
===== ======= =======
</TABLE>
As of December 31, 1997, the Company did not provide a valuation allowance
against its net deferred tax asset based on the net income generated during 1997
and management's expectations at such time that the Company's deferred tax
assets would be realized through future earnings. Subsequent to 1997, the
Company has modified its strategic plan and anticipates continuing investments
to research and development and corporate infrastructure in advance of revenues.
As such, as of December 31, 1998, the Company has established a full valuation
allowance against its net deferred tax asset based on management's current
belief that it is more likely than not that the benefits related to such net
deferred tax asset will not be realized.
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED THREE MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------- --------------------
1996 1997 1998 1998 1999
------------ ----- ------- ----- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal......................... $(112) $ 700 $ (649) $ 352 $ --
State........................... (16) 100 (23) 94 --
----- ----- ------- ----- -------
(128) 800 (672) 446 --
----- ----- ------- ----- -------
Deferred:
Federal......................... (122) (172) (1,834) (138) (1,167)
State........................... (18) (60) (761) (32) (339)
Change in valuation allowance... 268 (268) 3,050 -- 1,506
----- ----- ------- ----- -------
128 (500) 455 (170) --
----- ----- ------- ----- -------
Income tax provision (benefit).... $ -- $ 300 $ (217) $ 276 $ --
===== ===== ======= ===== =======
</TABLE>
The Company has generated net operating loss carryforwards of approximately
$3,051 and $4,590 as of December 31, 1998 and March 31, 1999, respectively,
which are due to expire between 2013
F-20
<PAGE> 103
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
and 2014. Section 382 of the Internal Revenue Code of 1986, as amended, places a
limitation on the utilization of federal net operating loss carryforwards when
an ownership change occurs. Generally, an ownership change occurs when a greater
than 50% change in ownership takes place over a three-year test period. The
annual utilization of net operating loss carryforwards generated prior to such
change in ownership is limited, in any one year, to a percentage of the fair
market value of the Company at the time of the ownership change.
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. income tax rate to income before
taxes as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED THREE MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------- -------------------
1996 1997 1998 1998 1999
------------- ----- ----- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
U.S. statutory rate................... (34.0)% 34.0% (34.0)% 34.0% (34.0)%
State taxes........................... (5.0) 2.0 (6.6) 5.3 (6.3)
Other................................. 0.5 6.3 0.0 (4.5) 0.1
Net operating loss utilized........... 0.0 (10.0) 0.0 0.0 0.0
Change in valuation allowance......... 38.5 (6.0) 37.9 0.0 40.2
----- ----- ----- ---- ------
Effective tax rate.................... 0.0% 26.3% (2.7)% 34.8% 0.0%
===== ===== ===== ==== ======
</TABLE>
9. 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.
F-21
<PAGE> 104
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The computations of Basic EPS and Diluted EPS for the five months ended
December 31, 1996, the years ended December 31, 1997 and 1998 and the three
months ended March 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
FIVE MONTHS ENDED DECEMBER 31, 1996
Net loss.............................................. $ (800)
Basic EPS:
Income available to common stockholders............. $ (800) 11,437,500 $(0.07)
Effect of dilutive stock options.................... -- -- --
------- ----------- ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions...................................... $ (800) 11,437,500 $(0.07)
======= =========== ======
YEAR ENDED DECEMBER 31, 1997
Net income............................................ $ 842
Basic EPS:
Income available to common stockholders............. $ 842 11,515,538 $ 0.07
Effect of dilutive stock options.................... -- 1,190,894 --
------- ----------- ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions...................................... $ 842 12,706,432 $ 0.07
======= =========== ======
YEAR ENDED DECEMBER 31, 1998
Net loss.............................................. $(7,829)
Basic EPS:
Income available to common stockholders............. $(7,829) 12,084,711 $(0.65)
Effect of dilutive stock options.................... -- -- --
------- ----------- ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions...................................... $(7,829) 12,084,711 $(0.65)
======= =========== ======
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
Net income............................................ $ 516
Basic EPS:
Income available to common stockholders............. $ 516 11,906,674 $ 0.04
Effect of dilutive stock options.................... -- 679,989 --
------- ----------- ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions...................................... $ 516 12,586,663 $ 0.04
======= =========== ======
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
Net loss.............................................. $(3,869)
Basic EPS:
Income available to common stockholders............. $(3,869) 12,137,589 $(0.32)
Effect of dilutive stock options.................... -- -- --
------- ----------- ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions...................................... $(3,869) 12,137,589 $(0.32)
======= =========== ======
</TABLE>
F-22
<PAGE> 105
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
As of December 31, 1996 and 1998 and March 31, 1999, the Company had
outstanding options, restricted stock and a warrant to purchase an aggregate
3,138,000, 3,374,181 and 3,444,460 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.
10. STOCK OPTION PLAN
In December 1996, the Company adopted the 1996 Equity Incentive Plan (the
"1996 Plan") pursuant to which, as amended, nonqualified or incentive stock
options, stock bonus and restricted stock awards (collectively, "Stock Awards")
to purchase up to 2,805,300 of the Company's common stock may be granted to
employees, directors and consultants. Stock Awards granted under the 1996 Plan
generally vest in equal installments over a four-year period. The exercise price
of incentive stock options granted under the 1996 Plan may not be less than the
fair market value of the underlying shares (110% of the fair market value in the
case of a 10% voting shareholder) at the grant date. Each stock option is
exercisable for ten years (five years in the case of a 10% voting stockholder)
from the date of grant. Through March 31, 1999, no stock options had been
granted to a 10% stockholder.
Under the 1996 Plan, certain individuals to whom stock options have been
granted may elect to exercise those options prior to the lapse of the full
vesting period. Upon termination of employment, the Company may repurchase any
unvested shares issued pursuant to such election at the exercise price. During
the year ended December 31, 1998, the Company repurchased 64,063 shares under
such provision. No shares had been repurchased during the three months ended
March 31, 1999. At December 31, 1996, 1997 and 1998 and March 31, 1999, there
were 0, 420,000, 168,750 and 131,250 shares, respectively, issued and
outstanding that were subject to this repurchase provision.
Stock bonuses and restricted stock awards issued under the 1996 Plan
provide that shares awarded may not be sold or otherwise transferred until
restrictions established by the underlying agreements have elapsed. Upon
termination of employment, the Company may repurchase shares upon which
restrictions have not lapsed. The 1996 Plan provides that the price for each
restricted stock award shall not be less than 85% of the fair market value of
the share at the date of grant.
Notes receivable from stock sales result from the exercise of stock options
for promissory notes. The notes are full recourse promissory notes bearing
interest at variable rates ranging from 5.94% to 6.16% and are collateralized by
the stock issued upon exercise of the stock options. The notes including accrued
interest thereon mature five years from the date of exercise.
F-23
<PAGE> 106
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A summary of the status of the Company's stock option plan through March
31, 1999 is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
-----------------------------------------------------
$1.00 $4.00 $6.00 $10.00 $12.00 TOTAL
--------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
August 1, 1996....... -- -- -- -- -- --
Granted.............. 1,825,500 -- -- -- -- 1,825,500
--------- ------- ------- ------- ------- ---------
Options outstanding at
December 31, 1996.... 1,825,500 -- -- -- -- 1,825,500
Granted.............. 612,600 -- -- -- -- 612,600
Exercised............ (849,174) -- -- -- -- (849,174)
Forfeited............ (223,000) -- -- -- -- (223,000)
--------- ------- ------- ------- ------- ---------
Options outstanding at
December 31, 1997.... 1,365,926 -- -- -- -- 1,365,926
Granted.............. -- 114,000 155,083 -- 349,542 618,625
Exercised............ (37,175) (3,979) (1,500) -- -- (42,654)
Forfeited............ (21,850) (16,000) (8,716) -- (2,400) (48,966)
--------- ------- ------- ------- ------- ---------
Options outstanding at
December 31, 1998.... 1,306,901 94,021 144,867 -- 347,142 1,892,931
Granted.............. -- -- -- 125,933 -- 125,933
Exercised............ (3,333) (3,604) (2,417) -- -- (9,354)
Forfeited............ -- -- (2,167) (2,533) (4,100) (8,800)
--------- ------- ------- ------- ------- ---------
Options outstanding at
March 31, 1999
(unaudited).......... 1,303,568 90,417 140,283 123,400 343,042 2,000,710
========= ======= ======= ======= ======= =========
Weighted average
remaining life on
outstanding options
at December 31,
1998................. 7.97 8.68 9.16 -- 9.39 8.36
========= ======= ======= ======= ======= =========
Weighted average
remaining life on
outstanding options
at March 31, 1999
(unaudited).......... 7.69 8.39 8.91 9.96 9.16 8.20
========= ======= ======= ======= ======= =========
</TABLE>
Outstanding options at December 31, 1998 have a weighted average exercise
price of $3.55 per share. At December 31, 1998, 1,268,874 shares of the
outstanding stock options were vested and 84,604 additional stock options were
available for grant. Outstanding options at March 31, 1999 have a weighted
average price of $3.93 per share. At March 31, 1999, 1,383,575 shares of the
outstanding stock options were vested and 367,471 additional stock options were
available for grant. (See Note 14.)
F-24
<PAGE> 107
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
EMPLOYEE STOCK OPTIONS
The Company accounts for stock options granted to employees in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, no compensation has been recorded since grants are made
at fair market value. Had the compensation cost for the Stock Option Plan been
determined based on the fair value at the grant dates for awards under the 1996
Plan consistent with the method of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("FAS 123"), the Company's net
(loss) income on a pro forma basis would have been ($800), $823, ($9,236), $411
and $(4,085) for the five months ended December 31, 1996, the years ended
December 31, 1997 and 1998 and three months ended March 31, 1998 and 1999,
respectively, calculated with the use of the Black Scholes option-pricing model.
The following assumptions were used for the five months ended December 31, 1996,
the years ended December 31, 1997 and 1998 and the three months ended March 31,
1998 and 1999: (1) risk-free interest rate of 6.2%, 6.6%, 4.6%, 5.5% and 5.5%
respectively; (2) dividend yield of 0.00%; (3) expected life of five years; and
(4) volatility of .001%. Results may vary depending on the assumptions applied
within the model.
NON-EMPLOYEE OPTIONS
In fiscal 1997 and 1998, the Company granted 223,000 and 5,500 stock
options, respectively, to non-employees. In accordance with the requirements of
FAS 123, the Company recorded $52 and $44, respectively, reflecting the
estimated fair value of these options utilizing the Black Scholes option-pricing
model. The Company will amortize this obligation to expense over the period
services are performed.
11. COMMITMENTS AND CONTINGENCIES
In October 1996, the Company became the sub-tenant of Paradyne under a
noncancelable operating lease for office and research and development facilities
located in Red Bank, New Jersey which expires April 30, 2002. In addition, the
Company leases certain computer and office equipment under agreements that are
classified as capital leases, the net book value of which was $814 and $815
F-25
<PAGE> 108
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
at December 31, 1998 and March 31, 1999, respectively. Minimum required future
lease payments under the Company's capital and operating leases at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1999................................................... $361 $ 813
2000................................................... 294 813
2001................................................... 240 835
2002................................................... 7 317
2003................................................... 4 --
---- ------
Total minimum lease payments...................... 906 $2,778
Less: amount representing interest.......................... (108)
----
Present value of net minimum lease payments................. 798
Less: current portion....................................... (292)
----
$506
====
</TABLE>
Rent expense for the five months ended December 31, 1996, the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1998 and 1999
approximated $126, $467, $868, $157 and $245, respectively, and is included in
operating expenses.
In July 1995, AT&T Paradyne entered into a technology development agreement
with Bell Atlantic Network Services, Inc. ("Bell Atlantic"). Under the terms of
the agreement, the Company's predecessor entity provided use of certain Digital
Subscriber Line ("DSL") technologies to third party suppliers for the purpose of
development of DSL network access products incorporating CAP technology. Bell
Atlantic paid $5.0 million under the agreement in return for the right to
receive up to $7.0 million of commission fees based on future sales of products
to Bell Atlantic or other qualified third party companies, as defined in the
agreement. In connection with the Company's inception (see Note 1), this
agreement was assigned to the Company as the successor entity. No commission
fees have been accrued related to this agreement since such fees are only
payable based on future sales. Through the year ended December 31, 1998, no fees
have been paid to Bell Atlantic under this agreement. All research and
development requirements of the agreement were completed by the Company's
predecessor entity in 1995.
The semiconductor and telecommunications industries are characterized by
substantial litigation regarding patent and other intellectual property rights.
The Company is party to various inquiries or claims in connection with these
rights. Although the ultimate outcome of these matters is not presently
determinable, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position and results
of operations.
12. RELATED PARTY TRANSACTIONS
In 1996, the Company entered into a license agreement with Paradyne
Corporation for the use of certain technologies. Total revenues related to the
use of these agreements was $235 for the five months ended December 31, 1996 and
has been included in other revenue.
F-26
<PAGE> 109
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
During the years ended December 31, 1997 and 1998 and the three months
ended March 31, 1998 and 1999, the Company recorded product sales of $373, $962,
$377 and $662, respectively, related to goods sold to Paradyne Corporation. Such
sales reflect, through June 30, 1998, a discount, equal to cost plus 15%,
provided to Paradyne pursuant to a Cooperative Development Agreement. In July
1998, the Company revised its discounted pricing arrangement with Paradyne which
had existed under the Cooperative Development Agreement. Paradyne agreed to
modify the pricing terms such that Paradyne purchased products from the Company
at preferential prices. In exchange, the Company agreed to pay a 1.25% fee based
on net revenues up to an aggregate amount of $1.5 million. The Company recorded
a charge of $381, which is included in cost of sales, related to the agreement
during the year ended December 31, 1998. In addition, Paradyne provided
operating, management and other administrative services for the Company pursuant
to an Intercompany Services Agreement. Paradyne charged the Company for the cost
of such services, without markup, in accordance with the Intercompany Services
Agreement, which amounted to $0, $155, $231, $57 and $0 for the five months
ended December 31, 1996, the years ended December 31, 1997 and 1998 and the
three months ended March 31, 1998 and 1999, respectively. In the opinion of
management, the estimated costs of such services would not have been materially
different than those reflected in these financial statements had such services
been provided by an unaffiliated entity. (See Notes 11 and 13).
In fiscal 1997, the Company purchased fixed assets from Paradyne
approximating $350. In February and December 1998, the Company purchased fixed
assets from Paradyne for an aggregate cost of $1,442. These assets were sold at
their net book value since the transaction involved entities under common
control.
In 1997, the Company paid Paradyne $194 as a reimbursement for their cost
of chip sets purchased on GlobeSpan's behalf. These payments were equal to the
amount paid by Paradyne for the initial purchase of the inventory.
In December 1997 and September 1998, the Company purchased from Paradyne
certain GlobeSpan chip sets which it held in its inventory in the amounts of $98
and $29, respectively. GlobeSpan purchased these chip sets for resale to other
customers.
In December 1998, the Company subleased additional office space from
Paradyne (see related disclosure in Note 11). In connection therewith, the
Company reimbursed approximately $392 of Paradyne's moving expenses, the cost of
which is included in operating expenses for the year ended December 31, 1998.
GlobeSpan is covered under a group insurance policy with Paradyne for an
annual premium amount of $85.
In May 1998, the Company entered into a subordinated credit agreement with
Communication Partners in the aggregate principal amount of $5.0 million. Such
loan bears interest at a rate of 8.0% payable on a monthly basis and expires on
May 1, 2003. Outstanding borrowings under this loan agreement may be prepaid at
any time, without penalty, subject to limitations contained in the BABC
revolving credit agreement. Interest related to this facility approximated $95
and $99 for the period ended December 31, 1998 and the three months ended March
31, 1999, respectively. In December 1998, the amount available under the credit
agreement was increased to $10.0 million, of which $5.0 million expires on March
31, 2000.
F-27
<PAGE> 110
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. DEFINED CONTRIBUTION PLAN
The Company participates in a 401(k) plan covering substantially all
employees, which is maintained by Paradyne. Benefits vest based on number of
years of service. The Company's policy is to match two-thirds of an employee's
contributions, up to 6.0% of an employee's annual salary. Additionally, the
board of directors may grant discretionary contributions based on an employee's
age. Contributions to the plan paid by Paradyne on behalf of the Company
amounted to approximately $45, $242, $348, $63 and $126 for the five months
ended December 31, 1996, the years ended December 31, 1997 and 1998 and the
three months ended March 31, 1998 and 1999, respectively. In addition, the
Company accrued $179 and $0 for discretionary contributions as of December 31,
1998 and March 31, 1999.
14. SUBSEQUENT EVENTS
REVERSE STOCK SPLIT AND RECAPITALIZATION
On March 12, 1999, the Company's board of directors approved the amendment
of the certificate of incorporation to effect a 1-for-3 reverse stock split
applicable to all issued and outstanding shares of its common stock and
increased its authorized capital to 10,000,000 shares of preferred stock, $0.001
par value and 100,000,000 shares of common stock $0.001 par value. The 1-for-3
reverse stock split and the increase in the authorized preferred shares was
approved by the Company's stockholders in May 1999 and is contingent upon the
closing of the Company's proposed initial public offering of its common stock
(the "IPO"). All share, stock option and stock warrant information included in
these financial statements and related footnotes have been restated for all
periods to reflect this reverse stock split for all periods presented.
TERMINATION AGREEMENT WITH PARADYNE
In March 1999, the Company and Paradyne agreed to terminate the Cooperative
Development Agreement (see Note 12). 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 will be made in 1999 and has been 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.
F-28
<PAGE> 111
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AMENDMENT TO THE LUCENT TECHNOLOGIES WARRANT
In March 1999, Communication Partners forgave $100 of the subordinated note
payable (see Note 6), as consideration for the extension of the outstanding
warrant. (See Note 7).
AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN
On March 12, 1999, the Company's board of directors approved an increase in
the number of shares reserved for issuance under the 1996 Plan to 3,205,300.
EMPLOYEE STOCK PURCHASE PLAN
On March 12, 1999, the Company's board of directors approved the adoption
of an Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan was
approved by the Company's stockholders in May 1999 and is contingent upon the
closing of the Company's IPO. Upon closing of the Company's IPO, the Company
will reserve 400,000 shares of its common stock for issuance under the Purchase
Plan, which shall automatically increase each year beginning February 1, 2000,
by the lesser of 2.0% of the total number of shares of common stock then
outstanding or 400,000 shares. The Purchase Plan will permit each eligible
employee, as defined, to purchase shares of the Company's common stock through
payroll deductions, provided that the aggregate amount of each employee's
payroll deductions does not exceed 15.0% of his cash compensation. Purchases of
common stock will occur on January 31 and July 31 of each year. The Purchase
Plan will be administered by the Compensation Committee of the board of
directors in accordance with the terms of the Purchase Plan.
1999 EQUITY INCENTIVE PLAN
On March 12, 1999, The Company's board of directors approved the adoption
of the 1999 Equity Incentive Plan (the "1999 Plan"). The 1999 Plan was approved
by the Company's stockholders in May 1999 and is contingent upon the closing of
the Company's IPO. Upon adoption of the 1999 Plan by the closing of the
Company's IPO, the Company will reserve 1,000,000 shares of its common stock,
together with the shares of common stock remaining available for issuance under
the 1996 Plan, for issuance under the 1999 Plan. The number of shares reserved
for issuance under the 1999 Plan shall automatically increase each year
beginning May 1, 2000, by the lesser of 5.0% of the total number of shares of
common stock then outstanding or 1,000,000 shares. Under the 1999 Plan, the
Company may grant incentive or nonqualified stock options, stock appreciation
rights, restricted stock or stock units to employees, non-employee directors and
consultants. The 1999 Plan will be administered by the Compensation Committee of
the board of directors in accordance with the terms of the 1999 Plan.
1999 DIRECTOR STOCK PLAN
On March 12, 1999, the Company's board of directors approved the adoption
of the 1999 Director Stock Plan (the "Director Plan"). The Director Plan was
approved by the Company's shareholders in May 1999 and is contingent upon the
closing of the Company's IPO. Upon closing of the Company's IPO, the Company
will reserve 250,000 shares of its common stock for issuance under the Director
Plan. Under the Director Plan, the Company may only grant nonqualified stock
options to non-employee directors. The 1999 Plan provides for automatic grants
to non-employee directors of
F-29
<PAGE> 112
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
the Company at defined intervals beginning on the effective date of the
Company's IPO. Each non-employee director of the Company will be granted an
option to purchase 10,000 shares of common stock at the IPO price upon
consummation of the Company's IPO, an additional option to purchase 5,000 shares
of common stock on the date of the Company's annual stockholders' meeting in the
year 2000 and an additional option to purchase 5,000 shares of common stock on
the date of the Company's annual stockholders' meeting in the year 2001,
provided that the director continues to serve as a director of the Company. Each
non-employee director elected to serve following the consummation of the IPO
will be granted an option to purchase 10,000 shares of common stock on the date
he or she is first elected to the board of directors and an additional option to
purchase 5,000 shares of common stock on the date of the Company's annual
stockholder's meeting in the calendar year following such initial election. At
each annual stockholders' meeting following the annual meeting during which each
non-employee director received the second option to purchase 5,000 shares of
common stock, each non-employee director will be granted an option to purchase
2,500 shares of common stock. Stock options granted pursuant to the Director
Plan vest upon the director's completion of twelve months of service during
which he or she attended at least 75% of the meetings of the Company's board of
directors.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
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 is 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
converts upon consummation of an IPO at a price per share that is equal to or
exceeds $8.211 per share and $15.0 million in the aggregate. Holders of Series A
Stock are entitled to receive dividends prior to any payment of dividends on the
Company's common stock, at a rate of $0.81 per share per annum, when and if
declared by the Company's board of directors. Such dividends are not cumulative.
