<PAGE>
As filed with the Securities and Exchange Commission on July 17, 2000
Registration No. 333-36340
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
---------------
MICROTUNE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 3674 75-2883117
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Number) Identification No.)
incorporation or
organization)
Microtune, Inc.
2540 East Plano Parkway, Suite 188
Plano, Texas 75074
(972) 673-1600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Douglas J. Bartek
Chief Executive Officer
Microtune, Inc.
2540 East Plano Parkway, Suite 188
Plano, Texas 75074
(972) 673-1600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Christopher J. Ozburn, Esq. John E. Hayes III, Esq.
Wilson Sonsini Goodrich & Rosati Brobeck Phleger & Harrison LLP
Professional Corporation
8911 Capital of Texas Highway 370 Interlocken Blvd., Suite 500
Westech 360, Suite 3350
Broomfield, CO 80021
Austin, Texas 78759
(512) 338-5400 (303) 410-2000
---------------
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 being 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 number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on the date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall become effective on
the date that the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated July 17, 2000.
4,000,000 Shares
[MICROTUNE, INC. LOGO]
Common Stock
----------
This is an initial public offering of shares of common stock of Microtune,
Inc. All of the 4,000,000 shares of common stock are being sold by Microtune.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $13.00 and $15.00. Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "TUNE."
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of the common stock.
----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed on the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................ $ $
Underwriting discount........................................ $ $
Proceeds, before expenses, to Microtune...................... $ $
</TABLE>
To the extent that the underwriters sell more than 4,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional 600,000
shares from Microtune at the initial public offering price less the
underwriting discount.
----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co.
Chase H&Q
SG Cowen
Bear, Stearns & Co. Inc.
----------
Prospectus dated , 2000.
<PAGE>
Inside Front Cover
A caption centered on top of page --"Microtune, Inc."
A caption centered immediately below -- "broadband access for the new century"
A picture that spans the top part of the page, left to right, of a partial
globe.
Moving left to right in the center of the page, a diagram of the delivery of
radio frequency signals from cable and off-air (non-satellite) broadcasts
through our integrated circuit and module tuners to access devices in the set-
top box, cable modem, digital TV, cable telephony, PC/TV and automotive
markets.
A caption immediately below the diagram, centered on the page (in italics) --
"Our tuners are gateway devices between cable and off-air communications
systems and a variety of consumer electronics products. Video, audio, data
and/or voice are transmitted through the communications systems via our tuners
to these access devices."
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and the common stock being sold in this offering and
our consolidated financial statements and notes thereto appearing elsewhere in
this prospectus. Except as set forth in the consolidated financial statements
or as otherwise specified in this prospectus, all information in this
prospectus:
. assumes no exercise of the underwriters' over-allotment option;
. gives effect to the conversion of 11,948,598 outstanding shares of
preferred stock as of June 30, 2000 into 23,097,196 shares of common
stock upon the closing of this offering;
. reflects the exercise of warrants to purchase 2,212,342 shares of common
stock at a nominal exercise price; and
. reflects the two-for-one common stock split effected January 18, 2000.
Technical terms used in this prospectus are explained in the glossary beginning
on page G-1.
Microtune, Inc.
We are a leading silicon and systems company specializing in radio frequency
products. We provide high-performance radio frequency tuners and transceivers
for devices used in the broadband communications markets which enable digital
communications at a high data transfer rate. Radio frequency tuners receive
radio frequency signals and filter out all but the desired signal frequency;
transceivers both receive and transmit radio frequency signals. Radio frequency
tuners are the gateway for the reception of video, audio, data and/or voice by
access devices over existing radio frequency broadband communications
infrastructures, such as cable and land-based broadcasts received through an
antenna, known as terrestrial broadcasts. Using proprietary technologies and
advanced design methodologies, we have designed and developed radio frequency
integrated circuits that act as tuners and that can be packaged in radio
frequency tuner modules with electronic components, such as diodes and
capacitors, supplied by others. We also assemble and sell radio frequency tuner
modules that solely contain electronic components supplied by third parties.
Our tuners and modules are used in a variety of broadband access devices,
including cable modems, set-top boxes, digital TVs and PC/TVs, which are
multimedia personal computers with broadband reception capabilities.