In the event of a liquidation, dissolution or winding up of the Company, holders
of the Series A Stock are entitled to a distribution ratably with other common
stockholders of the Company, on an as-if converted basis. The Series A Stock
carries voting rights equal to one vote per share, on an as-converted basis. In
addition, the Company is precluded from certain specific corporate actions
without the consent of at least 66.6% of the holders of the Series A Stock.
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 two investors (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 IPO price for the first
75,000 shares, 125% of the IPO price for the second 75,000 shares, 150% of the
IPO price for the third 75,000 shares and 175% of the IPO price for the last
75,000 shares. In addition, the Series A Investors each received a warrant to
purchase, at the IPO price, 10,000 shares of common stock if the IPO price is
from $9.00 to $9.99 per share, 20,000 shares of common stock if the IPO price is
from $8.00 to $8.99 per share, 30,000 shares if the IPO price is from $7.00 to
$7.99 per share and 100,000 shares of common stock if the IPO price is less than
$7.00 per share (the "Anti-Dilution Warrants"). The Anti-Dilution Warrants are
exercisable for five years after consummation of the IPO but expire, unexercised
if the IPO price is equal to or exceeds $10.00 per share.
The Company granted one of the Series A Investors 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,
F-30
<PAGE> 113
GLOBESPAN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
or if the second Series A Investor gives the Company notice of its intention to
exercise its right, as described below. This right terminates upon consummation
of the IPO, subject to certain conditions as defined.
The Company granted the second Series A Investor 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 terminates upon consummation of the IPO,
subject to certain conditions as defined. In addition, the Company has agreed
not to assert any patent right against this Series A Investor as long as the
investor maintains an investment in the Company of at least 1% of its capital
stock.
Since the issuance of the aforementioned Series A Stock includes a
non-detachable conversion feature, that is "in-the-money" at the date of
issuance and is immediately exercisable, the Company will recognize a charge for
the beneficial conversion feature attributable to the common stockholders in its
second quarter 1999 financial statements.
F-31
<PAGE> 114
(inside cover)
Color Photo of GlobeSpan products. Picture shows a digital communication
processor chip, an analog front end chip, and a DSL reference design guide and
DSL development system.
(Front Cover fold out)
Color graphic of a Telecommunication Service providers local loop network
deploying an HDSL Internet service and an HDSL business data service. The
graphic shows the digital subscriber line access multiplexer and HDSL modem in
the central office. It also shows the ADSL modem in the residential end user
location and the HDSL modem in the business end user location. The picture also
shows DSL equipment located in a multidwelling unit location to provide Internet
access to end users living in the dwelling unit.
<PAGE> 115
[GLOBESPAN LOGO]
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by GlobeSpan in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,290
NASD fee.................................................... 6,500
Nasdaq National Market listing fee.......................... 30,000
Printing and engraving expenses............................. 300,000
Legal fees and expenses..................................... 750,000
Accounting fees and expenses................................ 450,000
Blue sky fees and expenses.................................. 10,000
Transfer agent fees......................................... 10,000
Miscellaneous fees and expenses............................. 128,210
----------
Total............................................. $1,700,000
==========
</TABLE>
ITEM 14. 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 Securities Act of 1933,
as amended (the "Securities 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 the directors' fiduciary duty
as directors to GlobeSpan and its stockholders. This provision in the
certificate of incorporation does not eliminate the directors' fiduciary duty,
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 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. Prior to the closing of this offering, the
Registrant will enter into Indemnification Agreements with its officers and
directors, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The Indemnification Agreements provide the Registrant's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. Reference is made to Section
of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities.
II-1
<PAGE> 117
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 7, 1996, Registrant has issued and sold the following securities
(which numbers do not reflect the 8.75 for 1 split effected on November 25,
1996, the 2 for 1 split effected on October 16, 1997, the 1.5 for 1 split
effected on February 25, 1998, or the reverse 1 for 3 split to be effected prior
to this offering):
(1) On June 7, 1996, Registrant issued 1,000 shares in a private
placement of its common stock at a purchase price of $1.00 per share, for
cash in the aggregate amount of $1,000, to Communication Partners, L.P.
pursuant to the divestiture of GlobeSpan.
(2) On July 31, 1996, Registrant issued a warrant for 150,000 shares
of its common stock, with an exercise price of $58.83, to Lucent
Technologies in connection with the divestiture of GlobeSpan.
(3) On November 25, 1996, Registrant issued an aggregate of 4,000,000
shares in a private placement of its common stock, at a purchase price of
$1.00 per share, for cash in the aggregate amount of $4,000,000, to
Communication Partners, L.P. pursuant to a Common Stock Purchase Agreement.
(4) As of March 11, 1999, Registrant has sold and issued 897,369
shares of its common stock for an aggregate purchase price of $916,985 to
employees and consultants pursuant to direct issuance and to exercises of
options under its 1996 Option Plan.
(5) On May 6, 1999, in a private placement with Intel Corporation and
Cisco Systems, Inc., Registrant issued 4,384,363 shares of its Series A
Preferred Stock, warrants to purchase up to 900,000 shares of our Common
Stock at an average exercise price of $13.75 per share and warrants to
purchase up to 600,000 shares at the initial price of our shares in this
offering (to be appropriately adjusted for stock splits, stock dividends,
recapitalizations and the like). The purchase price for the Series A
Preferred Stock and warrants was an aggregate amount of $12,000,001.00.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by
an issuer not involving any public offering or transactions pursuant to
compensation benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
1.1* Form of Underwriting Agreement (preliminary form).
3.1 Certificate of Incorporation of the Registrant, as amended
to date.
3.2** Form of Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this
Registration Statement.
3.3 Bylaws of the Registrant.
3.4** Bylaws of the Registrant effective upon the close of the
offering made pursuant to this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2* Specimen Common Stock certificate.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian.
</TABLE>
II-2
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
10.1** Form of Indemnification Agreement.
10.2** 1999 Equity Incentive Plan.
10.3** Employee Stock Purchase Plan.
10.4** 1999 Director Stock Plan.
10.5** Business Loan Agreement between BankAmerica Business Credit
and Registrant, dated May 14, 1998.
10.6** Warrant for the purchase of Common Stock made by the
Registrant and held by Lucent Technologies Inc., dated July
31, 1996.
10.7** Real Property Lease between Paradyne Corporation and Shav
Associates, dated October 8, 1996.
10.8** Real Property Sublease by and between Registrant and
Paradyne Corporation, dated December 10, 1997.
10.9** Amendment to Real Property Sublease by and between
Registrant and Paradyne Corporation, dated January 1, 1999.
10.10** Termination Agreement between Registrant and Paradyne
Corporation, dated December 31, 1998.
10.11** Subordinated Promissory Note between Registrant and
Communication Partners, L.P., dated December 15, 1998.
10.12* Bill of Sale between Registrant and Paradyne, dated
, 1999.
10.13** Employment Agreement between Registrant and Armando Geday,
dated April 1, 1997.
10.14** Employment Agreement between Registrant and Thomas Epley,
dated August 29, 1997.
10.15**+ Agreement for the Manufacture and Sale of ASIC Products
between Registrant and Lucent Technologies Inc.
Microelectronics, dated March 23, 1999.
10.16** Intellectual Property Agreement among Registrant, Lucent
Technologies Inc. and Paradyne Corporation, dated July 31,
1996.
10.17** Tax Matters Agreement between Registrant and Paradyne
Corporation dated July 31, 1996.
10.18**+ Product Supply Agreement between Registrant and Paradyne
Corporation dated March 16, 1999.
10.19 AT&T Trademark and Patent Agreement between Registrant, AT&T
Corp. and Paradyne Corporation, dated July 31, 1996.
10.20 Investors' Rights Agreement between Registrant, Intel
Corporation, Cisco Systems, Inc. and Communication Partners,
L.P., dated May 6, 1999.
10.21 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6,
1999.
10.22 Warrant for the purchase of Common Stock made by the
Registrant and held by Intel Corporation, dated May 6, 1999.
10.23 Covenant Not to Sue between Registrant and Intel
Corporation, dated May 6, 1999.
23.1** Consent of Independent Accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney (see page II-5).
27.1 Financial Data Schedule for EDGAR Filing.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
II-3
<PAGE> 119
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the 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 10th day of May, 1999.
GLOBESPAN, INC.
By: /s/ ARMANDO GEDAY
---------------------------------------
Armando Geday
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ -------------------------------------- ------------
<S> <C> <C>
/s/ ARMANDO GEDAY President, Chief Executive Officer May 10, 1999
- ------------------------------------------------ (Principal Executive Officer) and
Armando Geday Director
/s/ ROBERT MCMULLAN Chief Financial Officer May 10, 1999
- ------------------------------------------------ (Principal Financial and Accounting
Robert McMullan Officer)
Director May 10, 1999
- ------------------------------------------------
Thomas Epley*
Director May 10, 1999
- ------------------------------------------------
Keith Geeslin*
Director May 10, 1999
- ------------------------------------------------
David Stanton*
Director May 10, 1999
- ------------------------------------------------
Dipanjan Deb*
Director May 10, 1999
- ------------------------------------------------
James Coulter*
*By: /s/ ARMANDO GEDAY
-------------------------------------
Armando Geday
Attorney-in-Fact
*By: /s/ ROBERT MCMULLAN
-------------------------------------
Robert McMullan
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
1.1* Form of Underwriting Agreement (preliminary form).
3.1 Certificate of Incorporation of the Registrant, as amended
to date.
3.2** Form of Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this
Registration Statement.
3.3 Bylaws of the Registrant.
3.4** Bylaws of the Registrant effective upon the close of the
offering made pursuant to this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2* Specimen Common Stock certificate.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian.
10.1** Form of Indemnification Agreement.
10.2** 1999 Equity Incentive Plan.
10.3** Employee Stock Purchase Plan.
10.4** 1999 Director Stock Plan.
10.5** Business Loan Agreement between BankAmerica Business Credit
and Registrant, dated May 14, 1998.
10.6** Warrant for the purchase of Common Stock made by the
Registrant and held by Lucent Technologies Inc., dated July
31, 1996.
10.7** Real Property Lease between Paradyne Corporation and Shav
Associates, dated October 8, 1996.
10.8** Real Property Sublease by and between Registrant and
Paradyne Corporation, dated December 10, 1997.
10.9** Amendment to Real Property Sublease by and between
Registrant and Paradyne Corporation, dated January 1, 1999.
10.10** Termination Agreement between Registrant and Paradyne
Corporation, dated December 31, 1998.
10.11** Subordinated Promissory Note between Registrant and
Communication Partners, L.P., dated December 15, 1998.
10.12* Bill of Sale between Registrant and Paradyne Corporation,
dated , 1999.
10.13** Employment Agreement between Registrant and Armando Geday,
dated April 1, 1997.
10.14** Employment Agreement between Registrant and Thomas Epley,
dated August 29, 1997.
10.15**+ Agreement for the Manufacture and Sale of ASIC Products
between Registrant and Lucent Technologies Inc.
Microelectronics, dated March 23, 1999.
10.16** Intellectual Property Agreement among Registrant, Lucent
Technologies Inc. and Paradyne Corporation, dated July 31,
1996.
10.17** Tax Matters Agreement between Registrant and Paradyne
Corporation dated July 31, 1996.
10.18**+ Product Supply Agreement between Registrant and Paradyne
dated March 16, 1999.
10.19 AT&T Trademark and Patent Agreement between Registrant, AT&T
Corp. and Paradyne Corporation, dated July 31, 1996.
10.20 Investors' Rights Agreement between Registrant, Intel
Corporation, Cisco Systems, Inc. and Communication Partners,
L.P., dated May 6, 1999.
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
10.21 Warrant for the purchase of Common Stock made by the
Registrant and held by Cisco Systems, Inc., dated May 6,
1999.
10.22 Warrant for the purchase of Common Stock made by the
Registrant and held by Intel Corporation, dated May 6, 1999.
10.23 Covenant Not to Sue between Registrant and Intel
Corporation, dated May 6, 1999.
23.1** Consent of Independent Accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney (see page II-5).
27.1 Financial Data Schedule for EDGAR Filing.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GLOBESPAN SEMICONDUCTOR INC.
(PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
Globespan Semiconductor Inc., a corporation organized and existing
under and by virtue of the provisions of the General Corporation Law of the
State of Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Globespan Semiconductor
Inc. and that this corporation was originally incorporated pursuant to the
General Corporation Law on June 7, 1996 under the name CAP Acquisition Corp.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Certificate of Incorporation of this corporation,
declaring said amendment and restatement to be advisable and in the best
interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is GlobeSpan, Inc.
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 15 E. North Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is authorized to issue
is one hundred ten million (110,000,000) shares. One hundred million
(100,000,000) shares shall be Common Stock and ten million (10,000,000) shares
shall be Preferred Stock, each with a par value of $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of four million three hundred
eighty-four thousand three hundred sixty-three (4,384,363) shares (the "Series A
Preferred Stock"), are as set forth below in this Article IV(B). The Board of
Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon additional series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with applicable
protective voting rights that have been or may be granted to the Preferred Stock
or series thereof in Certificates of Designation or this corporation's
Certificate of Incorporation ("Protective Provisions"), but notwithstanding any
other rights of the Preferred Stock or any series thereof, the rights,
privileges, preferences and restrictions of any such additional series may be
subordinated to, pari passu with (including, without limitation, inclusion in
provisions with respect to liquidation and acquisition preferences, redemption
and/or approval of matters by vote or written consent), or senior to any of
those of any present or future class or series of Preferred Stock or Common
Stock. Subject to compliance with applicable Protective Provisions, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series (other than the Series A Preferred Stock), prior or subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. Dividend Provisions.
(a) Subject to the rights of any series of Preferred Stock that may
from time to time come into existence, the holders of shares of Series A
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of this corporation) on the
Common Stock of this corporation, at the rate of $0.27 per share per annum for
the Series A Preferred Stock (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) or, if greater (as determined on a per annum
basis and on an as converted basis for the Series A Preferred Stock), an amount
equal to that paid on any other outstanding shares of this corporation, payable
when, as, and if declared by the Board of Directors. Such dividends shall not be
cumulative. The holders of the outstanding Series A Preferred Stock can waive
any dividend preference that such
2
<PAGE> 3
holders shall be entitled to receive under this Section 1 upon the affirmative
vote or written consent of the holders of at least a majority of the Series A
Preferred Stock then outstanding.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, subject to the rights of series of
Preferred Stock that may from time to time come into existence, all of the
assets of this corporation available for distribution to stockholders shall be
distributed ratably among the holders of Series A Preferred Stock and Common
Stock in proportion to the number of shares of Common Stock, on an as-converted
basis, held by each.
(b)
(i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of this corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of this
corporation; or (B) a sale of all or substantially all of the assets of this
corporation.
(ii) In any of such events, if the consideration received by this
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty (30)
day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by this corporation and
the holders of at least a majority of the voting power of all then outstanding
shares of Preferred Stock.
(B) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (A)(1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
3
<PAGE> 4
(iii) This corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and this corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after this corporation has given the first notice
provided for herein or sooner than ten (10) days after this corporation has
given notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the holders of
the Series A Preferred Stock that are entitled to such notice rights or similar
notice rights and that represent at least 66-2/3% of the voting power of all
then outstanding shares of such Series A Preferred Stock.
3. Redemption. The Series A Preferred Stock shall not be redeemable.
4. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $2.737 for each share of Series A
Preferred Stock (the "Original Series A Issue Price") by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share for shares of Series A Preferred Stock shall be the Original Series A
Issue Price; provided, however, that the Conversion Price for the Series A
Preferred Stock shall be subject to adjustment as set forth in subsection 4(d).
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Series A Preferred Stock immediately upon the
earlier of (i) this corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1 or
Form SB-2 under the Securities Act of 1933, as amended, the public offering
price of which was not less than $2.737 per share (as adjusted for any stock
splits, stock dividends, recapitalizations or the like) and $15,000,000 in the
aggregate or (ii) the date specified by written consent or agreement of the
holders of a majority of the then outstanding shares of Series A Preferred
Stock.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he or
she shall surrender the certificate or certificates therefor, duly endorsed, at
the office of this corporation or of any transfer agent for the Series A
Preferred Stock, and shall give written notice to this corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such
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<PAGE> 5
holder of Series A Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, the conversion may, at the option of any holder
tendering Series A Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of securities pursuant to such
offering, in which event the persons entitled to receive the Common Stock upon
conversion of the Series A Preferred Stock shall not be deemed to have converted
such Series A Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain Splits
and Combinations. The Conversion Price of the Series A Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue, after the date upon which
any shares of Series A Preferred Stock were first issued (the "Purchase Date"),
any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including shares of Common Stock deemed to
be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares
of Common Stock that the aggregate consideration received by this corporation
for such issuance would purchase at such Conversion Price; and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance (including shares of Common Stock deemed to be issued
pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of such
Additional Stock.
(B) No adjustment of the Conversion Price for the Series A
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments that are not required to be made by reason of this
sentence shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of three (3) years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in subsections
(E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this
subsection 4(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any
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<PAGE> 6
reasonable discounts, commissions or other expenses allowed, paid or incurred by
this corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after
the applicable Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
4(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of, or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for, any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by this corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by this corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to this corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof (unless such options
or rights or convertible or exchangeable securities were merely deemed to be
included in the numerator and denominator for purposes of determining the number
of shares of Common Stock outstanding for purposes of subsection 4(d)(i)(A)),
the Conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or
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computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities or options or
rights related to such securities (unless such options or rights were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
that remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(1) and
(2) shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this
corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction described in
subsection 4(d)(iii) hereof; or
(B) Up to 300,000 shares of Common Stock (plus a number of
shares of Common Stock equal to the amount of any unvested options that are
forfeited upon termination of service by this corporation's employees,
consultants or directors) issuable or issued to employees, consultants or
directors of this corporation directly or pursuant to a stock option plan or
restricted stock plan approved by the Board of Directors of this corporation.
(C) Up to 250,000 shares of Common Stock issued in connection
with business relationships, including but not limited to, business
combinations, corporate partnering agreements and capital equipment leases
approved by the Board of Directors of this corporation, provided the issuance of
such securities is for primarily other than equity financing purposes.
(D) The issuance of securities pursuant to a bona fide, firmly
underwritten public offering of shares of Common Stock.
(E) The issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities.
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<PAGE> 8
(F) The issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise.
(iii) In the event this corporation should at any time or from time
to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase of the aggregate
of shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at any time
after the Purchase Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(e) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(d)(i), then, in each such
case for the purpose of this subsection 4(e), the holders of the Series A
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of this corporation into which their shares of Series A Preferred Stock
are convertible as of the record date fixed for the determination of the holders
of Common Stock of this corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 4
or Section 2) provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price then
in
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effect and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(g) No Impairment. This corporation will not, by amendment of this
Amended and Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock against
impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any
share or shares of the Series A Preferred Stock, and the number of shares of
Common Stock to be issued shall be rounded to the nearest whole share. Whether
or not fractional shares are issuable upon such conversion shall be determined
on the basis of the total number of shares of Series A Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series A Preferred Stock pursuant to this Section 4, this
corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property that at the time would be received upon the conversion of
a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
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number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, this corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite shareholder approval of any necessary amendment
to this Amended and Restated Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this Section 4 to
be given to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of this corporation,
unless written notice has been delivered to this corporation of a change in the
address of a holder of Series A Preferred Stock, in which case, such notice
shall be addressed to the holder at the address specified in such notice.
5. Voting Rights.
(a) General Voting Rights. The holder of each share of Series A
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series A Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. Fractional votes
shall not, however, be permitted and any fractional voting rights available on
an as-converted basis (after aggregating all shares into which shares of Series
A Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number (with one-half being rounded upward).
6. Protective Provisions. Subject to the rights of series of Preferred
Stock that may from time to time come into existence, so long as any shares of
Series A Preferred Stock are outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least 66-2/3% of the then outstanding shares of Series A
Preferred Stock:
(a) alter or change the rights, preferences or privileges of the shares
of Series A Preferred Stock so as to affect adversely the shares;
(b) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Series A Preferred Stock;
(c) authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or exercisable for any
equity security having a preference over the Series A Preferred Stock with
respect to dividends, liquidation, redemption or voting;
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(d) amend or waive any provision of this Amended and Restated
Certificate of Incorporation or of the Bylaws of the corporation relating to the
rights, privileges or preferences of the Series A Preferred Stock;
(e) declare or pay any dividend or other distribution on the Common
Stock or Preferred Stock of the corporation; or
(f) take any action resulting in a change in the primary business of
the corporation.