In recent years, new broadband digital entertainment, information and
communications services, such as high-speed Internet access, web-enabled TV,
digital and high-definition TV and cable telephony have fueled demand for
broadband access devices. These services have tuner performance requirements
which are not adequately met by typical low-cost radio frequency tuners
currently used in analog devices, such as TVs and VCRs. On the other hand,
typical high-performance tuners have been prohibitively expensive for radio
frequency broadband applications. As a result, there is a demand for a class of
cost-effective radio frequency tuners capable of high performance. In addition,
we believe that increasing pressures to provide even higher performance at
lower cost, as well as increased reliability and manufacturability and reduced
size, will increase the demand for radio frequency tuners containing increasing
amounts of silicon integrated circuits. These market demands have created a
significant opportunity for our radio frequency products.
We target existing high-growth broadband access device markets, such as the
cable modem and PC/TV markets, and emerging markets, such as the digital TV,
set-top box and cable telephony markets. We also target existing high-volume
markets including the automotive market. Our products are available for and
support each of these markets. Every cable modem, PC/TV, set-top box, VCR, TV
and automobile radio requires at least one radio frequency tuner. Increasingly,
some of these
1
<PAGE>
devices include multiple tuners for enhanced or additional services. Based on
market reports from Cahner's Instat Group and Kinetic Strategies, the worldwide
demand for radio frequency tuners in these markets could reach 300 million
units by 2001.
Our radio frequency products provide our customers with the following
benefits:
. High Performance Tuning. Our tuner products facilitate efficient use of
the radio frequency spectrum, reliable reception of digital content,
concurrent reception of analog and digital broadcasts, full utilization
of available bandwidth and compatibility with current industry
standards;
. High Level Integration. Our MicroTuner is the first single-chip silicon
tuner that incorporates all of the active elements of a radio frequency
tuner, resulting in significant benefits with respect to cost,
performance, size, reliability and manufacturability;
. Complete Radio Frequency Solution. Our leading radio frequency silicon
and systems expertise allows us to provide a complete radio frequency
solution to our customers;
. Broad Suite of Radio Frequency Tuner Products. Our broad product
portfolio allows us to be a sole source provider for our customers and
allows them to migrate easily, at their own pace, to our silicon-only
implementations;
. Worldwide Sales, Support and Engineering Infrastructure. We offer our
products worldwide and provide our customers with global support; and
. Captive Module Manufacturing. We are able to leverage our manufacturing
facilities to deliver high quality radio frequency solutions to our
customers, as evidenced by our QS-9000 and ISO 9002 certified facility.
Our goal is to be the leading provider of radio frequency silicon and systems
products to our targeted broadband communications markets by:
. strengthening and broadening our broadband radio frequency technology
leadership, including expanding our existing patent portfolio of 14
granted U.S. and foreign patents and 20 pending U.S. and foreign patent
applications (which combined include over 1000 individual claims);
. targeting high growth broadband radio frequency markets;
. developing and expanding relationships with industry leaders; and
. migrating existing customers to more highly integrated radio frequency
products.
We began shipping our radio frequency silicon tuners in the first quarter of
2000. We currently outsource the manufacturing and packaging of our radio
frequency silicon tuners and most of the components of our radio frequency
module tuners. We perform all assembly, tuning and test functions for our radio
frequency module tuners at our factories in the Philippines. We perform final
testing, packing and shipping of our radio frequency integrated tuners at our
Plano, Texas facility.
2
<PAGE>
Corporate Information
In January 2000, we combined with Temic Telefunken Hochfrequenztechnik GmbH
(now called Microtune GmbH) and its affiliated companies, by acquiring HMTF
Acquisition (Bermuda), Ltd., a Bermuda corporation, which owned Temic and its
affiliated companies. Temic has been developing, manufacturing and selling
electronic radio frequency tuners since the late 1960's. In connection with
this combination, we acquired manufacturing facilities in Manila, Philippines,
a design center in Ingolstadt, Germany and a distribution facility in
Huntsville, Alabama. Since January 2000, we have been operating as one company.
We are a Delaware corporation with our principal executive offices located at
2540 East Plano Parkway, Suite 188, Plano, Texas 75074. Our telephone number is
(972) 673-1600. Our fiscal year ends on December 31. We maintain a world wide
website at www.microtune.com. The reference to our world wide website does not
constitute incorporation by reference of the information contained at this
site. Microtune, MicroTuner and the Microtune logo are our trademarks. All
other brand names and trademarks appearing in this prospectus are the property
of their respective holders.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by Microtune......... 4,000,000 shares
Shares to be outstanding after the
offering........................... 37,620,441 shares
Proposed Nasdaq National Market
Symbol............................. "TUNE"
Use of proceeds..................... For general corporate purposes and other
operating expenses including capital
expenditures and research and development
expenses.
</TABLE>
The total number of shares to be outstanding after the offering is based on
information as of June 30, 2000. The total number of shares to be outstanding
excludes 7,791,281 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $1.30 per share.
3
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
The following table presents a summary of our consolidated statement of
operations information:
. on an actual basis for the years ended December 31, 1997, 1998 and 1999
and the six months ended June 30, 1999 and 2000; and
. on a pro forma basis for the year ended December 31, 1999 to reflect our
combination with Temic in January 2000 as if the combination had
occurred on January 1, 1999.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------ -----------------
Pro Forma
1997 1998 1999 1999(1) 1999(1) 2000(1)
------- ------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ -- $ 46,759 $ -- $ 28,961
Loss from operations.... (2,814) (4,059) (9,090) (13,865) (3,870) (23,833)
Net loss................ (2,406) (3,487) (8,508) (11,160) (3,672) (23,556)
Loss per common
share(2)(4):
Basic and diluted loss
per common share..... $ (2.98) $ (1.04) $ (1.39) $ (1.82) $ (0.63) $ (3.05)
Weighted average
shares, basic and
diluted.............. 2,210 4,116 6,128 6,128 5,842 7,726
Pro forma, as adjusted
loss per common
share(3)(4):
Basic and diluted loss
per common share..... $ (0.36) $ (0.71)
Weighted average
shares, basic and
diluted.............. 30,637 33,035
</TABLE>
--------
(1) The actual and pro forma results of operations for the year ended December
31, 1999 and the results of operations for the six months ended June 30,
1999 and 2000 include significant noncash charges related to stock option
compensation. The pro forma results of operations for the year ended
December 31, 1999 and the actual results of operations for the six months
ended June 30, 2000 also include significant noncash charges related to our
combination with Temic. See "Selected Financial Data."
(2) In accordance with generally accepted accounting principles, loss per
common share does not reflect the automatic conversion of 11,948,598
outstanding shares of preferred stock into 23,097,196 shares of common
stock or the automatic exercise of warrants to purchase 2,212,342 shares of
common stock at a nominal exercise price, both of which will occur upon the
closing of this offering, because the effects are antidilutive.
(3) Pro forma as adjusted reflects the automatic conversion of 11,948,598
outstanding shares of preferred stock into 23,097,196 shares of common
stock and the automatic exercise of warrants to purchase 2,212,342 shares
of common stock at a nominal exercise price, both of which will occur upon
the closing of this offering, as if the issuances occurred at the beginning
of each period presented.
(4) The loss per common share data excludes 7,791,281 shares of common stock
issuable upon the exercise of outstanding options. If included, these
shares would have an anti-dilutive effect. See Note 2 of our Notes to
Consolidated Financial Statements for information concerning the
computation of shares used to calculate net loss per common share.
4
<PAGE>
SUMMARY FINANCIAL DATA (CONTINUED)
(in thousands, except per share data)
The following table presents a summary of our consolidated balance sheet
information as of June 30, 2000:
. on an actual basis, which does not reflect the automatic conversion of
11,948,598 outstanding shares of preferred stock into 23,097,196 shares
of common stock or the automatic exercise of warrants to purchase
2,212,342 shares of common stock at a nominal exercise price both of
which will occur upon the closing of this offering; and
. on an as adjusted basis to reflect (i) the automatic conversion of
11,948,598 outstanding shares of preferred stock into 23,097,196 shares
of common stock and the automatic exercise of warrants to purchase
2,212,342 shares of common stock at a nominal exercise price both of
which will occur upon the closing of this offering and (ii) the receipt
of the estimated net proceeds from the sale of 4,000,000 shares of
common stock in this offering at an assumed initial public offering
price of $14.00 per share, after deducting the estimated underwriting
discount and estimated offering expenses payable by us. See
"Capitalization."
<TABLE>
<CAPTION>
At June 30, 2000
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities........ $21,678 $ 72,358
Working capital......................................... 29,588 80,268
Total assets............................................ 91,882 142,562
Long-term debt.......................................... -- --
Total stockholders' equity.............................. 71,070 121,750
</TABLE>
5
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree of
risk. You should carefully consider the risks described below before making an
investment decision.