7. Status of Converted Stock. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be cancelled and shall not be issuable by this corporation. The
Amended and Restated Certificate of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in this
corporation's authorized capital stock.
C. Common Stock. The rights, preferences, privileges and restrictions
granted to and imposed on the Common Stock are as set forth below in this
Article IV(C).
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of this corporation, the assets of this corporation shall be distributed as
provided in Section 2 of Division (B) of Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote for each such share, and shall be entitled to notice of
any stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
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ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent permitted
by the General Corporation Law as it now exists or as it may hereafter be
amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of this corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article IX, by the stockholders of this
corporation shall not apply to or adversely affect any right or protection of a
director of this corporation existing at the time of such amendment, repeal,
modification or adoption.
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which General Corporation Law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only
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to limits created by applicable General Corporation Law (statutory or
non-statutory), with respect to actions for breach of duty to this corporation,
its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of
this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * *
THIRD: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed by the President and the Secretary of this
corporation on this 5th day of May, 1999.
/s/ Armando Geday
------------------------------------
Armando Geday, President
/s/ Robert J. McMullan
------------------------------------
Robert J. McMullan, Secretary
<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
CAP ACQUISITION CORP.
A Delaware Corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent............................................ 1
1.2 Other Offices.......................................................... 1
ARTICLE TWO: STOCKHOLDERS
2.1 Annual Meeting......................................................... 1
2.2 Special Meeting........................................................ 2
2.3 Place of Meetings...................................................... 2
2.4 Notice................................................................. 2
2.5 Voting List............................................................ 2
2.6 Voting of Shares....................................................... 3
2.7 Quorum................................................................. 3
2.8 Required Vote; Withdrawal of Quorum.................................... 3
2.9 Method of Voting; Proxies.............................................. 4
2.10 Record Date............................................................ 4
2.11 Conduct of Meeting..................................................... 5
2.12 Inspectors............................................................. 5
2.13 Consent of Stockholders in Lieu of Meeting............................. 6
ARTICLE THREE: DIRECTORS
3.1 Management............................................................. 7
3.2 Number; Election; Term; Qualification.................................. 7
3.3 Change in Number....................................................... 7
3.4 Removal and Resignation................................................ 7
3.5 Vacancies.............................................................. 8
3.6 Place of Meetings...................................................... 8
3.7 First Meeting.......................................................... 8
3.8 Regular Meetings....................................................... 9
3.9 Special Meetings; Notice............................................... 9
3.10 Quorum; Majority Vote.................................................. 9
3.11 Order of Business...................................................... 9
3.12 Presumption of Assent.................................................. 10
3.13 Compensation........................................................... 10
3.14 Action Without a Meeting............................................... 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE FOUR: COMMITTEES
4.1 Designation............................................................ 10
4.2 Number; Qualification; Term............................................ 10
4.3 Authority.............................................................. 11
4.4 Committee Changes...................................................... 11
4.5 Regular Meetings....................................................... 11
4.6 Special Meetings....................................................... 11
4.7 Quorum; Majority Vote.................................................. 11
4.8 Minutes................................................................ 11
4.9 Compensation........................................................... 12
4.10 Responsibility......................................................... 12
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.1 Notice................................................................. 12
5.2 Waiver of Notice....................................................... 12
5.3 Telephone and Similar Meetings......................................... 12
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Election; Term of Office............................... 13
6.2 Removal................................................................ 13
6.3 Vacancies.............................................................. 13
6.4 Authority.............................................................. 13
6.5 Compensation........................................................... 13
6.6 Chairman of the Board.................................................. 14
6.7 Chief Executive Officer................................................ 14
6.8 President and Vice Presidents.......................................... 14
6.9 Treasurer.............................................................. 14
6.10 Assistant Treasurers................................................... 15
6.11 Secretary.............................................................. 15
6.12 Assistant Secretaries.................................................. 15
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares................................................ 15
7.2 Consideration for Shares............................................... 16
7.3 Replacement of Lost or Destroyed Certificates.......................... 16
7.4 Transfer of Shares..................................................... 16
7.5 Registered Stockholders................................................ 17
7.6 Regulations............................................................ 17
7.7 Legends................................................................ 17
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE EIGHT: INDEMNIFICATION OF DIRECTORS AND OFFICERS
8.1 Right to Indemnification............................................... 17
8.2 Advancement of Expenses................................................ 19
8.3 Nonexclusivity of Right to Indemnification............................. 19
8.4 Insurance.............................................................. 19
8.5 Continued Rights....................................................... 19
ARTICLE NINE: MISCELLANEOUS PROVISIONS
9.1 Dividends.............................................................. 20
9.2 Reserves............................................................... 20
9.3 Books and Records...................................................... 20
9.4 Fiscal Year............................................................ 20
9.5 Seal................................................................... 20
9.6 Securities of Other Corporations....................................... 20
9.7 Invalid Provisions..................................................... 21
9.8 Attestation by the Secretary........................................... 21
9.9 Headings; Table of Contents............................................ 21
9.10 References............................................................. 21
9.11 Amendments............................................................. 21
</TABLE>
<PAGE> 5
BY-LAWS
OF
CAP ACQUISITION CORP.
A Delaware Corporation
PREAMBLE
The by-laws of the Company ("By-Laws") are subject to, and governed by,
the General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law") and the certificate of incorporation of CAP Acquistion Corp.,
a Delaware corporation (the "Company"). In the event of a direct conflict
between the provisions of these By-Laws and the mandatory provisions of the
Delaware General Corporation Law or the provisions of the certificate of
incorporation of the Company (the "Certificate of Incorporation"), such
provisions of the Delaware General Corporation Law or the Certificate of
Incorporation, as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Company will be as designated from time to time by the appropriate
filing by the Company in the office of the Secretary of State of the State of
Delaware.
1.2 Other Offices. The Company may also have offices elsewhere, both
within and without the State of Delaware, as the board of directors of the
Company (the "Board of Directors") may from time to time determine or as the
business of the Company may require.
ARTICLE TWO: STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Company
(the "Stockholders") will be held each calendar year on the date and at the time
and place as designated from time to time by the Board of Directors and stated
in the notice of the meeting or in a duly executed waiver of notice of such
meeting. If the date chosen for the meeting is a legal holiday, then the meeting
will be held on the following business day, at the time specified in the notice
or waiver of notice of the meeting. At such meeting, the Stockholders will elect
directors and transact such other business as may properly be brought before the
meeting.
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2.2 Special Meeting. A special meeting of the Stockholders may be called
at any time by the chairman of the board of the Company (the "Chairman of the
Board"), the president of the Company (the "President"), the Board of Directors,
or the Stockholders of not less than ten percent of all shares entitled to vote
at such meeting. The date, time and place of the special meeting are to be
designated by the person(s) calling the meeting and must be stated in the notice
of the special meeting or in a duly executed waiver of notice of such meeting.
Only the business stated or indicated in the notice of the special meeting or in
a duly executed waiver of notice of the meeting may be conducted at the special
meeting.
2.3 Place of Meetings. Meetings of Stockholders will be held at the
principal office of the Company unless another place, within or without the
state of Delaware, is designated for meetings in the manner provided in Sections
2.1 and 2.2.
2.4 Notice. Except as otherwise provided by law, written or printed
notice stating the place, day and time of each meeting of the Stockholders and,
in case of a special meeting, the purpose(s) for which the meeting is called,
must be delivered not less than ten nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the President,
the secretary of the Company (the "Secretary") or the officer or person(s)
calling the meeting, to each Stockholder of record entitled to vote at the
meeting. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the Stockholder at his address as it appears on the
Company records.
2.5 Voting List. At least ten days before each meeting of Stockholders,
the secretary or other officer of the Company who has charge of the Company's
stock ledger must prepare a complete list of Stockholders entitled to vote at
the meeting, arranged in alphabetical order, with the address of each
Stockholder and number of shares registered in the name of each Stockholder. For
a period of ten days prior to such meeting, the list must be kept on file at a
place within the city where the meeting is to be held, which place must be
specified in the notice of meeting or a duly executed waiver of notice of such
meeting or, if not specified in the notice, at the place where the meeting is to
be held. The voting list will be open to examination by any Stockholder during
ordinary business hours. The list must also be produced at the meeting and kept
there at all times during the meeting and may be inspected by any Stockholder
present. The stock ledger is the only evidence as to who are the Stockholders
entitled to examine the list.
2.6 Voting of Shares. Treasury shares, shares of the Company's own
capital stock belonging to it or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Company, are neither entitled to vote
nor be counted for quorum purposes. Nothing in this section is to be construed
as limiting the right of the Company to vote stock, including but not limited to
its own stock, held by it in a fiduciary capacity. All persons holding Company
stock in a fiduciary capacity are entitled to vote the shares so held. Persons
whose stock is pledged are entitled to vote, unless in the transfer by the
pledgor on the books of the Company, he has expressly empowered the pledgee to
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vote thereon, in which case only the pledgee, or his proxy, may represent such
stock and vote thereon.
2.7 Quorum. The holders of a majority of the outstanding shares entitled
to vote on a matter, present in person or by proxy, will constitute a quorum at
any meeting of Stockholders, except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. If a quorum is not present, in
person or by proxy, at any meeting of Stockholders, the Stockholders entitled to
vote at the meeting and who are present, in person or by proxy, may adjourn the
meeting. If no Stockholder entitled to vote is present, any officer of the
Company may adjourn the meeting without notice other than announcement at the
meeting (unless the Board of Directors, after such adjournment, fixes a new
record date for the adjourned meeting), until a quorum is present, in person or
by proxy. At any adjourned meeting at which a quorum is present, in person or by
proxy, any business may be transacted which may have been transacted at the
original meeting had a quorum been present; provided that, if the adjournment is
for more than 30 days or if after the adjournment, a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting must be given to
each Stockholder of record entitled to vote at the adjourned meeting.
2.8 Required Vote; Withdrawal of Quorum. Directors of the Company are to
be elected, at a Stockholders meeting at which a quorum is present, by a
plurality of the votes of the shares entitled to vote on the election of
directors and present in person or represented by proxy. In all other matters,
except the election of directors and those otherwise provided by law, the
Certificate of Incorporation or these By-Laws, the affirmative vote of the
majority of shares present in person or represented by proxy at a meeting at
which a quorum is present, and entitled to vote on the subject matter, will be
the act of the Stockholders. The Stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Stockholders to leave less than a quorum.
2.9 Method of Voting; Proxies. Except as otherwise provided in the
Certificate of Incorporation or by law, each outstanding share is entitled to
one vote on each matter submitted to a vote at a Stockholders meeting. Elections
of directors need not be by written ballot. At any Stockholders meeting, every
Stockholder having the right to vote or to express consent or dissent to
corporate action in writing without a meeting may do so either in person or by a
proxy executed in writing by the Stockholder or by his duly authorized
attorney-in-fact, or any other means permitted by law. No proxy will be valid
after three years from the date of its execution, unless otherwise provided in
the proxy. If no date is stated in a proxy, such proxy will be presumed to have
been executed on the date of the meeting at which it is to be voted. Each proxy
will be revocable unless it expressly provides that it is irrevocable and is
coupled with an interest sufficient in law to support an irrevocable power or is
otherwise made irrevocable by law.
2.10 Record Date.
(a) Meetings of Stockholders. In order that the Company may determine
the Stockholders entitled to notice of or to vote at any meeting of Stockholders
or any adjournment thereof, the Board of Directors may fix a record date, which
record date may not precede the date
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upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date may not be more than 60 nor less then ten days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining Stockholders entitled to notice of or
to vote at a meeting of Stockholders will be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of Stockholders of record entitled to notice of or to vote
at a meeting of Stockholders will apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) Action Without A Meeting. In order that the Company may determine
the Stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date may not
precede the date upon which the resolution fixing the record is adopted by the
Board of Directors, and which date may not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining Stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, will be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Company by delivery to its registered office in this State, its principal place
of business or an officer or agent of the Company having custody of the book in
which proceedings of meetings of Stockholders are recorded. Delivery made to the
Company's registered office must be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by the Board of
Directors, and prior action by the Board of Directors is required by law, the
record date for determining Stockholders entitled to consent to corporate action
in writing without a meeting will be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
(c) Dividends, Distributions, Other Actions. In order for the Company to
determine the Stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the Stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date may not precede the date upon which the resolution
fixing the record date is adopted, and which record date may not be more than 60
days prior to such action. If no record date is fixed, the record date for
determining Stockholders for any such purpose will be at the close of business
on the day of which the Board of Directors adopts the resolution relating
thereto.
2.11 Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President will preside at all meetings of Stockholders. The
Secretary will keep the records of each meeting of Stockholders. In the absence
or inability to act of any such officer, the officer's duties must be
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performed by the officer given the authority to act for the absent or non-acting
officer under these By-Laws or by some person(s) appointed at the meeting.
2.12 Inspectors. The Board of Directors may, in advance of any meeting
of Stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof and make a written report thereof. If any of the inspectors
so appointed fails to appear or act or if inspectors have not been appointed,
the chairman of the meeting may appoint one or more inspectors. Each inspector,
before entering upon the discharge of his duties, must take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors are to
determine the number of shares of capital stock of the Company outstanding and
the voting power of each, the number of shares represented at the meeting, the
existence of a quorum and the validity and effect of proxies. Furthermore, they
are to receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the results and do such acts as are proper
to conduct the election or vote with fairness to all Stockholders. On request of
the chairman of the meeting, the inspectors must make a report in writing of any
challenge, request or matter determined by them and must execute a certificate
of any fact found by them. No director or candidate for the office of director
may act as an inspector of an election of directors. Inspectors need not be
Stockholders.
2.13 Consent of Stockholders in Lieu of Meeting. Except as otherwise
provided by law or by the Certificate of Incorporation, any action required to
be taken, or which may be taken, by law, the Certificate of Incorporation or
these By-Laws, at any annual or special meeting of Stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent(s) in
writing, setting forth the action taken, is signed by the holders of shares of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted, provided that
(a) such consent is executed and delivered in a manner consistent with Delaware
law and (b) prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent is given to those Stockholders
who have not consented in writing.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and affairs of the Company will be managed
by and under the Board of Directors. Subject to the restrictions imposed by law,
the Certificate of Incorporation or these By-Laws, the Board of Directors may
exercise all the powers of the Company.
3.2 Number; Election; Term; Qualification. The number of directors which
constitutes the entire Board of Directors may not be less than one. The first
Board of Directors will consist of the number of directors named by the
Incorporator of the Company. Thereafter, within the
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limits above specified, the number of directors which constitutes the entire
Board of Directors will be determined by resolution of the Board of Directors or
by resolution of the Stockholders at the annual meeting or at a special meeting
called for that purpose. Except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, the directors will be elected at an annual
meeting of Stockholders at which a quorum is present and in accordance with the
provisions for election of directors set forth in Section 2.8, supra. Each
director chosen in this manner will hold office until the first annual meeting
of Stockholders held after his election and until his successor is elected and
qualified or, if earlier, until his death, resignation, or removal from office.
No director need be a Stockholder of the Company or a Delaware resident.
Acceptance of the office of director may be expressed orally or in writing.
3.3 Change in Number. A decrease in the number of directors constituting
the entire Board of Directors will not have the effect of shortening the term of
any incumbent director.
3.4 Removal and Resignation. At any meeting of Stockholders or, whenever
permitted by law and the Certificate of Incorporation, without a meeting by
their written consents thereto, any director or the entire Board of Directors
may be removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote on the election of directors; provided,
however, that if the Stockholders have the right to cumulate votes in the
election of directors pursuant to the Certificate of Incorporation, if less than
the entire Board of Directors is to be removed, no one of the directors may be
removed if the votes cast against his removal would be sufficient to elect him
if then cumulatively voted at an election of the entire Board of Directors.
Any director may resign at any time. The resignations must be made in
writing and will take effect at the time specified therein, or if no time is
specified, at the time of its receipt by the Chairman of the Board, if any, the
President or the Secretary. The acceptance of a resignation will not be
necessary to make it effective, unless expressly so provided in the resignation.
3.5 Vacancies. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. Each director so chosen will hold office until the first
annual meeting of Stockholders held after his election and until his successor
is elected and qualified or, if earlier, until his death, resignation or removal
from office. If there are no directors in office, an election of directors may
be held in the manner provided by statute. If, at the time of filling any
vacancy or any newly-created directorship, the directors then in office
constitute less than a majority of the whole Board of Directors (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any Stockholder(s) holding at least 10% of the total number of
the shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or
newly-created directorships or to replace the directors chosen by the directors
then in office. Except as otherwise provided in these By-Laws, when one or more
directors resign from the Board of Directors, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
will have the power to fill such vacancy or vacancies, the vote thereon to take
effect when
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such resignation(s) become effective, and each director so chosen will hold
office as provided in these By-Laws with respect to the filling of other
vacancies.
3.6 Place of Meetings. The Board of Directors may hold its meetings and
may have an office(s) in such place(s), within or without the State of Delaware,
as the Board of Directors may from time to time determine or as is specified in
the notice of such meeting or duly executed waiver of notice of such meeting.
3.7 First Meeting. Each newly elected Board of Directors may hold its
first organizational meeting, if a quorum is present, immediately after and at
the same place as the annual meeting of Stockholders. Notice of such meeting is
not necessary.
3.8 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such times and places as designated from time to time by
resolution of the Board of Directors and communicated to all directors.
3.9 Special Meetings; Notice. Special meetings of the Board of Directors
will be held whenever called by the Chairman of the Board, the President or any
director. The Secretary must give notice or the person calling the special
meeting must cause notice to be given of each special meeting to each director
at least one day before the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting. Unless
limited by law, by the Certificate of Incorporation or by the By-Laws, any and
all business may be transacted at any special meeting of directors.
3.10 Quorum; Majority Vote. At all meetings of the Board of Directors, a
majority of the directors fixed in the manner provided in these By-Laws will
constitute a quorum for the transaction of business. If a quorum is not present
at a meeting, a majority of the directors present or any director solely present
may adjourn the meeting, without further notice other than an announcement at
the meeting until a quorum is present. Unless the act of a greater number is
required by law, the Certificate of Incorporation or these By-Laws, the act of a
majority of the directors present at a meeting at which a quorum is in
attendance will be the act of the Board of Directors. At any time that the
Certificate of Incorporation provides that directors elected by the holders of a
class or series of stock will have more or less than one vote per director on
any matter, every reference in these By-Laws to a majority or other proportion
of directors will refer to a majority or other proportion of the votes of such
directors.
3.11 Order of Business. At meetings of the Board of Directors, business
shall be transacted in such order as the Board of Directors may determine. The
Chairman of the Board, if any, and, if none or if the Chairman of the Board is
absent or otherwise unable to act, the President is to preside at all meetings
of the Board of Directors. In the absence or inability to act of either officer,
a chairman is to be chosen by the Board of Directors from among the directors
present. The Secretary is to act as the secretary of each meeting of the Board
of Directors unless the Board
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of Directors appoints another person to act as secretary of the meeting. The
regular minutes of the proceedings must be placed in the minute book of the
Company.
3.12 Presumption of Assent. A director of the Company who is present at
any meeting of the Board of Directors at which action on any Company matter is
taken will be presumed to have assented to the action unless his dissent is
entered in the minutes of the meeting or unless he files his written dissent to
such action with the person acting as secretary of the meeting before the
adjournment thereof or forwards any dissent by certified or registered mail to
the Secretary immediately after the adjournment of the meeting. Such right to
dissent does not apply to a director who voted in favor of such action.
3.13 Compensation. The Board of Directors has the authority to fix the
compensation, including fees and reimbursement of expenses, paid to directors
for attendance at regular or special meetings of the Board of Directors or any
committee thereof; provided, however, that nothing contained herein be construed
to preclude any director from serving the Company in any other capacity or
receiving compensation therefor.
3.14 Action Without a Meeting. Unless otherwise restricted by the
Certificate of Incorporation or By-Laws, any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing(s) are filed with the minutes of
proceedings of the Board, or committee.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The Board of Directors may, by resolution adopted by a
majority of the entire Board of Directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee will consist of one or
more directors appointed by resolution adopted by a majority of the entire Board
of Directors. The Board of Directors may designate one or more directors as
alternate members of any committee. Any such alternate member may replace any
absent or disqualified member at any meeting of the committee. If no alternate
committee members have been so appointed to a committee or each alternate
committee member is absent or disqualified, the member(s) of the committee
present at any meeting and not disqualified from voting, whether or not a quorum
is present, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member. The
number of committee members may be increased or decreased by resolution adopted
by a majority of the entire Board of Directors. Each committee member shall
serve as such until the earliest of (a) the expiration of his term as director,
(b) his resignation as a committee member or as a director, or (c) his removal
as a committee member or as a director.