If we are unable to migrate our customers over time from our modules using
discrete components to the MicroTuner or our modules that incorporate the
MicroTuner, our operating results could be harmed.
Currently, substantially all of our revenues are from the sale of our modules
using discrete, third-party components. Our future success will depend on our
ability to successfully migrate our customers from our modules that use
discrete components to the all-silicon MicroTuner, or MicroModules containing
the MicroTuner by convincing leading equipment manufacturers to select these
products for design into their own products. If we are not able to convince
these manufacturers to incorporate our silicon products our operating results
could be harmed.
We have not completed our integration with Temic's operations and we may be
unable to do so effectively.
We have recently combined with Temic Telefunken Hochfrequenztechnik GmbH (now
called Microtune GmbH) and we are still in the process of integrating Temic's
German and Philippines operations with ours. Integrating operations of two
ongoing businesses can be difficult especially when they are located in
different countries. In addition to integrating the operational aspects of our
two companies, we will also face challenges coordinating and consolidating our
financial reporting functions. For example, our accounting functions utilize
different software programs, and Temic's consolidated financial statements have
historically been prepared based on German generally accepted accounting
principles. We may not be able to complete this integration on a timely and
cost-effective basis.
As a result of the Temic acquisition, we have recorded $38.5 million of
goodwill and acquired intangibles, the amortization of which will negatively
affect our net profits.
As a result of the Temic acquisition, we have recorded $38.5 million of
goodwill and acquired intangibles which will be amortized over one to five
years. This will increase our net loss or decrease our net income by
approximately $8.1 million in 2000 and $7.6 million in each of 2001 through
2004. To the extent we do not generate sufficient cash flow to recover the
amount of the investment recorded, the investment could be considered impaired
and could be subject to earlier write-off. In such event, our net income or net
loss in any given period could be lower or greater, respectively, than
anticipated and the market price of our stock could decline.
We are dependent upon third parties, some of which compete with us, for the
supply of components for our module manufacturing. Our failure to obtain
components for our module manufacturing would seriously harm our ability to
ship modules to our customers in a timely manner.
Many of the components for our modules are sole-sourced, meaning that we are
dependent upon one supplier for a specific component. At times we have
experienced significant difficulties in obtaining an adequate supply of
components necessary for our manufacturing operations, which have on occasion
prevented us from delivering radio frequency products to our customers in a
timely manner. For example, we are currently not receiving our expected
allocation of components from a significant sole-source supplier which has
constrained, and which we expect to continue to constrain, our ability to meet
customer demand through the remainder of 2000 and possibly into 2001.
6
<PAGE>
We usually do not have long-term supply agreements with our suppliers and
instead obtain components on a purchase order basis. Our suppliers typically
have no obligation to supply products to us for any specific period, in any
specific quantity or at any specific price, except as set forth in a particular
purchase order. Our requirements often represent a small portion of the total
production capacity of our suppliers, and our suppliers may reallocate capacity
to other customers even during periods of high demand for our radio frequency
products. In addition, some of our suppliers offer or may offer products that
compete with our radio frequency products. As a result, these suppliers may
preferentially allocate their components to in-house or third party
manufacturers, rather than us.
If our suppliers were to become unable or unwilling to continue manufacturing
or supplying the components that we utilize in our radio frequency products,
our business would be seriously harmed. As a result, we would have to identify
and qualify substitute suppliers or design around the component. This would be
time-consuming and difficult, and may result in unforeseen manufacturing and
operations problems. This may also require our customers to requalify our or
their products, which may be a lengthy process. The loss of a significant
supplier or the inability of a supplier to meet performance and quality
specifications or delivery schedules could impede our ability to meet customer
demand for timeliness, performance and quality, which could harm our reputation
and our business.
If we are unable to develop and introduce new radio frequency products
successfully and in a cost-effective and timely manner or to achieve market
acceptance of our new products, our operating results would be substantially
harmed.
Our future success will depend on our ability to develop new radio frequency
products for existing and new markets, introduce these products in a cost-
effective and timely manner, meet customer specifications and convince leading
equipment manufacturers to select these products for design into their own new
products. Our quarterly results in the past have been, and are expected in the
future to continue to be, dependent on the introduction and market acceptance
of a relatively small number of new products and the timely completion and
delivery of those products to customers. For example, we believe that market
acceptance of our radio frequency integrated circuits for the cable modem
market will be limited until the time that we introduce radio frequency
integrated circuits with the power requirements that conform to the evolving
specifications of some cable modem manufacturers. The development of new radio
frequency products is highly complex, and from time to time we have experienced
delays in completing the development and introduction of new products. In
addition, some of our new product development efforts are focused on producing
silicon products utilizing architectures and technologies with which we have no
experience, and delivering performance characteristics such as low power
consumption at levels that we have not previously achieved. If we are not able
to develop and introduce these new products successfully and in a cost-
effective and timely manner, we will not be able to successfully penetrate all
of our target markets and our operating results would be substantially harmed.
We are experiencing capacity constraints. If we fail to increase production
from our manufacturing facilities, we will be unable to meet the current and
anticipated demand for our radio frequency modules which could damage our
relationships with our customers and result in diminished revenues.
We are experiencing capacity constraints at our module manufacturing
facilities due to increased current and anticipated demand for our radio
frequency modules. We are in the process of adding additional production
equipment and hiring and training new employees. As we increase capacity and
add new products, we must maintain and improve our line, assembly and test
yields in order to meet our manufacturing goals.
7
<PAGE>
We have two module manufacturing facilities in Manila, Philippines, although
one of them has only recently begun operations. We also have one integrated
circuit test facility in Plano, Texas. The lease covering our first
manufacturing facility in the Philippines expires in December 2000. We are
currently in negotiations to extend this lease. However, we may not be able to
negotiate an extension on commercially reasonable terms or at all. If we are
unable to obtain an extension and are unable to find substitute facilities
promptly and on commercially reasonable terms, we will encounter further
capacity constraints and may experience an interruption of our ability to
manufacture our radio frequency modules. In addition, we are currently in the
process of expanding our production capacity at our second manufacturing
facility in the Philippines by installing additional production equipment. This
expansion is not expected to be completed during the year 2000.
If we fail to increase production and achieve satisfactory yields from our
manufacturing facilities, we will be unable to meet the anticipated demand for
our radio frequency products. Our failure to meet our customers' demand for our
radio frequency products could damage our relationships with our customers and
result in diminished revenues.
We face intense competition in the broadband communications and radio frequency
tuner markets, which could reduce our market share in existing markets and
affect our ability to enter new markets.
The broadband communications and radio frequency tuner markets are intensely
competitive. We expect competition to continue to increase in the future as
industry standards become well known and as other competitors enter our target
markets. We compete with, or may in the future compete with, a number of major
domestic and international suppliers of integrated circuit and system modules
in the cable modem, PC/TV, set-top box, cable telephony, digital TV and
automotive markets. We currently compete with tuner system module manufacturers
such as Alps, Panasonic and Philips Electronics and potentially with
semiconductor companies such as Broadcom and Conexant. This competition has
resulted and may continue to result in declining average selling prices for our
radio frequency products.
Many of our current and potential competitors have advantages over us,
including:
. longer operating histories and presence in key markets;
. greater name recognition;
. access to larger customer bases;
. significantly greater financial, sales and marketing, manufacturing,
distribution, technical and other resources; and
. relationships with potential customers as a result of the sales of other
components, which relationships our competitors can leverage into sales
of products competitive with our radio frequency products.
As a result, our competitors may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements or may be able to
devote greater resources to the development, promotion and sale of their
products than us.
Consolidation by industry participants, including in some cases, acquisitions
of some of our customers or suppliers by our competitors, or vice versa, could
create entities with increased market share, customer base, technology and
marketing expertise in markets in which we compete. In fact, some of our
suppliers offer or may offer products that compete with our radio frequency
products. These developments may significantly and adversely affect our current
markets, the markets we are seeking to serve and our ability to compete
successfully in those markets.
8
<PAGE>
If we do not anticipate and adapt to evolving industry standards in the radio
frequency tuner and broadband communications markets, our products could become
obsolete and we could lose market share.
Products for broadband communications applications generally are based on
industry standards that are continuously evolving. If new industry standards
emerge, our products or our customers' products could become unmarketable or
obsolete. We may also have to incur substantial unanticipated costs to comply
with these new standards. Our ability to adapt to changes and to anticipate
future standards and the rate of adoption and acceptance of those standards
will be a significant factor in maintaining or improving our competitive
position and prospects for growth. Our inability to anticipate the evolving
standards in the broadband communications market and, in particular, in the
radio frequency tuner market, or to develop and introduce new products
successfully into these markets could result in diminished revenues and
consequently harm our business.