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4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, will have and may exercise all of the
authority of the Board of Directors in the management of the business and
property of the Company except to the extent expressly restricted by law, the
Certificate of Incorporation or these By-Laws. A committee of the Board of
Directors may be given the power and authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to the Delaware General Corporation Law.
4.4 Committee Changes. The Board of Directors will have the power at any
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated by the committee and
communicated to all its members.
4.6 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting must cause notice of such special meeting, including the time
and place of such special meeting, to be given to each committee member at least
two days before the meeting. Neither the business to be transacted at, nor the
purpose of, any special meeting of any committee need be specified in the notice
or waiver of notice of the special meeting.
4.7 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the Board of Directors will constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting,
without notice, other than an announcement at the meeting, until a quorum is
present. The act of a majority of the members present at any meeting at which a
quorum is in attendance will be the act of the committee, unless the act of a
greater number is required by law, the Certificate of Incorporation or these
By-Laws.
4.8 Minutes. The minutes of the proceedings of each committee must be
prepared and the committee must report the minutes to the Board of Directors
upon the request of the Board of Directors. The minutes of the proceedings of
each committee must be delivered to the Secretary for placement in the Company's
minute books.
4.9 Compensation. Committee members may, by resolution of the Board of
Directors, be allowed a stated salary or a fixed sum and expenses of attendance,
if any, for attending any committee meetings.
4.10 Responsibility. The designation of any committee and the delegation
of authority to it will not operate to relieve the Board of Directors or any
director of any responsibility imposed upon it or any director by law.
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ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.1 Notice. Whenever by law, the Certificate of Incorporation or these
By-Laws, notice is required to be given to any committee member, director or
Stockholder and no provision is made as to how such notice must be given, any
such notice may be given (a) in person, (b) in writing, by mail, postage
prepaid, addressed to such committee member, director or Stockholder at his
address as it appears on the books or, in the case of a Stockholder, the stock
transfer records of the Company or (c) by any other method permitted by law. Any
notice required or permitted to be given by mail will be deemed to be given at
the time it is deposited in the United States mail. Any notice required or
permitted to be given by overnight courier service will be deemed to be given at
the time delivered to such service with all charges prepaid and properly
addressed. Any notice required or permitted to be given by telegram, telex or
telefax will be deemed to be given at the time transmitted with all charges
prepaid and properly addressed.
5.2 Waiver of Notice. Whenever by law, the Certificate of Incorporation
or these By-Laws, any notice is required to be given to any Stockholder,
director or committee member, a waiver thereof in writing signed by the
person(s) entitled to such notice, whether before or after the time notice
should have been given, will be equivalent to the giving of such notice.
Attendance of a Stockholder, director or committee member at a meeting will
constitute a waiver of notice of such meeting, except where such person attends
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
5.3 Telephone and Similar Meetings. Stockholders, directors or committee
members may participate in meetings and hold meetings by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meetings can hear each other. Participation in such a
meeting will constitute presence in person at the meeting, except where a person
participates for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Election; Term of Office. The officers of the
Company will be a Chief Executive Officer, a President, a Secretary and any
other officers as the Board of Directors may from time to time elect or appoint,
including, but not limited to a Chairman of the board, one or more vice
presidents (the "Vice Presidents (s)") and a treasurer (the "Treasurer")."Unless
otherwise specified by these By-Laws or by resolution of the Board of Directors,
at the first meeting of the Board of Directors after each annual meeting of
Stockholders at which a quorum is present, the Board of Directors shall elect
the officers. Each officer will hold office until his successor has been duly
elected and qualified, until his death or until he resigns or has been removed
in the manner provided here. Any two or more offices may be held by the same
person. None of the officers need be a Stockholder or Company director.
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6.2 Removal and Resignation. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Company will be served thereby, but such
removal will be without prejudice to the contract rights, if any, of the person
removed. Election or appointment of an officer or agent will not of itself
create contract rights. An officer may resign at any time upon written notice to
the Company. The acceptance of a resignation will not be necessary to make it
effective unless so provided in the resignation.
6.3 Vacancies. Any vacancy occurring in any office of the Company may be
filled by the Board of Directors.
6.4 Authority. Officers will have the authority and perform such duties
in the management of the Company as provided in these By-Laws or as may be
determined by resolution of the Board of Directors not inconsistent with these
By-Laws.
6.5 Compensation. The compensation, if any, of officers and agents will
be fixed from time to time by the Board of Directors; provided, however, that
the Board of Directors may by resolution delegate to any one or more officers
the authority to fix such compensation.
6.6 Chairman of the Board. The Chairman of the Board, if one is elected
by the Board of Directors, will have those powers and duties as prescribed by
the Board of Directors.
6.7 Chief Executive Officer. The Chief Executive Officer shall preside
at all meetings of the stockholders and at all meetings of the Board of
Directors, unless the Chairman of the Board of Directors has been appointed and
is present. The Chief Executive Officer shall be the chief executive officer of
the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and officers of
the corporation. The Chief Executive Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors shall designate from time to time.
6.8 President and Vice Presidents. The President and the Vice Presidents
may, in that order, assume and perform the duties of the Chief Executive Officer
in the absence or disability of the Chief Executive Officer or whenever the
office of Chief Executive Officer is vacant. The President and the vice
Presidents shall perform other duties commonly incident to their office and
shall also perform such other duties and have such other powers as the Board of
Directors or the Chief Executive Officer shall designate from time to time.
6.9 Treasurer. The Treasurer will have the care and custody of all the
Company funds and must deposit them in such banks or other depositories as the
Board of Directors or any officer(s), or any officer and agent jointly, duly
authorized by the Board of Directors, direct or
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approve. He must keep a full and accurate account of all monies received and
paid on account of the Company and must render a statement of his accounts
whenever the Board of Directors so requires. Except as otherwise provided by the
Board of Directors, he must perform all other necessary acts and duties in
connection with the administration of the Company's financial affairs and
generally perform all the duties usually appertaining to the office of the
Treasurer. Whenever required by the Board of Directors, he must give bonds for
the faithful discharge of his duties in such sums and with such securities as
the Board of Directors may approve. In the absence of the Treasurer, the person
designated by the Chairman of the Board, if any, or the President will perform
his duties.
6.10 Assistant Treasurers. Each assistant treasurer, if any, of the
Company ("Assistant Treasurer") will have those powers and duties assigned to
him by the Board of Directors, or delegated by the Chairman of the Board or the
President. The Assistant Treasurers, in the order as designated by the Board of
Directors or, in the absence of such a designation, as designated by the length
of time they have held the office of Assistant Treasurer, will exercise the
powers of the Treasurer during the Treasurer's absence or inability to act.
6.11 Secretary. Except as otherwise provided in these By-Laws, the
Secretary must keep the minutes of all meetings of the Board of Directors, of
any committee and of the Stockholders, or consents in lieu of such meetings in
the Company's minute books and must cause notice of the meetings to be given
when requested by any person authorized to call a meeting. The Secretary may
sign with the Chairman of the Board or the President, in the name of the
Company, all contracts of the Company and affix the Company seal (if any)
thereto. The Secretary may sign with the Chairman of the Board or the President
all Company Stock certificates, and he is in charge of the certificate books,
share transfer records, stock ledgers and any other stock books and papers as
the Board of Directors may direct, all of which must, at all reasonable times,
be open to inspection by any director at the Company office during business
hours. The Secretary, will in general, perform such other duties incident to the
office of the Secretary, or as assigned by the Board of Directors or delegated
by the Chairman of the Board or the President.
6.12 Assistant Secretaries. Each assistant secretary, if any, of the
Company ("Assistant Secretary") will have those powers and duties assigned to
him by the Board of Directors or delegated by the Chairman of the Board or the
President. The Assistant Secretaries, in the order as designated by the Board of
Directors or, in the absence of such a designation, as determined by the length
of time they have held the office of Assistant Secretary, will exercise the
powers of the Secretary during the Secretary's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
Company will be in the form approved by the Board of Directors. The certificates
must be signed by the Chairman of the Board or the President or a Vice President
and also by the Secretary or an Assistant Secretary
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or by the Treasurer or an Assistant Treasurer. Any and all signatures on the
certificates may be a facsimile and may be sealed with the Company seal or a
facsimile thereof. If any officer, transfer agent or registrar who has signed,
or whose facsimile signature has been placed upon, a certificate has ceased to
be an officer, transfer agent or registrar before the certificate is issued, the
certificate may be issued by the Company with the same effect as if he were an
officer, transfer agent or registrar at the date of issue. The certificates must
be consecutively numbered and entered in the Company books as they are issued
and must exhibit the holder's name and the number of shares. The Board of
Directors may provide by resolution(s) that some or all of any or all classes or
series of its stock will be uncertificated shares. However, any such resolution
will not apply to shares represented by a certificate until that certificate is
surrendered to the Company. Notwithstanding the adoption of such a resolution,
every holder of uncertificated shares is entitled, upon request, to have a
certificate signed as prescribed above.
7.2 Consideration for Shares. The consideration for subscriptions to, or
the purchase of shares of capital stock to be issued by the Company, must be
paid in the form and in the manner that the Board of Directors determines. In
the absence of actual fraud in the transaction, the judgment of the Directors as
to the value of such consideration will be conclusive. Capital stock so issued
will be considered fully paid and nonassessable so long as the par value or
stated value allocated to capital is paid in full by consideration in the form
of cash, services rendered, personal or real property, leases of real property
or a combination thereof. The balance or surplus in the subscription or purchase
price of the stock, if the directors so determine, may be supplied by a binding
obligation of the subscriber or purchaser to pay the balance of the price.
7.3 Replacement of Lost or Destroyed Certificates. The Board of
Directors may issue a new certificate of stock or uncertificated shares in place
of any certificate issued by it, alleged to have been lost, stolen or destroyed,
and the Board of Directors may require the owner of the lost, stolen or
destroyed certificate, or his legal representative to give the Company a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of the certificate or the
issuance of a new certificate of stock or uncertificated shares.
7.4 Transfer of Shares. Upon surrender to the Company or its transfer
agent of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it will be the
duty of the Company to issue a new certificate to the person entitled to the new
certificate, cancel the old certificate and record the transaction upon its
books. Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares will be cancelled and issuance
of new equivalent uncertificated shares or certificated shares will be made to
the person entitled thereto and the transaction will be recorded upon the books
of the Company.
7.5 Registered Stockholders. The Company will be entitled to treat the
holder of record of any share(s) of stock as the holder in fact thereof and,
accordingly, will not be bound to recognize any equitable or other claim to such
share(s) on the part of any other person, whether or not it has express or other
notice thereof, except as otherwise provided by law.
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7.6 Regulations. The Board of Directors will have the power and
authority to make all such rules and regulations as they deem expedient
concerning the issue, transfer, registration or the replacement of certificates
for shares of Company stock.
7.7 Legends. The Board of Directors will have the power and authority to
provide that certificates representing shares of stock bear those legends that
the Board of Directors deems appropriate to assure that the Company complies
with applicable federal or state securities laws or other laws.
ARTICLE EIGHT: INDEMNIFICATION OF DIRECTORS AND OFFICERS
8.1 Right to Indemnification.
(a) The Company may indemnify, to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may be amended in the
future (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than the
law permitted the Company to provide prior to such amendment), any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (hereafter, in this Article Eight,
collectively referred to as a "Proceeding") (other than an action by or in the
right of the Company), by reason of the fact that he is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.
The termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, will not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal Proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Company may indemnify, to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may be amended in the
future (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than the
said law permitted the Company to provide prior to such amendment), any person
who was or is a party or is threatened to be made a party to any Proceeding
brought by or in the right of the Company to procure a judgment in its favor by
reason
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<PAGE> 19
of the fact that he is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company, as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including reasonable attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal Proceeding, had no reasonable cause
to believe his conduct was unlawful; provided, however, that no indemnification
may be made with respect to any claim, issue or matter as to which such person
has been adjudged to be liable to the Company, unless and only to the extent
that the Court of Chancery or the court in which such Proceeding was brought
determines, upon application, that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for those expenses which the Court of Chancery or other
court may deem proper.
(c) The Company must indemnify any director, officer, employee or agent
of the Company to the extent he has been successful on the merits or otherwise
in defense of any Proceeding against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) The determination that indemnification of the director, officer,
employee or agent is proper under the circumstances because he has met the
applicable standard of conduct set forth in subparagraphs (a) and (b) above
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such Proceeding, or (2) if such
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or (3)
by the Stockholders.
8.2 Advancement of Expenses. The Company may advance the expenses
(including reasonable attorneys' fees) incurred by an officer or director in
defending any Proceeding prior to the final disposition of the Proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined that he is not entitled to be
indemnified by the Company under Delaware General Corporation Law, as the same
exists or may be amended in the future.
Expenses (including reasonable attorneys' fees) incurred by other
employees and agents may be paid upon those terms and conditions that the Board
of Directors deems appropriate.
8.3 Nonexclusivity of Right to Indemnification. The indemnification and
advancement of expenses provided by, or granted pursuant to, the provisions of
this Article Eight are not to be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
the By-Laws, any agreement or vote of Stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding that office.
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<PAGE> 20
8.4 Insurance. The Company will have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under this Article Eight or Delaware General Corporation Law or both.
8.5 Continued Rights. The indemnification and advance of expenses
provided by this Article Eight will, unless otherwise provided when authorized,
continue as to a person who has ceased to be a director, officer, employee or
agent and will inure to the benefit of the heirs, executors and administrators
of that person.
ARTICLE NINE: MISCELLANEOUS PROVISIONS
9.1 Dividends. Dividends upon the capital stock of the Company, subject
to the provisions of the Certificate of Incorporation and applicable statutes,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, property or shares of
the capital stock.
9.2 Reserves. Before payment of any dividend, there may be set aside out
of any funds of the Company available for dividends the sum(s) that the
directors, in their absolute discretion, think proper as a reserve(s) to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Company or for such other purpose as the directors may find
conducive to the interests of the Company, and the directors may modify or
abolish any reserve in the manner in which it was created.
9.3 Books and Records. The Company must keep correct and complete books
and records of account and must keep minutes of the proceedings of its
Stockholders and Board of Directors. The Company must keep at its registered
office or principal place of business or at the office of its transfer agent or
registrar, a record of the original issuance of shares by the Company and a
record of each transfer of those shares that have been presented to the Company
for registration of transfer, giving the names and addresses of all past and
current Stockholders and the number and class of the shares held by each.
9.4 Fiscal Year. The fiscal year of the Company will be fixed by the
Board of Directors; provided, however, that if the fiscal year is not fixed by
the Board of Directors and the selection of the fiscal year is not expressly
deferred by the Board of Directors, the fiscal year will be the calendar year.
9.5 Seal. The seal of the Company will be in the form approved from time
to time by the Board of Directors.
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9.6 Securities of Other Corporations. The chief executive officer (or
any other officers designated by the Board of Directors) will have the power and
authority to transfer, endorse for transfer, vote, consent or take any other
action with respect to any securities of another issuer which may be held or
owned by the Company and to make, execute and deliver any waiver, proxy or
consent with respect to any such securities.
9.7 Invalid Provisions. If any part of these By-Laws is held invalid or
inoperative for any reason, the remaining parts, so far as possible and
reasonable, will remain valid and operative.
9.8 Attestation by the Secretary. With respect to any deed, deed of
trust, mortgage or other instrument executed by the Company through its duly
authorized officer(s), the attestation to such execution by the Secretary will
not be necessary to constitute such deed, deed of trust, mortgage or other
instrument a valid and binding obligation against the Company unless the
resolutions, if any, of the Board of Directors authorizing such execution
expressly state that such attestation is necessary.
9.9 Headings; Table of Contents. The headings and table of contents used
in these By-Laws have been inserted for administrative convenience only and do
not constitute matter to be construed in the interpretation of these By-Laws.
9.10 References. In these By-Laws, whenever the singular number is used,
the same includes the plural where appropriate and words of any gender include
each other gender where appropriate.
9.11 Amendments. These By-Laws may be altered, amended or repealed or
new by-laws may be adopted by the Stockholders or by the Board of Directors,
when such power is conferred upon the Board of Directors by the Certificate of
Incorporation, at any regular or special meeting of the Stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new by-laws is contained in the notice of any such meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the Board of Directors by the
Certificate of Incorporation, it shall not divest or limit the power of
Stockholders to adopt new by-laws or amend or repeal these By-Laws.
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EXHIBIT FF
AT&T TRADEMARK AND PATENT AGREEMENT
THIS AT&T TRADEMARK AND PATENT AGREEMENT ("Agreement") is being entered
into as of July 31, 1996 by and between AT&T CORP., a corporation of the State
of New York ("AT&T"), AT&T PARADYNE CORPORATION, a corporation of the State of
Delaware ("PARADYNE"), and CAP ACQUISITION CORP., a corporation of the State of
Delaware ("CAPCo"), and is Exhibit FF to the Purchase Agreement ("Purchase
Agreement") dated June 18, 1996 between PARADYNE, CAPCo, LUCENT TECHNOLOGIES,
INC., a corporation of the State of Delaware ("LUCENT"), PARADYNE PARTNERS,
L.P., a Delaware limited partnership, PARADYNE ACQUISITION CORP., a Delaware
limited partnership ("BUYER"), RENTAL ACQUISITION CORP., a corporation of the
State of Delaware, and LEASE ACQUISITION CORP., a corporation of the State of
Delaware.
WHEREAS, LUCENT, a majority-owned subsidiary of AT&T; has agreed to sell
and BUYER has agreed to buy PARADYNE pursuant to the Purchase Agreement; and
WHEREAS, the Purchase Agreement provides for an AT&T Trademark and
Patent Agreement between the parties hereto;
NOW, THEREFORE, it is hereby agreed by the parties:
ARTICLE 1
Definitions
Capitalized terms without definition in this Agreement shall have the
meanings assigned to them in the Purchase Agreement. As used herein, the
following terms have the following meanings:
1.1 "AT&T's Patents" shall mean every Patent as defined below in
Section 1.4, (including, without limitation, utility models, design patents and
design registrations) issued in any country of the world on patent applications
filed prior to the Closing Date with respect to which AT&T:
(a) prior to the Closing Date has ownership or control, and
(b) as of the Closing Date otherwise has the right to grant
any licenses of the type herein granted by AT&T.
Notwithstanding the foregoing, "AT&T's Patents" do not include (a) any
patents or patent applications first filed prior to February 1, 1996 which
patents or patent applications are (i) owned or controlled by AT&T Wireless
Services, Inc. ("AWS") or any of its Subsidiaries, and (ii) relate to the
business of wireless telecommunications services; or (b) any patents or patent
applications first filed on or after February 1, 1996 but before the Closing
Date and
<PAGE> 2
covering inventions made by employees of AWS or by third parties other than AT&T
or any of its Subsidiaries, which patents and applications (i) are owned or
controlled by AWS or any of its Subsidiaries, and (ii) which relate to the
business of wireless telecommunications services.
1.2 "Inherent Use" shall mean a use that would be completely
performed by a product and/or service as furnished by PARADYNE and/or CAPCo,
without the need for any additional product, service, development, modification
or programming by a customer of PARADYNE and/or CAPCo, or by a third party.
1.3 "PARADYNE/CAPCo Products" shall mean the products and/or
services of PARADYNE and of CAPCo in development by PARADYNE and/or CAPCo as of
the Closing Date and sold prior to one (1) year from the Closing Date and
products and/or services listed in Appendix 4, which must be sold prior to three
(3) years from the Closing Date.
1.4 "Patent" shall mean all the patents listed in Appendix 5 hereto,
including all divisionals, continuations, re-examinations, renewals,
provisionals, continuations-in-part, re-issues, and foreign equivalents thereof
in existence as of the Closing Date and any other patents used by PARADYNE
and/or CAPCo as of the Closing Date, and identified in writing by PARADYNE
and/or CAPCo, and agreed to in writing by AT&T, within thirty (30) days after
the Closing Date. PARADYNE and CAPCo agree that they will make reasonably
diligent efforts to ascertain which patents of AT&T read on the PARADYNE/CAPCo
Products, and PARADYNE, CAPCo and AT&T will during the foregoing thirty (30) day
period, in mutual good faith, include only such patents in Appendix 5.
1.5 "Subsidiary" shall mean a corporation or other legal entity: (i)
the majority of whose shares or other securities entitled to vote for election
of directors (or other managing authority) is now or hereafter owned or
controlled by such company either directly or indirectly; or (ii) which does not
have outstanding publicly traded shares or securities but the majority of whose
ownership interest representing the right to manage such corporation or other
legal entity is now or hereafter owned or controlled by such company either
directly or indirectly; but any such corporation or the other legal entity shall
be deemed to be a Subsidiary of such company only as long as such ownership or
control exists.
1.6 "Telecommunication Services" means the operation of a
communications network to provide communication services to customers, including
the processing of information to the extent needed to transfer information
between locations. The term "Telecommunications Services" includes online and
Internet services, and wireless service, whether fixed or mobile. The provision
by PARADYNE and/or CAPCo of goods or services to entities which are themselves
providers of Telecommunication Services shall not be deemed to constitute the
provision of Telecommunication Services by PARADYNE and/or CAPCo.