The average selling price of our products will likely decrease over time. If
the selling price reductions are greater than we expect, our operating results
will be harmed.
Historically, the average selling price of our products has decreased over
the products' lives. In addition, as the markets for radio frequency integrated
circuit tuners and transceivers mature, we believe that it is likely that the
average unit prices of our radio frequency products will decrease in response
to competitive pricing pressures, increased sales discounts and new product
introductions. To offset these decreases, we rely primarily on achieving yield
improvements and other cost reductions for existing products and on introducing
new products that can often be sold at higher average selling prices. In
addition, we will seek to increase the sales of our higher margin products.
However, our sales, product and process development efforts may not be
successful, and our new products or processes may not achieve market
acceptance. To the extent that our cost reductions and emphasis on higher
margin products do not occur in a timely manner, our results of operations
could suffer.
We expect our quarterly operating results to fluctuate.
Our quarterly results of operations have fluctuated in the past and may
fluctuate significantly in the future based on a number of factors, many of
which are not in our control. Our results of operations may fluctuate in the
future due to the following:
. effects of competitive pricing pressures;
. volume of product sales;
. timing, cancellation and rescheduling of significant customer orders;
. ability of our customers to procure the necessary components for their
end-products that utilize our radio frequency tuners;
. pricing concessions on volume sales;
. changes in our product and customer mix;
. market acceptance of our radio frequency tuners and our customers'
products;
. labor disputes at our manufacturing facilities; and
. quality problems with our radio frequency tuners.
9
<PAGE>
We believe that transitioning our silicon products to higher performance
process technologies will be important to our future competitive position. If
we fail to make this transition efficiently, our competitive position could be
seriously harmed.
We continually evaluate the benefits, on a product-by-product basis, of
migrating to higher performance process technologies in order to produce more
efficient and higher performance integrated circuits. We believe this migration
is required to remain competitive. Other companies in the industry have
experienced difficulty in migrating to new process technologies and,
consequently, have suffered reduced yields, delays in product deliveries and
increased expense levels. Moreover, we are dependent on our relationships with
foundries to migrate to higher performance processes successfully. Our foundry
suppliers may not make higher performance process technologies available to us
on a timely or cost-effective basis, if at all. If our foundry suppliers do not
make higher performance process technologies available to us on a timely or
cost-effective basis or if we experience difficulties in migrating to these
advanced processes, our competitive position and business prospects could be
seriously harmed.
Because we depend on a few significant customers for a substantial portion of
our revenues, the loss of a key customer could seriously harm our business.
We have derived a substantial portion of our revenues in the past from sales
to a relatively small number of customers. As a result, the loss of any
significant customer could significantly harm our revenues. Sales to
DaimlerChrysler and ATI Technologies accounted for approximately 28% and 14%,
respectively, of our pro forma net revenues in 1999. DaimlerChrysler and
Motorola/General Instrument accounted for approximately 25% and 10%,
respectively, of our net revenues for the six months ended June 30, 2000. Sales
to our ten largest customers, including sales to their respective manufacturing
subcontractors, accounted for approximately 74% of our net revenues in 1999 and
approximately 73% for the six months ended June 30, 2000. We believe that our
future operating results will continue to depend on the success of our largest
customers and on our ability to sell existing and new products to these
customers in significant quantities.
The loss of a key customer or a reduction in our sales to any key customer
could harm our revenues and consequently our financial condition.
If we are unable to continue to sell existing and new products to our key
customers in significant quantities or to attract new significant customers,
our future operating results could be harmed.
We may not be able to maintain or increase sales to our key customers or to
attract new significant customers for a variety of reasons, including the
following:
. most of our customers can stop purchasing our radio frequency tuners
with limited notice to us without incurring any significant contractual
penalty;
. most of our customers typically buy our radio frequency tuners through a
purchase order, which does not require them to purchase a minimum amount
of our radio frequency tuners;
. many of our customers and potential customers have pre-existing
relationships with our current or potential competitors, which
relationships may affect their decision to purchase our radio frequency
tuners;
. some of our customers or potential customers offer or may offer products
that compete with our radio frequency tuners; and
. our longstanding relationships with some of our larger customers may
also deter other potential customers who compete with these customers
from buying our radio frequency tuners.