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<PAGE> 3
ARTICLE 2
Grants of Licenses
2.1 Grant.
AT&T hereby grants to PARADYNE and CAPCo under AT&T's Patents
non-exclusive, non-transferable (except as otherwise provided in Section 5.2),
irrevocable, world-wide licenses for PARADYNE/CAPCo Products. No license is
granted for the provision of Telecommunication Services.
2.2 Duration.
(a) All licenses granted herein under any Patent shall
continue for the entire unexpired term of such Patent. Notwithstanding the
foregoing, and notwithstanding Section 5.2 hereof, in the event that PARADYNE
and/or CAPCo, and/or the part(s) of their respective businesses, including their
Subsidiaries to whom sublicenses of AT&T's Patents have been granted, are sold
to any of the companies listed in Section 2.2(b), the licenses and/or
sublicenses extended to them under AT&T's Patents pursuant to this Agreement
shall immediately terminate. PARADYNE and/or CAPCo, as the case may be, will
promptly notify AT&T in writing of any such sale.
(b) MCI, Sprint, Microsoft Corporation, Excel and/or any of
the Regional Bell Operating Companies ("RBOCs").
2.3 Scope.
(a) The licenses granted herein are licensed to (i) make,
have made, use, lease, sell, offer to sell and import PARADYNE/CAPCo Products;
(ii) make, have made, use and import machines, tools, materials and other
instrumentalities, insofar as such machines, tools, materials and other
instrumentalities are involved in or incidental to the development, manufacture,
testing or repair of PARADYNE/CAPCo Products which are or have been made, used,
leased, owned, sold, offered for sale or imported by PARADYNE and/or CAPCo; and
(iii) convey to any customer of PARADYNE and/or CAPCo with respect to any
PARADYNE/CAPCo Product which is sold or leased by PARADYNE and/or CAPCo to such
customer, rights to use and resell such PARADYNE/CAPCo Product as sold or leased
by PARADYNE and/or CAPCo (whether or not as part of a larger combination);
provided, however, that no rights may be conveyed to customers with respect to
any invention which is directed to (1) a combination of such PARADYNE/CAPCo
Product (as sold or leased) with any other product, (2) a method or process
which is other than the Inherent Use of such Product itself (as sold or leased),
or (3) a method or process involving the use of a PARADYNE/CAPCo Product to
manufacture (including associated testing) any other product.
(b) Licenses granted herein are not be construed either (i)
as consent by AT&T to any act which may be performed by PARADYNE and/or CAPCo
except to the extent covered by AT&T's Patents licensed herein to PARADYNE
and/or CAPCo, or (ii) to include licenses to conributorily infringe or induce
infringement under U.S. law or a foreign
3
<PAGE> 4
equivalent thereof; provided, however, that any products licensed under this
Agreement may be used by the end user thereof for its intended purpose.
(c) The grant of each license hereunder includes the right
of PARADYNE and/or CAPCo to grant sublicenses within the scope of such license
to PARADYNE's and/or CAPCo's Subsidiaries for so long as they remain their
respective Subsidiaries, and thereafter as provided in Section 5.2
("Nonassignability"). Any such sublicense may be made effective retroactively,
but not prior to the effective date hereof, nor prior to the sublicensee
becoming a Subsidiary of PARADYNE and/or CAPCo.
ARTICLE 3
Trademarks
3.1 AT&T owns all right, title and interest in and to the trademarks
and common law marks set forth on Appendix 1 attached hereto ("Assigned Marks").
AT&T hereby assigns pursuant to the Trademark Assignment Agreement attached
hereto as Appendix 2 all of its worldwide rights, title and interest in and to
the Assigned Marks to PARADYNE, including the goodwill of the business
represented by the Assigned Marks, any AT&T registrations of Assigned Marks, any
AT&T applications of Assigned Marks, and any AT&T common law rights in the
Assigned Marks.
3.2 PARADYNE and CAPCo shall not use after the Closing Date (1) the
mark AT&T as a tradename or as part of a corporate name, (2) the trademark AT&T
and/or the AT&T Globe design, nor will PARADYNE or CAPCo use any derivations or
combination marks containing the elements AT&T and/or the AT&T Globe design.
However, PARADYNE and/or CAPCo is allowed to use up for a period not exceeding
one year after the Closing Date (1) all of PARADYNE's inventory of products
existing as of the Closing Date which bears the trademark AT&T and/or AT&T Globe
design, and (2) all printed matter other than letterheads, business cards, etc.
now used, bearing the trademark AT&T and/or AT&T Globe design.
3.3 AT&T shall not use after the Closing Date (1) the mark PARADYNE
as a tradename or as part of a corporate name; (2) the trademark PARADYNE and/or
the PARADYNE logo design, nor will AT&T use any derivations or combination marks
containing the elements PARADYNE and/or the PARADYNE logo design; or (3) any of
the Assigned Marks; provided, however, that AT&T acknowledge and agrees that
PARADYNE may use and register VOICESPAN for the PARADYNE VOICESPAN GOODS as
defined below and PARADYNE and CAPCo acknowledges and agree that AT&T may use
and register VOICESPAN for the AT&T VOICESPAN GOODS as defined below. In no
event will PARADYNE or CAPCo use VOICESPAN in connection with the AT&T VOICESPAN
GOODS and in no event will AT&T use VOICESPAN in connection with the PARADYNE
VOICESPAN GOODS. The parties agree to grant each other consents to use and
register VOICESPAN for their respective PARADYNE VOICESPAN GOODS and AT&T
VOICESPAN GOODS.
PARADYNE VOICESPAN GOODS shall mean electronic products, namely a
microchip which allows the simultaneous transmission of voice and data over
analog
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<PAGE> 5
communications lines, computer software to operate telecommunications
modems and to allow for simultaneous transmission of voice and data over a
telecommunications network, telecommunications modems and microprocessors, and
computer software for telecommunications purposes.
AT&T VOICESPAN GOODS shall mean satellite-related products and
software and satellite telecommunications services.
3.4 With respect to the registered marks described in Appendix 6
hereto, AT&T agrees that it will withdraw any and all of registrations of such
marks promptly upon prior written instruction by PARADYNE and/or CAPCo.
ARTICLE 4
Termination
4.1 Breach.
In the event of a material breach of this Agreement by any party hereto,
the other parties shall have all rights available to them under law, including
the right to terminate this Agreement upon the delivery of written notice to the
breaching party, such breach having remained uncured for a period of thirty (30)
days from the date of receipt of such notice; provided, however, that such
termination shall not affect in any way any rights or licenses granted by any
party hereto prior to such breach.
4.2 Voluntary Termination.
By written notice to AT&T, PARADYNE and/or CAPCo may voluntarily
terminate all or a specified portion of the licenses and rights granted to them
hereunder. Such notice shall specify the effective date (not more than six (6)
months prior to the giving of said notice) of such termination and shall clearly
specify any affected Patent, invention or product; provided, however, that such
termination shall not affect in any way any rights or licenses already granted
by any party hereto.
ARTICLE 5
Miscellaneous Provisions
5.1 Disclaimer.
OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT, WITH RESPECT TO THE
SUBJECT MATTER HEREOF, NEITHER AT&T NOR ANY OF ITS SUBSIDIARIES MAKE ANY
REPRESENTATIONS, EXTEND ANY WARRANTIES OF ANY KIND, ASSUME ANY RESPONSIBILITY OR
OBLIGATIONS WHATSOEVER, OR CONFER ANY RIGHT BY IMPLICATION, ESTOPPEL OR
OTHERWISE, OTHER THAN THE LICENSES AND RIGHTS HEREIN EXPRESSLY GRANTED.
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<PAGE> 6
5.2 Nonassignability.
(a) Except as otherwise expressly provided herein, no party
hereto may assign this Agreement or any part thereof, transfer licenses or
rights or grant any sublicenses hereunder, to anyone other than a Subsidiary of
such party without the prior, written consent of the other party. However, if
PARADYNE and/or CAPCo sells part or all of their respective businesses,
including without limitation Subsidiaries (the "Sold Entity"), and if PARADYNE
and/or CAPCo have granted sublicenses thereto prior to such sale, then such
sublicenses shall survive such sale.
(b) Any purported assignment or transfer of this Agreement
or licenses or rights hereunder by any party hereto without the prior, written
consent of all other parties shall be void (without affecting any other licenses
or rights hereunder).
5.3 Addresses.
Any notice or other communication hereunder shall be sufficiently given
to PARADYNE when sent by certified mail, return receipt requested, addressed to:
AT&T Paradyne Corporation, 8545 126th Avenue North, Attention: General Counsel,
Largo, FL 34649-2826, or to CAPCo when sent by certified mail, return receipt
requested, addressed to: CAP Acquisition Corp., 201 Main Street, Suite 2420,
Attention: Richard A. Ekleberry, Esq., Forth Worth, TX 76102, or to AT&T when
sent by certified mail, return receipt requested, addressed to: AT&T Corp., 10
Independence Blvd., Warren, NJ 07059.
5.4 Validity.
Should any provision hereof be ineffective or infeasible the validity of
the Agreement shall not be affected in other respects. The parties shall
cooperate to replace the ineffective or infeasible provision by coming as close
as possible in the economic result of the ineffective or infeasible provision.
5.5 Taxes.
PARADYNE and/or CAPCo shall pay any tax, duty, levy, customs fee, or
similar charge ("taxes"), including interest and penalties thereon, however
designated, imposed as a result of the operation or existence of this Agreement,
including taxes which PARADYNE and/or CAPCo is required to withhold or deduct
from payments to AT&T, except (i) net income taxes imposed upon AT&T by any
governmental entity within the United States (the fifty (50) states and the
District of Columbia), and (ii) net income taxes imposed upon AT&T by
jurisdictions outside the United States.
5.6 Choice of Law.
The parties are familiar with the principles of New York commercial law,
and desire and agree that the law of New York shall apply in any dispute arising
with respect to this Agreement.
6
<PAGE> 7
5.7 Integration.
This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges all prior
discussions between them. Neither of the parties shall be bound by any
warranties, understandings or representations with respect to such subject
matter other than as expressly provided herein or in a writing signed with or
subsequent to execution hereof by an authorized representative of the party to
be bound thereby.
5.8 Dispute Resolution.
(a) All contractual disputes, controversies and differences
between the parties relating to any breach of this Agreement, shall be settled
exclusively by binding arbitration pursuant to the Commercial Arbitration Rules
of the American Arbitration Association, upon thirty (30) days' written notice
of the demand therefor served by one party hereto upon the other party. Judgment
upon the award rendered may be entered in any court having proper jurisdiction.
The arbitrators shall be instructed, in connection with the issuance of their
award, to prepare a written finding of facts and law concerning the award. If
any arbitration or other proceeding is commenced pursuant to this Section 5.8,
the prevailing party shall be entitled to recover from the other party all
reasonable attorneys' fees, costs and other disbursements actually incurred by
it in connection with such arbitration or other proceeding and in enforcing any
award, order or judgment thereby obtained. If AT&T is the party serving such
notice, the arbitration shall be held in New York, New York, in which case this
Agreement shall be interpreted in accordance with the laws of the State of New
York, without reference to its principles of conflicts of laws. If either
PARADYNE or CAPCo is the party serving such notice, the arbitration shall be
held in Tampa, Florida, in which case this Agreement shall be interpreted in
accordance with the laws of the State of Florida, also without reference to its
principles of conflicts of laws.
(b) The requirement for arbitration shall not be deemed a
waiver of any right of termination under this Agreement and the arbitrators
shall not be empowered to act or make any award other than based solely on the
rights and obligations of the parties prior to any such termination.
(c) The arbitrators shall not limit, expand or otherwise
modify the terms of this Agreement.
(d) This Agreement shall be interpreted in accordance with
the laws of the State of New York, without reference to its principles of
conflicts of law, unless otherwise dictated by invocation by one party of its
rights under Section 5.8(a), above.
(e) Discovery shall be held in accordance with the
provisions of the Federal Rules of Civil Procedure of the taking of depositions.
(f) This Article 5.8 shall survive any termination of this
Agreement or rights granted hereunder.
7
<PAGE> 8
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives on the
respective dates entered below.
AT&T Corp. AT&T Paradyne Corporation
By: By:
--------------------------------- ---------------------------------
Print Name: Print Name:
------------------------- -------------------------
Title: Title:
----------------------------- -----------------------------
Date: 7/31/96 Date: 7/31/96
CAP Acquisition Corp.
By:
---------------------------------
Print Name:
-------------------------
Title:
-----------------------------
Date: 7/31/
<PAGE> 9
LIST OF APPENDICES TO EXHIBIT FF
APPENDIX 1 - ASSIGNED MARKS
APPENDIX 2 - TRADEMARK ASSIGNMENT AGREEMENT (AT&T CORP. TO AT&T
PARADYNE CORPORATION)
APPENDIX 3 - SUMMARY OF SETTLEMENT AGREEMENT RELATING TO "KEEP IN
TOUCH" TRADEMARKS
APPENDIX 4 - PARADYNE/CAPCO PRODUCTS
APPENDIX 5 - AT&T'S PATENTS LICENSED TO AT&T PARADYNE CORPORATION
APPENDIX 6 - AT&T REGISTRATIONS DISCUSSED IN SECTION 3.4 OF EXHIBIT FF
A-1
<PAGE> 10
APPENDIX 1 TO EXHIBIT FF
ASSIGNED MARKS
ACCULINK
ANALYSIS
CHANNELVIEW
CHANNELWATCH
COMSPHERE
DATAPHONE
DATAPORT
DCX
ETC
GLOBESPAN
INFO-LOCK
KEEP IN TOUCH CARD
KEEPINTOUCH CARD
KIT
PARADYNE
PARADYNE DCX
SHARED EXPECTATIONS
SOFTCALL
VOICESPAN
VOICESPAN AND DESIGN
A-2
<PAGE> 11
APPENDIX 1
[Illegible copy]
A-3
<PAGE> 12
APPENDIX 2 TO EXHIBIT FF
TRADEMARK ASSIGNMENT AGREEMENT
(AT&T CORP. TO AT&T PARADYNE CORPORATION)
This Trademark Assignment Agreement, effective as of the Closing Date,
is made between AT&T CORP., a New York corporation duly organized and existing
under the laws of the State of New York, whose registered office is at 32 Avenue
of the Americas, New York, New York 10013-2412, United States of America
(hereinafter referred to as the "Assignor") and AT&T PARADYNE CORPORATION, a
Delaware corporation, having an office at 8545 126th Avenue North, P.O. Box
2826, Largo, Florida 34649-2826 (hereinafter referred to as the "Assignee").
WHEREAS, the Assignor has adopted, used, registered or applied to
register in certain countries throughout the world certain trademarks and
service marks set forth in Appendix 1 annexed hereto, including without
limitation, the registrations and applications and common law marks set out in
Appendix 1 (hereinafter referred to as the "Assigned Marks"); and
WHEREAS, the Assignor wishes to transfer and assign to the Assignee, and
the Assignee wishes to acquire from the Assignor, all of the Assignor's rights,
title and interest in and to the Assigned Marks and all of the goodwill
associated therewith, as well as all registrations and applications and other
rights, including common law rights, the Assignor may have throughout the world
with respect to such Assigned Marks.
NOW, THEREFORE, the Assignor and the Assignee agree as follows:
Section 1
Effective the Closing Date, and for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Assignor does hereby
assign to the Assignee all proprietary rights and applications for proprietary
rights, title and interest in and to the Assigned Marks, including without
limitation, the registrations and applications and common law marks set forth in
Appendix 1, any common law rights in the Assigned Marks, the goodwill of the
business relating to the Assigned Marks, and the right to sue for past
infringement of the Assigned Marks.
The Assignee does hereby accept this assignment.
Section 2
This Assignor will promptly transfer to or provide to the Assignee
copies of all files relating to the use, registration of, and applications for
registration of, the Assigned Marks.
A-4
<PAGE> 13
Section 3
(A) This agreement in the form of a notarial deed is intended in original
and in certified copy to be lodged with the competent domestic and foreign
institutions, more particularly administrative agencies and courts, together
with an application for assignment of the corresponding proprietary rights and
applications for proprietary rights.
(B) Should the lodging of this deed be insufficient for the assignment of
the proprietary rights and applications for proprietary rights, both parties
hereto shall immediately attend to the necessary formalities and will execute
all reasonable documents necessary to effect transfer of the Assigned Marks.
(C) The Assignee shall bear the costs arising out of or in connection with
the implementation of the assignment contained herein.
(D) Amendments hereto and amplifications hereof shall be in writing.
Assignor Assignee
Given at Basking Ridge Accepted at New York,
New Jersey, USA New York, USA
on July 31, 1996 On July 31, 1996
AT&T CORP. AT&T PARADYNE CORPORATION
By: By:
----------------------------- -----------------------------
Name: Michele Farber, Esq. Name: William F. Osl, Jr.
Trademark and Copyright Attorney Title: Authorized Agent
Authorized Signatory Authorized Signatory
A-5
<PAGE> 14
NOTARIAL CERTIFICATIONS
I, a Notary Public, certify that on July 31, 1996, before me personally
appeared Michele A. Farber, to me known to be an authorized signatory of AT&T
CORP. and that she executed the foregoing Trademark Assignment Agreement.
I attest:
Signed in: Basking Ridge, NJ USA
Dated: July 31, 1996
Notary Public "Official Seal"
Signature of Notary Public
I, a Notary Public, certify that on July 31, 1995, before me personally
appeared William F. Osl, to me known to be an Authorized Signatory of AT&T
PARADYNE, and that he executed the foregoing Trademark Assignment Agreement.
I attest:
Signed in: New York, NYC
Dated: July 31, 1996
Notary Public "Official Seal"
Signature of Notary Public
A-6
<PAGE> 15
APPENDIX 1
TO TRADEMARK ASSIGNMENT AGREEMENT
ASSIGNED MARKS
ACCULINK
ANALYSIS
CHANNELVIEW
CHANNELWATCH
COMSPHERE
DATAPHONE
DATAPORT
DCX
ETC
GLOBESPAN
INFO-LOCK
KEEP IN TOUCH CARD
KEEPINTOUCH CARD
KIT
PARADYNE
PARADYNE DCX
SHARED EXPECTATIONS
SOFTCALL
VOICESPAN
VOICESPAN AND DESIGN
A-7
<PAGE> 16
APPENDIX 1
[Illegible copy]
A-8
<PAGE> 17
APPENDIX 3 TO EXHIBIT FF
SUMMARY OF SETTLEMENT AGREEMENT
RELATING TO "KEEP IN TOUCH" TRADEMARKS
The following is a partial summary of a Settlement Agreement dated April
17, 1995 between AT&T Corp. and Gnossos Software, Inc., a Delaware corporation
having offices at 162 SK Street, Suite 410, Washington, D.C. 2006-1604,
effecting AT&T's (and its successor's) use of certain trademarks identified
below. Whenever the term "Paradyne" is used, it shall also be meant to include
Paradyne's successor or assignee:
1. Paradyne may use the mark "KIT" without restriction.
2. So long as Gnossos has not abandoned use of "KEEP IN TOUCH" for
computer software, Paradyne shall use "KeepInTouch" only as part of a compound
mark, such as "KeepInTouch Card", "KeepInTouch Express", "Paradyne KeepInTouch",
"KeepInTouch Cellular Modem" and "KeepInTouch 2000" (the "Agreed Marks"). For
the purposes of the Settlement Agreement, any such Agreed Mark used by Paradyne
shall be comprised of the "KeepInTouch" element plus at least one other
alphabetical and/or numeric element depicted in the same type face and size as
the "KeepInTouch" element, so as to create a unitary commercial impression. If
the other element in the compound mark is comprised of word(s) or letters of the
alphabet, that other element is to be depicted with at least initial
capitalization. Thus, "KeepInTouch Card" or "KeepInTouch Cellular Modem" would
be Agreed Marks, while "KeepInTouch card" or "KeepInTouch cellular modem" would
not. Moreover, while "KeepInTouch 2000" is acceptable, the use of a number that
merely connotes a version number (e.g., "KeepInTouch 5.1") would not be an
acceptable compound mark. Paradyne may register acceptable compound Agreed
Marks, as defined herein. However, Paradyne shall not use or register the marks
"KeepInTouch" by itself or "KEEP IN TOUCH" by itself, and shall not use or TM
symbols, or a trademark legend to indicate rights in "KeepInTouch" by itself.
These restrictions apply to use on the products, packaging, advertising and
promotional material.
3. So long as Gnossos has not abandoned use of "KEEP IN TOUCH" for
computer software, Paradyne shall use the Agreed Marks in proximity to any
Paradyne mark, or any successor thereof then functioning as Paradyne's house
mark, or the house mark of any assignee or successor to Paradyne.
4. So long as Gnossos has not abandoned use of "KEEP IN TOUCH" for
computer software, Paradyne shall limit its use of the Agreed Marks to modems
and software used for operating such modems, including software sold for the
purpose of upgrading the functionality of modems ("Related Software").