10
<PAGE>
If we do not maintain or increase sales to existing customers or attract
significant new customers, our revenues would diminish and consequently our
business would be harmed.
The sales cycle for our radio frequency tuners is long, and we may incur
substantial non-recoverable expenses and devote significant resources to sales
that may not occur when anticipated or at all.
Our customers typically conduct significant evaluation, testing,
implementation and acceptance procedures before they purchase our radio
frequency tuners. As a result, we may expend significant financial and other
resources to develop customer relationships before we recognize any revenues
from these relationships, and we may never recognize any revenues from these
efforts. Our customers' evaluation processes are frequently lengthy and may
range from three months to one year or more. In many situations, our customers
design their products to specifically incorporate our radio frequency tuners,
and our radio frequency tuners must be designed to meet their stringent
specifications. This process can be complex and may require significant
engineering, as well as sales, marketing and management efforts on our part.
This process becomes more complex as we simultaneously qualify our products
with multiple customers.
Uncertainties involving the ordering and shipment of our radio frequency
products could harm our business.
Our sales are typically made pursuant to individual purchase orders, and we
generally do not have long-term supply arrangements with our customers.
Generally, our purchase orders provide that our customers may cancel orders
until 90 days prior to the shipping date and may reschedule shipments up to 30
days prior to the shipping date; however, in the past, we have permitted
customers to cancel orders less than 90 days before the expected date of
shipment, in many cases with little or no penalty. Moreover, we routinely
manufacture or purchase inventory based on estimates of customer demand for our
radio frequency products, which demand is difficult to predict. The
cancellation or deferral of product orders, the return of previously sold
products or overproduction due to the failure of anticipated orders to
materialize could result in our holding excess or obsolete inventory that could
substantially harm our business, financial condition and results of operations.
In addition, our inability to produce and ship radio frequency products to our
customers in a timely manner could harm our reputation and damage our
relationships with our customers.
We customize a substantial portion of our radio frequency tuners to address our
customers' specific radio frequency needs. If we do not sell our customer-
specific products in large volumes, we may be unable to cover our fixed costs
or may be left with substantial unsaleable inventory.
We manufacture a substantial portion of our radio frequency tuners to address
the needs of individual customers. Frequent product introductions by systems
manufacturers make our future success dependent on our ability to select
development projects that will result in sufficient volumes to enable us to
achieve manufacturing efficiencies. Because customer-specific radio frequency
tuners are developed for unique applications, we expect that some of our
current and future customer-specific radio frequency tuners may never be
produced in volume and may impair our ability to cover our fixed manufacturing
costs. In addition, if our customers fail to purchase these customized radio
frequency tuners from us, we risk having substantial unsaleable inventory. If
substantial unsaleable inventory occurs, our financial condition would be
harmed.
11
<PAGE>
Other technologies for the broadband communications market will compete with
some of our target markets. If these technologies prove to be more reliable,
faster or less expensive or become more popular, the demand for our radio
frequency tuners and our revenues may decrease.
Some of our target markets, such as cable modem and cable telephony services,
are competing with a variety of different non-radio frequency based broadband
communications technologies, including digital subscriber line technology. Many
of these technologies will compete effectively with cable modem and cable
telephony services. If any of these competing technologies are more reliable,
faster or less expensive, reach more customers or have other advantages over
radio frequency-based broadband technology, the demand for our radio frequency
tuners and our revenues may decrease.
We depend on the continued growth of the broadband communications market
generally, and the radio frequency tuner market specifically, for our success.
We derive a substantial portion of our revenues from sales of radio frequency
tuners for broadband communication applications. These markets are
characterized by the following:
. intense competition;
. rapid technological change; and
. short product life cycles, especially in the consumer electronics
markets.
Although the broadband communications market, in general, has grown rapidly
in the last few years, it may not continue to grow or a significant slowdown in
this market may occur. In particular, the set-top box, cable modem and cable
telephony markets may not grow at a rate sufficient for us to achieve
profitability or at all. Because of the uncertainty of the level of competition
and the strength of competitors in the broadband communications market, the
unproven technology of many products addressing this market and the short life
cycles of many consumer products, it is difficult to predict the potential size
and future growth rate of the radio frequency tuner market. In addition, the
broadband communications market is transitioning from analog to digital, as
well as expanding to new services, including internet access, cable telephony
and interactive television. The future growth of the radio frequency turner
market is partially dependent upon the market acceptance of products and
technologies addressing the broadband communications market, and we cannot
assure you that the radio frequency technologies upon which our products are
based will be accepted by the market. If the demand for radio frequency tuners
is not as great as we expect, we may not be able to generate sufficient
revenues to become successful.