Specifically excluded from the definition of Related Software is communications
applications software, such as faxing software and e-mail software. Such
exclusion, however, shall not apply to any software that is used to allow a
modem to operate to send and receive facsimile, data, information, voice, video
and electronic mail transmissions when such software is sold as a unit with or
as an upgrade to modems sold under the Agreed Marks. A "modem" shall mean any
machine, device, or computer software, now known or later developed, which
converts digital signals to analog signals and analog
A-9
<PAGE> 18
signals to digital signals for transmission of facsimile, data, information,
voice, video or electronic mail over a telecommunications network. For purposes
of this definition analog signals include any signal which becomes analog at any
point in the transmission.
A-10
<PAGE> 19
APPENDIX 4 TO EXHIBIT FF
PARADYNE PRODUCTS
o All products offered commercially at any time prior to Closing Date
o GENESIS AND GENEVA FAMILY (3800/3900)
o Triple Modem nest for the 3000 Carrier
o Synchronous data compression
o Integrated Diagnostics
o Mocha
o DEVER FAMILY - SUBRATE DIGITAL LEASED LINE (3600/3500)
o ISDN DBM
o V.34 DBM
o Extended Range
o Autorate
o Cross Pair Detection
o Integrated Diagnostics
o Multiplexor Options
o Paddle Cards
o 64k/128k NTU's
o SPINNAKER FAMILY - T1/E1/HDSL CSU & DSU (31XX,33XX)
o ASCII Interface Redesign
o TCP & Telnet
o Device Specific SNMP MIBs
o Voice Compression
o International Power
o Integrated Diagnostics
o Optical Interface
o CARRIBEAN SUBRATE FAMILY - DDS FRAME RELAY
o Aruba - DDS Frame Relay
o Frame Relay Aware/Frame Relay Aggregation
o Synchronous Data Compression
o BRI DBM
o FTP Down Line Loan
o 14 Slot Nest
o FRAD
o PCMCIA Management Interfaces
o Cost Reduction (Antigua)
o Curacao - DDS Frame Relay Edge Router
o Single Card Router with 1-port Native Ethernet DTE
A-11
<PAGE> 20
o Supports above Aruba Functionality
o CARRIBEAN NxDSO FAMILY - T1/E1
o Barbados - T1/FT1 Low End Multiplexor & DSU
o SNMP, Telnet, TCP
o PRI
o 5 Slot Carrier
o 2 Slot Stand Alone Package
o 14 Slot Nest
o Single T1 Leased Line NAM with DSX, with 2 ports
o Dual T1 Leased Line NAM without DSX, no ports
o Dual DSX APM without ports
o PCMCIA Management (via Ethernet or Token Ring LAN, V.34)
o 8-port FXS, FSO, or E&M Voice APM
o Voice Compression APM
o 4-port Synchronous Data APM
o Synchronous Data Compression APM
o 6-port OCU APM
o 5-port SRU APM
o 6-port Management Interface APM
o 6-port BRI APM
o 8-port V.34 Modem Pool APM
o Martinique - E1/FE1 Low End Multiplexor & DSU
o Dual E1 Leased Line NAM with ports
o Dual E1 Leased Line NAM without ports
o Support for above Barbados configurations and options
o Trinidad - T1/FT1 Frame Relay DSU
o SNMP, Telnet, TCP
o 2 Slot Stand Alone Package
o 14 Slot Nest
o T1 Frame Relay NAM with DSX, with 2 ports
o BRI DBM
o Frame Relay Aware, Frame Relay Aggregation with Compression APM
o FRAD APM
o HEARTLAN FAMILY - LOW END/LOW COST SUBRATE AND T1
o Beagle- Subrate Leased Line DSU
o DDS NI with 1 port
o SNMP, Telnet, TCP
o Ethernet Management Interface
o Greyhound - T1/F1 Leased Line DSU
o T1/FT1 NI without DSX, with 1 port
A-12
<PAGE> 21
o T1/FT1 NI with DSX, with 1 port
o T1/FT1 NI with DSX, with 2 ports
o T1/FT1 NI with DSX, without ports (CSU)
o SNMP, Telnet, TCP
o With or without Ethernet Management Interface
o Poodle - V.11 NTU
o 64k V.11 NI with 1 port DTE
o 64k V.11 NI with 5 port DTE, with X.50
o SYSTEM PRODUCTS
o ADSL/SDSL/HDSL/VDSL/RADSL PC Cards, Workstation Interface Cards, and
Stand Alone "Modems"
o Open Access Gateway (Multiplexor)
o Central Site Concentrators for ADSL/SDSL/VDSL/RADSL Lines
o xDSL with packet or cell protocols
o TDM extensions
o Modem Pool extensions for analog, mu-law, ISDN
o Service Translation for broadband, video transmission
o Acculink Access Controller (AAC) Cards
o (DACS)
o Modem Pool
o TDM Access Multiplexor
o HAWK - REMOTE ACCESS AND TELECOMMUTING SERVER
o V.34, V.34Q and ISDN BRI Remote Access Port Concentrators
o T1 PRI Network Interface
o Windows NT
o Novell
o Temporary Office Extensions
o Remote Office Extensions
o High Card Density (16 ports OCD)
o Very High Card Density (30 ports OCD)
o Mocha
o E1 Interface
o WIRELESS SYSTEMS
o ETC2 for Wireless Data Gateway, Hawk and Open Access Gateway
o CDPD and PCS protocols (TDMA, CDMA, GSM)
o SOFTWARE PRODUCTS
o Network Management System Applications for all Present Paradyne Products
and Other Products Listed Herein
o Element Management Applications for all Present Paradyne Products and
Other Products Listed Herein.
A-13
<PAGE> 22
o Extended Leased Line Network Management Applications on HP Openview and
IBM SystemView
o Performance Management Applications for all Present Paradyne Products
and Other Products Listed Herein, on HP Openview and IBM SystemView
o Service Management Applications for all Present Paradyne Products and
Other Products Listed Herein, on HP Openview and IBM SystemView
o TL-1 Interface for HP Openview and IBM SystemView o CMIP/NMP Wrappers
for HP Openview and IBM SystemView
o The following products are to be assessed in January, 1997. The commercial
development status of each product will be determined and such product will
be added to this Appendix C if the product is either
o (I) at the time of assessment under development for a scheduled
commercial release, or
o (II) firmly committed for development to begin no later than March 31,
1997 for a scheduled commercial release; in this case, the product is
added to this Appendix C only to the extent that such development does
begin before March 31
o The products to be assessed are
o The following modules for CARIBBEAN NxDSO
o ATM NAM
o Encryption APM
o Security APM
o Cayman - FT3 ATM DSU
o ATM Access Multiplexor
o The following modules for Open Access Gateway
o PDTS Splitting
o Encryption
o Security
A-14
<PAGE> 23
APPENDIX 5
AT&T CORPORATION PATENTS LICENSED TO AT&T PARADYNE CORPORATION
<TABLE>
<CAPTION>
PATENT DATE
NO. ISSUED TITLE AREA OF APPLICATION
- ------- -------- -------------------------------------------------------------- ----------------------------
<S> <C> <C> <C>
4348554 9/7/92 Method of providing virtual private network telephone service Modem, DSU, Mux
4383332 5/10/83 High capacity digital mobile radio system Wireless Data Gateway
4472832 9/18/84 Digital speech coder Modem, Access Server
4578531 3/25/86 Encryption system key distribution method and apparatus Modem, DSU, Mux,
Access Server
4586186 4/29/86 Maintenance response signaling arrangement for digital Mux, Access, Server
transmission system
4611094 9/9/86 Method for customer definable telephony capability Modem, Access Server
4616359 10/07/86 Adaptive preferential flow control for packet switching system Mux, DSU, Access Server
4633464 12/30/86 Control signaling management for digital transmission system DSU, Mux, Access Server
4700339 10/13/87 Wavelength division multiplexed silicon optical fiber DSU, Mux
telecommunication system
4756020 7/6/88 Method and apparatus for disallowing the extension of a call Access Server
through a network
4827600 6/2/89 Automatic speech recognition to select among call destinations Access Server
4899373 2/6/90 Method and apparatus for providing personalized telephone Access Server
subscriber features at remote locations
4814655 4/3/90 Multiplexing arrangement for digital transmission system DSU, Mux
4922348 4/10/90 Facsimile service Modem, Access Server
4932042 6/6/90 Spontaneous voice and data managing Mux, Access Server
4959849 7/31/89 End-to-end network surveillance Mux, DSU, Access Server
5033079 7/16/91 Establishment of facsimile calls Modem, Access Server
5063659 11/5/91 Optimized Wavelength Division Multiplexed Lightwave DSU, Mux
Communication System
5086460 2/4/92 Communications system ingress and egress arrangement Mux, Access Server
</TABLE>
15
<PAGE> 24
<TABLE>
<CAPTION>
PATENT DATE
NO. ISSUED TITLE AREA OF APPLICATION
- ------- -------- -------------------------------------------------------------- ----------------------------
<S> <C> <C> <C>
5164983 11/17/92 Telemarketing complex performance management system Access Server
5181238 1/19/93 Authenticated communications access service Access Server
5182744 1/26/93 Telecommunications Network Restoration Architecture Mux, DSU, Modem
5195132 3/16/93 Telephone network speech signal enhancement Modem, Access Server
5222125 5/22/93 A system for providing personalized telephone calling Access Server
features
5243645 9/7/93 Automatic System for Forwarding of call Access Server
5270919 12/14/93 Network planning tool Mux, Access Server
5276444 1/4/94 Centralized security control system Mux, Access Server
5278889 1/11/94 Video Telephony dialing Modem, Access Server
5283624 2/1/94 Calling Line identification Access Server
5287199 2/16/94 Facsimile message processing and routing system Access Server
5291551 2/1/94 Home agent telecommunication technique Access Server
6311572 5/10/94 Cooperative databases call processing system Access Server
5325421 6/28/94 Voice directed communications system platform Modem, Access Server
5329308 7/12/94 Bidirectional video telephony between cable television and Mux, Access Server
switched telephone systems
5329581 7/12/94 Target area calling system Access Server
5333195 7/26/94 Telephone network speech signal enhancement Modem, Access Server
5333308 7/26/94 Method and apparatus for operating a communication network Modem, DSU, Mux, Access
monitor arrangement Server
5335224 8/2/94 Service guarantee/congestion control at high-speed networks Mux, Access Server
5353396 10/4/94 Voice directed communication system architecture Modem, Access Server
5353339 10/4/94 Simplified Uniform Network Provisioning and Restoration Modem, DSU, Mux, Access
Server
5369695 11/29/94 Method of redirecting a telephone call to an alternate Access Server
destination (ADCR)
5375124 12/20/94 Method and apparatus for providing ISDN access Mux, Access Server
5384831 1/24/95 A system for providing personalized telephone call features Access Server
5386467 1/31/95 Intelligent Network Communication System Mux, Access Server
5392345 2/21/95 Work at home ACD agent network Access Server
5409526 4/18/95 Conference Calling System Mux, Access Server
5410538 4/25/95 Method and apparatus for transmitting signals in a multi-tone Modem, DSL
code
</TABLE>
A-16
<PAGE> 25
<TABLE>
<CAPTION>
PATENT DATE
NO. ISSUED TITLE AREA OF APPLICATION
- ------- -------- -------------------------------------------------------------- ----------------------------
<S> <C> <C> <C>
5420851 5/30/96 Method of Multiple Access Modem, Access Server
5420917 5/30/95 Automated Recovery of telecommunication network elements DSU, Modem, Mux, Access
Server
5428608 6/27/95 Call connection technique Modem, Access Server
5434920 7/18/95 Secure telecommunications DSU, Modem, Mux, Access
Server
5442625 8/15/95 Code division multiple access system providing variable data Modem, Wireless Data Gateway
rate access to a user
5448632 9/5/95 Call monitoring system for intelligent call processing Access Server
5450123 9/12/95 A method to enhance voice communications using encoded one-way Modem, Access Server
video signals under bi-directional user or network control for
transmitting stored or real-time video or image information
5450479 9/12/95 Method and apparatus for facilitating the making of card calls Modem, Access Server
5463677 10/31/95 Method and apparatus for facilitating the making of collect Modem, Access Server
calls
5463683 10/31/95 Blocked call notification system Modem, Access Server
5463685 10/31/95 Network based outbound call management Mux, Access Server
5473468 12/5/95 Soliton data transmission using non-soliton transmitter DSU, Mux
5473671 12/5/95 Selective Screening of Incoming Calls for Cellular Wireless Data Gateway
5473677 12/5/95 Telecommunications network architecture and system Modem, DSU, Mux, Access
Server
5473679 12/5/95 A signaling system for broadbased communications networks Mux, DSL
5473681 12/5/95 Method for Use in completing telephone calls Mux, Access Server
5475746 12/12/95 Method for permitting subscriber to change call features in Access Server
real-time
5481603 1/2/96 Intelligent call processing based upon complete identification Modem, Access Server
of calling station
5485515 1/16/96 Background noise compensation in a telephone network Modem, Access Server
5487171 1/23/96 Telecommunications system sequences calling Modem, Access Server
5488569 1/30/96 Application-oriented telecommunication system interface Access Server
5491576 2/13/96 Dual-wavelength data transmitter for reducing fading in an DSU, Mux
optical transmission system
5509055 4/16/96 Inbound telecommunications services resources management system Mux, Access Server
</TABLE>
A-17
<PAGE> 26
<TABLE>
<CAPTION>
PATENT DATE
NO. ISSUED TITLE AREA OF APPLICATION
- ------- -------- -------------------------------------------------------------- ----------------------------
<S> <C> <C> <C>
5509060 4/16/96 Network accessible intelligent telephone services Modem, Access Server
5513254 4/30/96 Method and apparatus for processing facsimile transmissions Modem, Access Server
5515425 5/7/96 Telecommunications system with active databases Access Server
5521966 5/26/96 Method & system for mediating transactions that use portable Modem, Access Server
smart cards
5521969 5/28/96 Telephone caller identity delivery system and method with Modem, Access Server
enhanced caller privacy
</TABLE>
A-18
<PAGE> 27
APPENDIX 6 TO EXHIBIT FF
(Illegible)
A-19
<PAGE> 1
EXHIBIT 10.20
INVESTORS' RIGHTS AGREEMENT
MAY 6, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights........................................................................1
1.1 Definitions....................................................................1
1.2 Request for Registration.......................................................2
1.3 Company Registration...........................................................4
1.4 Form S-3 Registration..........................................................5
1.5 Obligations of the Company.....................................................6
1.6 Information from Holder........................................................9
1.7 Expenses of Registration.......................................................9
1.8 Indemnification................................................................9
1.9 Reports Under Securities Exchange Act of 1934.................................12
1.10 Assignment of Registration Rights............................................12
1.11 "Market Stand-Off"Agreement..................................................13
1.12 Limitation on Subsequent Registration Rights.................................13
1.13 Termination of Registration Rights...........................................13
2. Covenants of the Company..................................................................14
2.1 Delivery of Financial Statements..............................................14
2.2 Inspection....................................................................14
2.3 Termination of Covenants......................................................14
2.4 Right of First Offer..........................................................14
2.6 Authority; Enforceability.....................................................16
3. Miscellaneous.............................................................................16
3.1 Successors and Assigns........................................................16
3.2 Governing Law.................................................................16
3.3 Counterparts..................................................................16
3.4 Titles and Subtitles..........................................................17
3.5 Notices.......................................................................17
3.6 Expenses......................................................................17
3.7 Entire Agreement; Amendments and Waivers......................................17
3.8 Severability..................................................................17
3.9 Aggregation of Stock..........................................................17
</TABLE>
i
<PAGE> 3
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 6th day of May,
1999, by and among GlobeSpan, Inc., a Delaware corporation (the "Company"), the
investors in the Company's Series A Preferred Stock listed on Schedule A hereto
(the "Series A Investors") and the investors in the Company's Common Stock
listed on Schedule B hereto (the "Common Stock Investors"). The Series A
Investors and the Common Stock Investors are collectively referred to herein as
the "Investors."
RECITALS
WHEREAS, the Common Stock Investors own Common Stock of the Company;
WHEREAS, the Company and the Series A Investors are parties to the
Series A Preferred Stock Purchase Agreement of even date herewith (the "Series A
Agreement");
WHEREAS, in order to induce the Common Stock Investors and the Company
to approve the issuance of the Series A Preferred Stock, and to induce the
Series A Investors to invest funds in the Company pursuant to the Series A
Agreement, the Investors and the Company hereby agree that this Agreement shall
govern the rights of the Investors to cause the Company to register shares of
Common Stock issued or issuable to them and certain other matters as set forth
herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.11 hereof.
(d) The term "Initial Offering" means the Company's first firm
commitment underwritten public offering of its Common Stock under the Act.
(e) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
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(f) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (i) the Common
Stock of the Company issued to the Common Stock Investors, (ii) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
the shares referenced in (i) or (ii) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(h) The number of shares of "Registrable Securities"
outstanding shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) Subject to the conditions of this Section 1.2, if the
Company shall receive at any time that is at least six (6) months after the
effective date of the Initial Offering, a written request from the Holders of
thirty percent (30%) or more of the Registrable Securities then outstanding (the
"Initiating Holders") that the Company file a registration statement under the
Act covering the registration of Registrable Securities with an anticipated
aggregate offering price of at least $10,000,000, then the Company shall, within
twenty (20) days of the receipt thereof, give written notice of such request to
all Holders, and subject to the limitations of this Section 1.2, use reasonable
efforts to effect, as soon as practicable, the registration under the Act of all
Registrable Securities that the Holders request to be registered in a written
request received by the Company within twenty (20) days of the mailing of the
Company's notice pursuant to this Section 1.2(a).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a). In such event the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company (which underwriter or underwriters shall be
reasonably acceptable to a majority
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in interest of the Initiating Holders). Notwithstanding any other provision of
this Section 1.2, if the underwriter advises the Company that marketing factors
require a limitation of the number of securities underwritten (including
Registrable Securities), then the Company shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant hereto, and
the number of shares that may be included in the underwriting shall be allocated
to the Holders of such Registrable Securities on a pro rata basis based on the
number of Registrable Securities held by all such Holders (including the
Initiating Holders); provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 1.2:
(i) in any particular state in which under relevant Blue
Sky law the Company would be required to execute a general consent to service of
process in effecting such registration, unless the Company is already subject to
service in such jurisdiction and except as may be required under the Act; or
(ii) after the Company has effected two (2) registrations
pursuant to this Section 1.2, and such registrations have been declared or
ordered effective; or
(iii) if not more than thirty (30) days prior to receipt of
a written notice of a request for registration pursuant to this Section 1.2, the
Company shall have (x) circulated to prospective underwriters and their counsel
a draft of a registration statement for a primary offering of equity securities
on behalf of the Company, (y) solicited bids for a primary offering of shares of
Common Stock of the Company or (z) otherwise reached an understanding with an
underwriter with respect to a primary offering of shares of Common Stock of the
Company, subject to the provision of Section 1.3 hereof, the Company may preempt
with such primary offering the registration requested pursuant to this Section
1.2 by delivering written notice of such intention (the "Preemption Notice") to
the Initiating Holders within five days after the Company has received such
notice of request for registration; provided that the period of preemption may
be up to thirty (30) days following the date of the Preemption Notice;
(iv) if the Initiating Holders propose to dispose of
Registrable Securities that may be registered on Form S-3 pursuant to Section
1.4 hereof; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 1.2, a certificate signed by the
Company's Chief Executive Officer or Chairman of the Board stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be effected at such time, in which event the Company shall have the
right to defer such filing for a period of not more than forty-five (45) days
after receipt of the request of the Initiating Holders, provided that such right
to delay a request shall be exercised by the Company not more than once in any
twelve (12)-month period.
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1.3 Company Registration.
(a) If (but without any obligation to do so under this Section 1)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities (other than a registration relating solely to the sale of
securities to participants in a Company stock plan or a registration relating to
a corporate reorganization or other transaction under Rule 145 of the Act or a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after receipt of
such notice from the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.3(c), use reasonable efforts to cause to
be registered under the Act all of the Registrable Securities that each such
Holder has requested to be registered.
(b) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company; provided that the Company shall allow each Holder of
Registrable Securities holding at least fifteen percent (15%) of the total
outstanding shares of Common Stock of the Company and its counsel to participate
in the negotiation of such underwriting agreement, and approve its terms, such
approval not to be unreasonably withheld; provided further, that each such
participating Holder of Registrable Securities participating may, at its option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holder of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such Holder of Registrable Securities
thereunder; provided further, that any such Holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company other than representations, warranties or agreements regarding
such Holder, such Holder's Registrable Securities and such Holder's intended
method of distribution and any other representation required by law or with
respect to matters incidental to the foregoing as reasonably requested by the
underwriters. If (i) the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities sold other than by the Company that the underwriters
determine in their good faith judgment is compatible with the success of the
offering and (ii) all stockholders holding five percent (5%) or more of the
total outstanding
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shares of Common Stock and Preferred Stock of the Company on a fully-diluted
basis and all officers and directors of the Company are also restricted in their
ability to include securities in such offering by terms at least as restrictive
as this Section 1.3(c), then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Holders, and any shares of the Company's Common Stock held by
Lucent Technologies, Inc. which have applicable registration rights, according
to the total amount of securities entitled to be included therein owned by each
selling Holder or in such other proportions as shall mutually be agreed to by
such selling Holders), but in no event shall the amount of securities of the
selling Holders included in the offering be reduced below thirty percent (30%)
of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case the selling Holders may be excluded if the underwriters make the
determination described above and no other stockholder's securities are
included. For purposes of the preceding parenthetical concerning apportionment,
for any selling stockholder that is a Holder of Registrable Securities and that
is a partnership or corporation, the partners, retired partners and stockholders
of such Holder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing persons
shall be deemed to be a single "selling Holder," and any pro rata reduction with
respect to such "selling Holder" shall be based upon the aggregate amount of
Registrable Securities owned by all such related entities and individuals.
1.4 Form S-3 Registration. In case the Company shall receive from the
Holders of at least fifteen percent (15%) of the Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
pursuant to Rule 415 under the Act and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company shall:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) use reasonable efforts to effect, as soon as practicable, such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company, provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this Section
1.4:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of less
than $500,000;
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(iii) if the Company shall furnish to the Holders a certificate
signed by the Chief Executive Officer or Chairman of the Board of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than forty-five (45) days after receipt of
the request of the Holder or Holders under this Section 1.4; provided, however,
that the Company shall not utilize this right or the right set forth in Section
1.2(c)(v) more than once in any twelve (12) month period; or
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 1.4.
(v) in any particular state in which under relevant Blue Sky
laws the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders.
1.5 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause such registration statement to become effective, and to keep such
registration statement effective until the distribution contemplated in the
Registration Statement has been completed except in the case of a "shelf
registration" for which such period shall be the earlier of two (2) years, or
until the date on which all securities registered under such registration
statement have been sold or withdrawn; provided that as far in advance as
practicable before filing each such registration statement, the Company shall
furnish copies of all such documents proposed to be filed to counsel to each
Holder of Registrable Securities holding at least ten percent (10%) of the total
outstanding shares of Common Stock of the Company;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement and to comply with the provisions of all applicable
securities laws with respect to the sale or other disposition of all securities
covered by such registration statement during such period in accordance with the
intended method or methods of disposition by the sellers thereof set forth in
such registration statement; provided that as far in advance as practicable
before filing each such amendment and
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supplement, the Company shall furnish copies of all such documents proposed to
be filed to counsel to each Holder of Registrable Securities holding at least
ten percent (10%) of the total outstanding shares of Common Stock of the
Company;
(c) furnish to the Holders such numbers of copies of such
registration statement (including amendments and supplements thereto) and the
prospectus, including the preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders, keep
such registration or qualification in effect for so long as such registration
statement remains in effect, and do any and all other acts and things which may
be reasonably necessary or advisable to enable the sellers of Registrable Shares
to consummate the disposition in such jurisdictions of such securities owned by
such sellers; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering;
(f) as soon as practicable notify each Holder of Registrable
Securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act or the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing and, at the request of any seller, the Company shall promptly
prepare and furnish to each seller a reasonable number of copies of a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in the light of the
circumstances under which they were made, not misleading;
(g) cause all such Registrable Securities registered pursuant
hereunder to be listed, on or prior to the effective date of such registration
statement, on each securities exchange on which similar securities issued by the
Company are then listed;
(h) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
(i) make available for inspection by each Holder of more than ten
percent (10%) of the outstanding shares of Common Stock of the Company, any
underwriter
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participating in any sale or other disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Company
or any such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by each such Holder or any such underwriter, attorney,
accountant or agent in connection with such registration statement (including
the opportunity to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements) as
shall be necessary, in the opinion of their respective counsel, to conduct a
reasonable investigation within the meaning of the Act; and give each such
Holder, the underwriters and their respective attorneys, accountants or agents
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or each prospectus filed with the
Securities and Exchange Commission (the "Commission") in connection therewith;
(j) promptly notify each seller of Registrable Shares and each
underwriter, if any:
(i) when such registration statement or any prospectus used in
connection therewith has been filed and, with respect to such registration
statement or any post-effective amendment thereto, when the same has become
effective;
(ii) of any written comments from the Commission with respect
to any filing referred to in clause (i) and of any written request by the
Commission for amendments or supplements to such registration statement or
prospectus;
(iii) of the notification to the Company by the Commission or
any other regulatory authority of its initiation of any proceeding with respect
to, or of the issuance by the Commission or any other regulatory authority of,
any stop order suspending the effectiveness of such registration statement; and
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable Shares for
sale under the applicable securities or blue sky laws of any jurisdiction;
and, in the case of clauses (ii), (iii) and (iv), promptly use all reasonable
and diligent efforts (A) to respond satisfactorily to any such comments and to
file promptly any necessary amendments or supplements, (B) to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued and (C) to obtain the withdrawal of any such suspension of
qualification, respectively;
(k) furnish to each seller of Registrable Shares a signed counterpart,
addressed to such seller (and each underwriter, if any) of:
(i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and substance to such
seller (and such underwriter); and
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(ii) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified the
Company's financial statements included in such registration statement, provided
that such seller of Registrable Shares provides such accountants with such
certificates as are reasonably and customarily requested by such accountants;
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
the accountants' letter, with respect to events subsequent to the date of such
financial statements and other financial matters, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten public offerings of securities;
(l) otherwise use all reasonable and diligent efforts to comply with
all applicable securities laws and make available to its security holders, as
soon as reasonably practicable an earning statement satisfying the provisions of
Section 11(a) of the Act and Rule 158 promulgated thereunder; and
(m) cooperate with each Holder of more than ten percent (10%) of the
outstanding shares of Common Stock of the Company and each underwriter or agent
participating in the disposition of such Registrable Shares and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc.
1.6 Information from Holder. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.7 Expenses of Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, listings,
filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company (whether or not such registrations shall become
effective).
1.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners or officers, directors and
stockholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls, is controlled by or under common control with such Holder or
underwriter within the meaning of the Act or the 1934 Act (collectively, the
"Indemnified Parties"), against any losses, claims, damages, penalties,
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judgments, costs, expenses or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or any state securities laws, insofar
as such losses, claims, damages, penalties, judgments, costs, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, (iii) any violation or
alleged violation by the Company of the Act, the 1934 Act, any state securities
laws or any rule or regulation promulgated under the Act, the 1934 Act or any
state securities laws, (iv) any breach of any representation, warranty,
agreement or covenant made by the Company in this Agreement, any registration
statement (including any supplement or amendment), each periodic report or proxy
statement filed by the Company with the Commission under the 1934 Act and any
agreement or other document in furtherance of any of the foregoing, or (v) any
litigation, claims, suits or proceedings to which an Indemnified Party is made a
party (other than as a plaintiff) in its capacity as a direct or indirect holder
or owner of shares of Common Stock of the Company; and the Company will
reimburse each such Holder, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, penalty, judgment, cost, expense or
liability; provided, however, that the indemnity agreement contained in this
subsection l.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, penalty, judgment, cost, expense or liability if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, penalty, judgment, cost, expense or liability
to the extent that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right, but not the obligation, to participate, at its own expense, in
the defense thereof through counsel of its own choice and shall have the right,
but not the obligation, to assert any and all cross-claims or counterclaims it
may have; provided further that an indemnified party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding.
(c) If the indemnification provided for in this Section 1.8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect
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to any loss, liability, claim, damage, penalty, judgment, cost or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage,
penalty, judgment, cost or expense (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party on the one hand
and the indemnified party or parties on the other hand or (ii) if the allocation
provided by clause (i) of this Section 1.8(c) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) in this Section 1.8(c) but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the Violation
that resulted in such loss, liability, claim, damage, penalty, judgment, cost or
expense, as well as any other relevant equitable considerations. In connection
with any registration statement filed with the Commission by the Company, (x)
the relative benefits received by the indemnifying party on the one hand and the
indemnified parties on the other hand shall be deemed to be in the same
respective proportions as the net proceeds from the offering of any securities
registered thereunder the shares of Common Stock of the Company (before
deducting expenses) received by the indemnifying party and the net proceeds from
the offering of any shares of Common Stock of the Company (before deducting
expenses) received by such indemnified parties, bear to the aggregate public
offering price of the securities registered thereunder, (y) the relative fault
of the indemnifying party on the one hand and such indemnified parties on the
other hand shall be determined by reference to, among other things, whether any
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified parties and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission and (z) the indemnified parties' respective
obligations to contribute pursuant to this Section 1.8 are several in proportion
to the respective number of shares of Common Stock of the Company they sell
under any such registration statement, and not joint.
(d) The Company and the Investors agree that it would not be just or
equitable if contribution pursuant to this Section 1.8 were determined by pro
rata allocation (even if the Investors were treated as one entity for such
purposes) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 1.8(c) hereof. The amount paid
or payable by an indemnified party as a result of any loss, liability, claim,
damage, penalty, judgment, cost or expense referred to in Section 1.8(a) shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 1.8, in connection with any registration statement
filed by the Company, none of the Investors shall be required to contribute any
amount in excess of the net proceeds from the offering of the shares of Common
Stock of the Company (before deducting expenses) received by such Investor under
any registration statement, by reason of any untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 1.8 are
not exclusive and shall not limit any rights or remedies which may otherwise by
available to any indemnified party at law or in equity.
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<PAGE> 14
(e) The obligations of the Company and Holders under this Section
1.8 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise and shall, in any
event, remain in effect with respect to an Investor so long as such Investor
may, in the reasonable judgment of counsel for such Investor as evidenced by a
written opinion to such effect, constitute a "controlling person" with respect
to the Company, or be part of a group that may constitute such a "controlling
person," within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act; provided that the termination of Section 1.8 hereof shall not
be effective as to any loss, liability, claim, damage, penalty, judgment, cost
or expense or to any related facts that arose while Section 1.8 shall have been
in effect, and as to each of such loss, liability, claim, damage, penalty,
judgment, cost or expense the parties' rights and obligations hereunder shall
survive.
1.9 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the Initial Offering;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.10 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities that (i) is an affiliate, or a subsidiary, parent, partner,
limited partner, retired partner or shareholder, of such Holder and (ii) after
such assignment or transfer holds at least five hundred thousand (500,000)
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<PAGE> 15
shares of Registrable Securities (subject to stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.11 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
1.11 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
so long as all stockholders holding five percent (5%) or more of the total
outstanding shares of Common Stock and Preferred Stock of the Company on a
fully-diluted basis and all officers and directors of the Company are also
restricted in their ability to transfer securities of the Company after the
Company's Initial Offering by terms at least as restrictive as this Section
1.11, it will not, without the prior written consent of the managing
underwriter, during the period commencing on the date of the final prospectus
relating to the Company's Initial Offering and ending on the date specified by
the Company and the managing underwriter (such period not to exceed one hundred
eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are then owned by the Holder or are thereafter acquired), or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The underwriters in connection with the Company's Initial Offering
are intended third party beneficiaries of this Section 1.11 and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.12 Limitation on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant to such holder or prospective holder
registration rights that are senior to the registration rights set forth in this
Section 1.
1.13 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after five (5) years
following the consummation of the Initial Offering or, as to any Holder, such
earlier time at which all Registrable Securities held by such Holder (and any
affiliate of the Holder with whom such Holder must aggregate its
13
<PAGE> 16
sales under Rule 144) can be sold in any three (3)-month period without
registration in compliance with Rule 144 under the Act.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor who continues to hold at least five hundred thousand (500,000)
shares of Registrable Securities (subject to stock splits, stock dividends,
combinations and other recapitalizations):
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited income statement, statement of cash flows for
such fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter; and
(c) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time reasonably request, provided,
however, that the Company shall not be obligated under this subsection (c) or
any other subsection of Section 2.1 to provide information that it deems in good
faith to be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor who continues
to hold at least five hundred thousand (500,000) shares of Registrable
Securities (subject to stock splits, stock dividends, combinations and other
recapitalizations), at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor; provided, however, that
the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information that it reasonably considers to be a trade secret or
similar confidential information.
2.3 Termination of Covenants. The covenants set forth in Sections
2.1 and 2.2 shall terminate as to Investors and be of no further force or effect
when the sale of securities pursuant to a registration statement filed by the
Company under the Act in connection with the firm commitment underwritten
offering of its securities to the general public is consummated or when the
Company first becomes subject to the periodic reporting requirements of Sections
12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this Section 2.4, the Company hereby grants to each Series A
Investor a right of first offer with respect to future sales by the Company of
its Shares (as hereinafter defined). The right of
14
<PAGE> 17
first offer set forth in this Section 2.4 shall not be transferable except to
wholly-owned subsidiary of such Series A Investor.
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Series A Investor in accordance with the following provisions.
(a) The Company shall deliver a notice in accordance with Section
3.5 ("Notice") to the Series A Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within fifteen
(15) calendar days after receipt of the Notice, the Series A Investor may elect
to purchase or obtain, at the price and on the terms specified in the Notice, up
to that portion of such Shares that equals the proportion that the number of
shares of Common Stock issued and held, or issuable upon conversion of the
Series A Preferred Stock then held, by such Series A Investor bears to the total
number of shares of Common Stock of the Company then outstanding (assuming full
conversion of all convertible securities). The Company shall promptly, in
writing, inform each Series A Investor that elects to purchase all the shares
available to it (a "Fully-Exercising Series A Investor") of any other Series A
Investor's failure to do likewise. During the ten (10) day period commencing
after such information is given, each Fully-Exercising Series A Investor may
elect to purchase that portion of the Shares for which Series A Investors were
entitled to subscribe but which were not subscribed for by the Series A
Investors that is equal to the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion of Series A Preferred Stock
then held, by such Fully-Exercising Series A Investor bears to the total number
of shares of Common Stock issued and held, or issuable upon conversion of the
Series A Preferred Stock then held, by all Fully-Exercising Series A Investors
who wish to purchase some of the unsubscribed shares.
(c) If all Shares that the Series A Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the sixty (60) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within sixty (60) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Series A Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors and consultants for the primary purpose of
soliciting or retaining their services; (ii) the issuance of securities pursuant
to a bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act, (iii) the issuance of securities
15
<PAGE> 18
pursuant to the conversion or exercise of convertible or exercisable securities,
(iv) the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise or (v) the issuance of shares of
Common Stock (or options or warrants therefor) to equipment lessors or financial
institutions in connection with equipment financings or commercial credit
arrangements.
(e) The right of first offer in this Section 2.4 shall terminate
upon the Company's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement on Form S-1 or Form SB-2
under the Securities Act of 1933, as amended, the public offering price of which
is not less than $2.737 per share (as adjusted for any stock splits, stock
dividends, recapitalizations or the like) and $15,000,000 in the aggregate.
2.5 Authority; Enforceability. Each party has the organizational power
and authority to enter into this Agreement and to carry out its obligations
hereunder. Each party is duly organized and validly existing under the laws of
its jurisdiction of organization, and the execution of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
by all necessary action, and no other act or proceeding, corporate or otherwise,
on its part is necessary to authorize the execution of this Agreement or the
consummation of any of the transactions contemplated hereby. This Agreement has
been duly executed by each party and constitutes its valid and binding
obligation, enforceable against it in accordance with the terms of this
Agreement, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally and to the
exercise of judicial discretion in accordance with general principles of equity
(whether applied by a court of law or of equity).
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities and including any partners
of Communication Partners, L.P.). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 19
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Entire Agreement; Amendments and Waivers. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities each future
holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GLOBESPAN, INC.
By:_________________________________________
Armando Geday
Title: President and Chief Executive Officer
SERIES A INVESTORS:
CISCO SYSTEMS, INC.
By:_________________________________________
Print Name:_________________________________
Title:______________________________________
INTEL CORPORATION
By:_________________________________________
Print Name:_________________________________
Title:______________________________________
COMMON STOCK INVESTORS:
COMMUNICATION PARTNERS, L.P.
By:_________________________________________
Print Name:_________________________________
Title:______________________________________
SIGNATURE PAGE TO
INVESTORS' RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.21
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Void after
May 6, 2004
GLOBESPAN, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
This Warrant is issued to Cisco Systems, Inc. (the "Holder") by
GlobeSpan, Inc., a Delaware corporation (the "Company"), pursuant to the terms
of that certain Series A Preferred Stock and Warrant Purchase Agreement (the
"Purchase Agreement") dated as of May 6, 1999, in connection with the Company's
issuance to the Holder of shares of Series A Preferred Stock of the Company. All
share numbers and per share price numbers in this Warrant are prior to the 1 for
3 reverse stock split currently contemplated by the Company. The share and
exercise price numbers set forth herein shall be appropriately adjusted to
reflect the actual stock split when it occurs.
1. Purchase of Shares. Subject to the terms and conditions
hereinafter set forth and set forth in the Purchase Agreement, the Holder is
entitled, upon surrender of this Warrant at the principal office of the Company
(or at such other place as the Company shall notify the Holder hereof in
writing), to purchase from the Company four hundred fifty thousand (450,000)
fully paid and nonassessable shares of the Common Stock of the Company. The
shares of Common Stock issuable pursuant to this Section 1 (the "Shares") shall
be subject to adjustment pursuant to Section 8 hereof.
2. Purchase Price. The purchase price for the Shares shall be as set
forth below, subject to adjustment pursuant to Section 8 hereof (such price, as
adjusted from time to time, is herein referred to as the "Exercise Price"):
(a) For the first one hundred twelve thousand five hundred
(112,500) Shares that the Holder purchases, the Holder shall pay a per share
price equal to the price per share of the Common Stock sold pursuant to the
Company's first underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "IPO"),
exclusive of underwriters' commissions and discounts (the "IPO Price");
(b) For the second one hundred twelve thousand five hundred
(112,500) Shares that the Holder purchases, the Holder shall pay a per share
price equal to one hundred twenty-five percent (125%) of the IPO Price;
<PAGE> 2
(c) For the third one hundred twelve thousand five hundred
(112,500) Shares that the Holder purchases, the Holder shall pay a per share
price equal to one hundred fifty percent (150%) of the IPO Price;
(d) For the fourth one hundred twelve thousand five hundred
(112,500) Shares that the Holder purchases, the Holder shall pay a per share
price equal to one hundred seventy-five percent (175%) of the IPO Price; and
(e) If the Company's IPO shall have not occurred prior to the date
this Warrant becomes exercisable pursuant to Section 3(b) below, then the
Exercise Price of this Warrant (with respect to Section 3(b) below only) shall
be determined by setting the IPO Price at $3.34 per share in Sections 2(a),
2(b), 2(c) and 2(d) hereof.
3. Exercise Period.
(a) Except as set forth in Section 3(b) below, this Warrant shall
only become exercisable upon the closing of the issuance and sale of shares of
Common Stock of the Company in the Company's first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "IPO"), and it shall remain exercisable thereafter until
and including the date five (5) years after the closing date of the IPO;
provided, however, that in the event of (a) the sale of all or substantially all
the assets of the Company or (b) of the merger of the Company into or
consolidation with any other entity (unless such merger is intended solely to
change the jurisdiction of incorporation), this Warrant shall, immediately prior
to the closing or date of such event, no longer be exercisable and become null
and void. In the event of a proposed transaction of the kind described above,
the Company shall notify the Holder at least fifteen (15) days prior to the
consummation of such event or transaction.
(b) Notwithstanding the foregoing Section 3(a), if the Company's
IPO shall have not occurred prior to (a) the sale of all or substantially all
the assets of the Company or (b) of the merger of the Company into or
consolidation with any other entity (unless such merger is intended solely to
change the jurisdiction of incorporation), this Warrant shall become exercisable
immediately prior to the closing or date of such event at an Exercise Price
determined as provided in Section 2(e); provided, however, that in the event of
(x) the sale of all or substantially all the assets of the Company or (y) of the
merger of the Company into or consolidation with any other entity (unless such
merger is intended solely to change the jurisdiction of incorporation), this
Warrant shall, upon the closing or date of such event, no longer be exercisable
and become null and void. In the event of a proposed transaction of the kind
described above, the Company shall notify the Holder at least fifteen (15) days
prior to the consummation of such event or transaction.
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
<PAGE> 3
(i) the surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased, except that
if Holder is subject to HSR Act Restrictions (as defined in Section 4(iii)
below) the Exercise Prices shall be paid to the Company within five (5) business
days of the termination of all HSR Act Restrictions.
(iii) the Company hereby acknowledges that exercise of this
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR
Act") and that Holder may be prevented from exercising this Warrant until the
expiration or early termination of all waiting periods imposed by the HSR Act
("HSR Act Restrictions"). If on or before the last day upon which this Warrant
is exercisable Holder has complied with Section 4(i) above and Holder has not
been able to complete the exercise of this Warrant prior to the last day upon
which this Warrant is exercisable because of HSR Act Restrictions, the Holder
shall be entitled to complete the process of exercising this Warrant in
accordance with the procedures contained herein notwithstanding the fact that
completion of the exercise of this Warrant would take place after the last day
upon which this Warrant is exercisable.
5. Net Exercise. In lieu of exercising this Warrant pursuant to Section
4, the Holder may elect to receive, without the payment by the Holder of any
additional consideration, shares of Common Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder hereof a number of shares of
Common Stock computed using the following formula:
Y(A - B)
X = --------
A
Where: X = The number of shares of Common Stock to be issued to the
Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Common Stock at
the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of Common
Stock as of a particular date shall be determined as follows: (i) if traded on a
securities exchange or
<PAGE> 4
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the thirty (30)
day period ending three (3) days prior to the net exercise election; (ii) if
traded over-the-counter, the value shall be deemed to be the average of the
closing bid or sale prices (whichever is applicable) over the thirty (30) day
period ending three (3) days prior to the net exercise; and (iii) if there is no
active public market, the value shall be the fair market value thereof, as
determined in good faith by the Board of Directors of the Company; provided,
that, if the Warrant is being exercised upon the closing of the Qualified IPO,
the value will be the initial "Price to Public" of one share of such Common
Stock specified in the final prospectus with respect to such offering.
6. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the subscription notice.
7. Issuance of Shares. The Company covenants that the Shares, when
issued pursuant to the exercise of this Warrant, will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, and charges
with respect to the issuance thereof.
8. Adjustment of Exercise Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
shall at any time prior to the expiration of this Warrant subdivide its Common
Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Preferred Stock as a dividend with
respect to any shares of its Common Stock, the number of Shares issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 8(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective, or as of the record date of such dividend, or in the event that no
record date is fixed, upon the making of such dividend.
(b) Reclassification or Reorganization. In case of any
reclassification, capital reorganization, or change in the Common Stock of the
Company (other than as a result of a subdivision, combination, or stock dividend
provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of
<PAGE> 5
stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Common Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the purchase price per
share payable hereunder, provided the aggregate purchase price shall remain the
same.
(c) Notice of Adjustment. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Exercise Price, the Company shall promptly notify the Holder of such
event and of the number of shares of Common Stock or other securities or
property thereafter purchasable upon exercise of this Warrant.
9. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a stockholder with respect to the
Shares, including (without limitation) the right to vote such Shares, receive
dividends or other distributions thereon, exercise preemptive rights or be
notified of shareholder meetings, and such Holder shall not be entitled to any
notice or other communication concerning the business or affairs of the Company.
11. Transferability; Successors and Assigns. This Warrant and the
Shares issued upon its exercise may only be transferred in accordance with the
terms set forth in the Purchase Agreement. The terms and provisions of this
Warrant and the Purchase Agreement shall inure to the benefit of, and be binding
upon, the Company and the Holder hereof and their respective successors and
assigns.
12. Amendments and Waivers. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the Holder. Any waiver or amendment effected
in accordance with this Section shall be binding upon the Holder, each future
holder of such Shares, and the Company.
13. Governing Law. This Warrant shall be governed by the laws of the
State of California as applied to agreements among California residents made and
to be performed entirely within the State of California.
<PAGE> 6
IN WITNESS WHEREOF, the Company has executed this Warrant on the day
and year first indicated above.
GLOBESPAN, INC.
By: ______________________________
Robert J. McMullan
Chief Financial Officer
Address: 100 Schulz Drive
Red Bank, New Jersey 07701
SIGNATURE PAGE TO CISCO WARRANT
<PAGE> 1
EXHIBIT 10.22
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT.
Void after
May 6, 2004
GLOBESPAN, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
This Warrant is issued to Intel Corporation (the "Holder") by
GlobeSpan, Inc., a Delaware corporation (the "Company"), pursuant to the terms
of that certain Series A Preferred Stock and Warrant Purchase Agreement (the
"Purchase Agreement") dated as of May 6, 1999, in connection with the Company's
issuance to the Holder of shares of Series A Preferred Stock of the Company. All
share numbers and per share price numbers in this Warrant are prior to the 1 for
3 reverse stock split currently contemplated by the Company. The share and
exercise price numbers set forth herein shall be appropriately adjusted to
reflect the actual stock split when it occurs.
1. Purchase of Shares. Subject to the terms and conditions
hereinafter set forth and set forth in the Purchase Agreement, the Holder is
entitled, upon surrender of this Warrant at the principal office of the Company
(or at such other place as the Company shall notify the Holder hereof in
writing), to purchase from the Company four hundred fifty thousand (450,000)
fully paid and nonassessable shares of the Common Stock of the Company. The
shares of Common Stock issuable pursuant to this Section 1 (the "Shares") shall
be subject to adjustment pursuant to Section 8 hereof.
2. Purchase Price. The purchase price for the Shares shall be as set
forth below, subject to adjustment pursuant to Section 8 hereof (such price, as
adjusted from time to time, is herein referred to as the "Exercise Price"):
(a) For the first one hundred twelve thousand five hundred
(112,500) Shares that the Holder purchases, the Holder shall pay a per share
price equal to the price per share of the Common Stock sold pursuant to the
Company's first underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "IPO"),
exclusive of underwriters' commissions and discounts (the "IPO Price");
(b) For the second one hundred twelve thousand five hundred
(112,500) Shares that the Holder purchases, the Holder shall pay a per share
price equal to one hundred twenty-five percent (125%) of the IPO Price;
<PAGE> 2
(c) For the third one hundred twelve thousand five hundred
(112,500) Shares that the Holder purchases, the Holder shall pay a per share
price equal to one hundred fifty percent (150%) of the IPO Price;
(d) For the fourth one hundred twelve thousand five hundred
(112,500) Shares that the Holder purchases, the Holder shall pay a per share
price equal to one hundred seventy-five percent (175%) of the IPO Price; and
(e) If the Company's IPO shall have not occurred prior to the date
this Warrant becomes exercisable pursuant to Section 3(b) below, then the
Exercise Price of this Warrant (with respect to Section 3(b) below only) shall
be determined by setting the IPO Price at $3.34 per share in Sections 2(a),
2(b), 2(c) and 2(d) hereof.
3. Exercise Period.
(a) Except as set forth in Section 3(b) below, this Warrant shall
only become exercisable upon the closing of the issuance and sale of shares of
Common Stock of the Company in the Company's first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "IPO"), and it shall remain exercisable thereafter until
and including the date five (5) years after the closing date of the IPO;
provided, however, that in the event of (a) the sale of all or substantially all
the assets of the Company or (b) of the merger of the Company into or
consolidation with any other entity (unless such merger is intended solely to
change the jurisdiction of incorporation), this Warrant shall, immediately prior
to the closing or date of such event, no longer be exercisable and become null
and void. In the event of a proposed transaction of the kind described above,
the Company shall notify the Holder at least fifteen (15) days prior to the
consummation of such event or transaction.
(b) Notwithstanding the foregoing Section 3(a), if the Company's
IPO shall have not occurred prior to (a) the sale of all or substantially all
the assets of the Company or (b) of the merger of the Company into or
consolidation with any other entity (unless such merger is intended solely to
change the jurisdiction of incorporation), this Warrant shall become exercisable
immediately prior to the closing or date of such event at an Exercise Price
determined as provided in Section 2(e); provided, however, that in the event of
(x) the sale of all or substantially all the assets of the Company or (y) of the
merger of the Company into or consolidation with any other entity (unless such
merger is intended solely to change the jurisdiction of incorporation), this
Warrant shall, upon the closing or date of such event, no longer be exercisable
and become null and void. In the event of a proposed transaction of the kind
described above, the Company shall notify the Holder at least fifteen (15) days
prior to the consummation of such event or transaction.
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
<PAGE> 3
(i) the surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased, except that
if Holder is subject to HSR Act Restrictions (as defined in Section 4(iii)
below) the Exercise Prices shall be paid to the Company within five (5) business
days of the termination of all HSR Act Restrictions.
(iii) the Company hereby acknowledges that exercise of this
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR
Act") and that Holder may be prevented from exercising this Warrant until the
expiration or early termination of all waiting periods imposed by the HSR Act
("HSR Act Restrictions"). If on or before the last day upon which this Warrant
is exercisable Holder has complied with Section 4(i) above and Holder has not
been able to complete the exercise of this Warrant prior to the last day upon
which this Warrant is exercisable because of HSR Act Restrictions, the Holder
shall be entitled to complete the process of exercising this Warrant in
accordance with the procedures contained herein notwithstanding the fact that
completion of the exercise of this Warrant would take place after the last day
upon which this Warrant is exercisable.
5. Net Exercise. In lieu of exercising this Warrant pursuant to
Section 4, the Holder may elect to receive, without the payment by the Holder of
any additional consideration, shares of Common Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder hereof a number of shares of
Common Stock computed using the following formula:
Y(A - B)
X = --------
A
Where: X = The number of shares of Common Stock to be issued to the
Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Common Stock
at the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of Common
Stock as of a particular date shall be determined as follows: (i) if traded on a
securities exchange or
<PAGE> 4
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the thirty (30)
day period ending three (3) days prior to the net exercise election; (ii) if
traded over-the-counter, the value shall be deemed to be the average of the
closing bid or sale prices (whichever is applicable) over the thirty (30) day
period ending three (3) days prior to the net exercise; and (iii) if there is no
active public market, the value shall be the fair market value thereof, as
determined in good faith by the Board of Directors of the Company; provided,
that, if the Warrant is being exercised upon the closing of the Qualified IPO,
the value will be the initial "Price to Public" of one share of such Common
Stock specified in the final prospectus with respect to such offering.
6. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the subscription notice.
7. Issuance of Shares. The Company covenants that the Shares, when
issued pursuant to the exercise of this Warrant, will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, and charges
with respect to the issuance thereof.
8. Adjustment of Exercise Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
shall at any time prior to the expiration of this Warrant subdivide its Common
Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Preferred Stock as a dividend with
respect to any shares of its Common Stock, the number of Shares issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 8(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective, or as of the record date of such dividend, or in the event that no
record date is fixed, upon the making of such dividend.
(b) Reclassification or Reorganization. In case of any
reclassification, capital reorganization, or change in the Common Stock of the
Company (other than as a result of a subdivision, combination, or stock dividend
provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of
<PAGE> 5
stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Common Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the purchase price per
share payable hereunder, provided the aggregate purchase price shall remain the
same.
(c) Notice of Adjustment. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Exercise Price, the Company shall promptly notify the Holder of such
event and of the number of shares of Common Stock or other securities or
property thereafter purchasable upon exercise of this Warrant.
9. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a stockholder with respect to the
Shares, including (without limitation) the right to vote such Shares, receive
dividends or other distributions thereon, exercise preemptive rights or be
notified of shareholder meetings, and such Holder shall not be entitled to any
notice or other communication concerning the business or affairs of the Company.
11. Transferability; Successors and Assigns. This Warrant and the
Shares issued upon its exercise may only be transferred in accordance with the
terms set forth in the Purchase Agreement. The terms and provisions of this
Warrant and the Purchase Agreement shall inure to the benefit of, and be binding
upon, the Company and the Holder hereof and their respective successors and
assigns.
12. Amendments and Waivers. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the Holder. Any waiver or amendment effected
in accordance with this Section shall be binding upon the Holder, each future
holder of such Shares, and the Company.
13. Governing Law. This Warrant shall be governed by the laws of the
State of California as applied to agreements among California residents made and
to be performed entirely within the State of California.
<PAGE> 6
IN WITNESS WHEREOF, the Company has executed this Warrant on the day
and year first indicated above.
GLOBESPAN, INC.
By: __________________________________
Robert J. McMullan
Chief Financial Officer
Address: 100 Schulz Drive
Red Bank, New Jersey 07701
SIGNATURE PAGE TO INTEL WARRANT
<PAGE> 1
EXHIBIT 10.23
COVENANT NOT TO SUE AND NONDISCLOSURE AGREEMENT
In consideration of the purchase by Intel Corporation ("Intel") of
shares of capital stock of GlobeSpan, Inc. ("Company"), pursuant to a Series A
Preferred Stock Purchase Agreement dated as of May 6, 1999 (the "Purchase
Agreement"), Company and Intel agree to the terms and obligations of this letter
agreement ("Agreement"). Initially capitalized terms not defined herein shall
have the meanings assigned to them in the Purchase Agreement.
1. DEFINITIONS
1.1 "Assert" means to bring an action of any nature before any
legal, judicial, arbitration, administrative, executive or
other type of body or tribunal that has or claims to have
authority to adjudicate such action in whole or in part.
Examples of such body or tribunal include, without limitation,
united states state and federal courts, the united states
international trade commission and any foreign counterparts of
any of the foregoing.
1.2 "Chipset" means any integrated circuit designed to be
connected directly to an Intel microprocessor.
1.3 "Company's Products" means all products manufactured by or for
Company.
1.4 "Intel's Products" means all microprocessors manufactured by
or for Intel; and all Chipsets manufactured by or for Intel.
1.5 "Patent Rights" means with respect to the subject party all of
such party's rights arising from or related to all classes or
types of patents, utility models and design patents
(including, without limitation, originals, divisions,
continuations, continuations-in-part, extensions or reissues)
and applications for these classes or types of patent rights
and any equivalent rights in all countries of the world that
are owned or controlled by such party.
2. COVENANT NOT TO SUE
2.1 Covenant Not to Sue. Company agrees that, for so long as Intel
maintains an investment in Company of at least 1% of the
Company's outstanding capital stock, Company shall not Assert
any Patent Right against Intel, its subsidiaries or
affiliates, or their customers (direct or indirect),
distributors (direct or indirect), agents (direct or indirect)
and contractors (direct or indirect) (collectively, the "Intel
Parties") for the manufacture, use, import, offer for sale or
sale of any of Intel's Products or any process or method
employed in the manufacture, testing, distribution or use
thereof for so long as Intel does not Assert any Patent Right
against Company, its subsidiaries or affiliates, or their
customers (direct or indirect), distributors (direct or
indirect), agents (direct or indirect) and contractors (direct
or indirect) for the manufacture, use, import, offer for sale
or sale of the Company's Products or any process or method
employed in the
<PAGE> 2
manufacture, testing, distribution or use thereof. This
covenant not to sue shall not prevent Company from Asserting
any Patent Right against Level One, Inc., or its customers
(direct or indirect), distributors (direct or indirect),
agents (direct or indirect) and contractors (direct or
indirect), or against any Intel Party, in connection with any
product or technology or intellectual property that is, or is
derived from, any Level One, Inc. product, technology or
intellectual property. This covenant not to sue shall take
effect only after the required investment level in Company by
Intel has been achieved, and shall survive any termination or
expiration of this Agreement and shall remain in full force
and effect until mutually agreed otherwise by the parties.
2.2 Assignment. If either party ("assigning party") assigns or
attempts to assign ownership of any of its Patent Rights to a
third party not bound by this covenant not to sue (whether
directly or by operation of law), then effective immediately
prior to such assignment or attempted assignment, the
assigning party agrees that the other party shall have a
nonexclusive, nontransferable license, without right of
sublicense, under such assigned Patent Rights to make, use,
sell, offer for sale and import such party's Products. This
conditional license shall survive any termination or
expiration of this Agreement and shall remain in full force
and effect until mutually agreed otherwise by the parties.
3. NONDISCLOSURE AGREEMENT
3.1 Disclosure of Terms. The terms and conditions of this
Agreement, the Purchase Agreement and the agreements
contemplated by the Purchase Agreement (collectively, the
"Financing" or "Financing Terms"), including their existence,
shall be considered confidential information and shall not be
disclosed by any party hereto and any third party except in
accordance with the provisions set forth below. As between the
Company and Intel, this Agreement shall replace Section 7.15
of the Purchase Agreement except for the last sentence
thereof.
3.2 Press Releases, Etc. Within sixty (60) days of the Closing,
the Company may issue a press release in a form approved in
advance in writing by Intel, which approval shall not
unreasonably be withheld, disclosing that the Investors have
invested in the Company; provided that the release does not
disclose any of the Financing Terms. The Company may also
provide such information in its filings with the Securities
and Exchange Commission in connection with its pending
Registration Statement on Form S-1 (the "Registration
Statement") as may be required to comply with its legal
obligations. For each amendment to the Registration Statement
other than (i) amendment number 2 or (ii) any amendment that
does not make a change in the language regarding Intel
Corporation the Company shall give Intel a copy of such
amendment at least 24 hours before such amendment is filed and
Intel Corporation will have the opportunity to provide
reasonable comments to the disclosure regarding the Financing
within such period. Notwithstanding any other provision of
this Agreement, for any subsequent filings by the Company with
the Commission, the Company may include the disclosure in
substantially the form provided in the Registration Statement.
No other announcement regarding any Investor's participation
in the Financing shall be made in a press release, conference,
advertisement, announcement, professional or trade
publication, mass marketing materials or otherwise to the
general public without such Investor's prior written consent.
3.3 Permitted Disclosures. Notwithstanding the foregoing, (i) any
party may disclose any of the Financing Terms to its current
or bona fide prospective investors, employees, investment
bankers, lenders, accountants and attorneys, in each case only
where such persons or entities are under appropriate
nondisclosure
2
<PAGE> 3
obligations; (ii) any party may disclose (other than in a
press release or other public announcement described in
Section 3.2) solely the fact that the Investors are investors
in the Company to any third parties without the requirement
for the consent of any other party or nondisclosure
obligations; and (iii) Intel may disclose its investment in
the Company and the Financing Terms to third parties or to the
public at its sole discretion and, if it does so, the Company
shall have the right to disclose to third parties any such
information disclosed in a press release or other public
announcement by Intel.
3.4 Legally Compelled Disclosure. In the event that any party is
requested or becomes legally compelled (including without
limitation, pursuant to securities laws and regulations) to
disclose the existence of this Agreement, the Purchase
Agreement or any of the Financing Terms hereof, in
contravention of the provisions of this Section 3, such party
(the "Disclosing Party") shall provide the other parties (the
"Nondisclosing Parties") with prompt written notice of that
fact so that the appropriate party may seek (with the
cooperation and reasonable efforts of the other parties) a
protective order, confidential treatment or other appropriate
remedy. In such event, the Disclosing Party shall furnish only
that portion of the information which is legally required and
shall exercise reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded such information
to the extent reasonably requested by any Non-Disclosing
Party.
3.5 Other Information. The provisions of this Section 3 shall be
in addition to, and not in substitution for, the provisions of
any separate nondisclosure agreement executed by any of the
parties hereto with respect to the transactions contemplated
hereby. Additional disclosures and exchange of confidential
information between the Company and Intel Corporation shall be
governed by the terms of the Corporate Non-Disclosure
Agreement, No. 4055883, dated June 6, 1998, executed by the
Company and Intel.
3.6 Notices. All notices required under this section shall be made
in compliance with Section 7.6 of the Purchase Agreement..
4. MISCELLANEOUS.
4.1 This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
4.2 This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
4.3 This Agreement may not be amended or modified without the
written consent of Intel and the Company, nor shall any waiver
be effective against any party unless in a writing executed on
behalf of such party.
4.4 If any provision of this Agreement shall be declared void or
unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement
shall not be affected thereby.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
GLOBESPAN, INC. INTEL CORPORATION
By:_________________________________ By:_________________________________
Name:_______________________________ Name:_______________________________
Title:______________________________ Title:______________________________
SIGNATURE PAGE
COVENANT NOT TO SUE
<PAGE> 1
The reverse stock split and recapitalization described in Note 14 to the
financial statements has not been consummated at March 12, 1999. When it has
been consummated, we expect to be in a position to render the following consent.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS AND REPORT ON SCHEDULE
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 12, 1999, except
as to Note 14 which is as of March 12, 1999, relating to the financial
statements of GlobeSpan, Inc., which appears in such Prospectus. We also consent
to the use in the Prospectus of our report dated August 29, 1998 relating to the
financial statements of The Advanced Transmission Technology Division of AT&T
Paradyne Corporation, which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Prospectus. However, it should be noted that PricewaterhouseCoopers LLP has
not prepared or certified such "Selected Financial Data."
Florham Park, New Jersey
, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
BALANCE SHEETS AS OF DECEMBER 31, 1998 AND MARCH 31, 1999 AND THE RELATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 MAR-31-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 12 146
<SECURITIES> 0 0
<RECEIVABLES> 3,884 2,368
<ALLOWANCES> (61) (61)
<INVENTORY> 912 2,600
<CURRENT-ASSETS> 6,562 8,012
<PP&E> 9,192 9,344
<DEPRECIATION> (2,512) (3,252)
<TOTAL-ASSETS> 13,430 14,261
<CURRENT-LIABILITIES> 9,217 13,894
<BONDS> 8,264 6,482
0 0
0 0
<COMMON> 12 12
<OTHER-SE> (3) (5,036)
<TOTAL-LIABILITY-AND-EQUITY> 13,430 14,261
<SALES> 31,154 8,588
<TOTAL-REVENUES> 31,464 8,641
<CGS> 9,501 2,905
<TOTAL-COSTS> 9,501 4,020
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 12 0
<INTEREST-EXPENSE> 134 182
<INCOME-PRETAX> (8,046) (3,869)
<INCOME-TAX> (217) 0
<INCOME-CONTINUING> (7,829) (3,869)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,829) (3,869)
<EPS-PRIMARY> (0.65) (0.32)
<EPS-DILUTED> (0.65) (0.32)
</TABLE>