The semiconductor industry is cyclical. If there is a sustained upturn in the
semiconductor market, there could be a resulting increased demand for foundry
services, significantly increasing prices and reducing product availability.
Some of the radio frequency module products that we provide to the broadband
communications market require semiconductors. The semiconductor industry
periodically experiences increased demand and production capacity constraints.
An increased demand for semiconductors could substantially increase the cost of
producing our radio frequency products and consequently reduce our profit
margins. As a result, we may experience substantial period-to-period
fluctuations in future results of operations due to general semiconductor
industry conditions.
We primarily depend on a single third-party wafer foundry to manufacture all of
our integrated circuit products, which reduces our control over the integrated
circuit manufacturing process.
We do not own or operate a semiconductor fabrication facility. We primarily
rely on IBM, an outside foundry, to produce most of of our single-chip silicon
tuners. We do not have a long-term
12
<PAGE>
supply agreement with IBM and instead obtain manufacturing services on a
purchase order basis. IBM has no obligation to supply products to us for any
specific period, in any specific quantity or at any specific price, except as
set forth in a particular purchase order. Our requirements represent a small
portion of the total production capacity of this foundry, and IBM may
reallocate capacity to other customers even during periods of high demand for
our integrated circuits. If IBM were to become unable or unwilling to continue
manufacturing our integrated circuits, our business would be seriously harmed.
As a result, we would have to identify and qualify substitute foundries, which
would be time-consuming and difficult, resulting in unforeseen manufacturing
and operations problems. In addition, if competition for foundry capacity
increases, our product costs may increase, and we may be required to pay
significant amounts to secure access to manufacturing services. If we do not
qualify or receive supplies from additional foundries, we may be exposed to
increased risk of capacity shortages due to our dependence on IBM.
We depend on a single third-party subcontractor for integrated circuit
packaging which reduces our control over the integrated circuit packaging
process.
Our integrated circuit products are packaged by a sole independent
subcontractor, Amkor, using facilities located in South Korea. We do not have
long-term agreements with Amkor and typically obtain services from them on a
purchase order basis. Our reliance on Amkor involves risks such as reduced
control over delivery schedules, quality assurance and costs. These risks could
result in product shortages or increase our costs of packaging our products. If
Amkor is unable or unwilling to continue to provide packaging services of
acceptable quality, at acceptable costs and in a timely manner, our business
would be seriously harmed. We would also have to identify and qualify
substitute subcontractors, which could be time consuming and difficult and may
result in unforeseen operations problems.
We may be unable to integrate operations that we may acquire in the future.
From time to time, we expect to continue to evaluate acquisitions and may
make additional acquisitions in the future. Integrating acquired organizations
and their products and services may be expensive, time-consuming and a strain
on our resources.
Risks we could face with respect to any future acquisition generally include:
. the difficulty of integrating acquired technology into our product
offerings or integrating our technology with an acquired company's
products;
. the impairment of relationships with employees, customers and vendors;
. the difficulty of coordinating and integrating geographically dispersed
operations;
. the difficulty of coordinating and integrating overall business
strategies, corporate cultures, controls, procedures and policies and
sales and marketing and research and development efforts;
. the potential disruption of our ongoing business and distraction of our
management;
. the maintenance of brand recognition of acquired businesses; and
. the potential unknown liabilities associated with acquired businesses.
Our inability to generate revenues from international sales could harm our
financial results.
For the six months ended June 30, 2000, 52% of our net revenues were from
sales outside of North America. We plan to increase our international sales
activities by hiring additional international sales personnel. Our
international sales will be limited if we cannot do so. Even if we are able to
13
<PAGE>
expand our international operations, we may not succeed in maintaining or
increasing international market demand for our products.
Currency fluctuations related to our international operations could harm our
financial results.
We expect a significant portion of our international revenues and expenses to
be denominated in foreign currencies. Accordingly, we could experience
fluctuations in our financial results due to changing exchange rates rather
than operational changes. We may choose to engage in currency hedging
activities to reduce these fluctuations in the future.
If we fail to execute on our international sales and operations plans, our
operating results could be harmed.
We have facilities and suppliers located outside of the U.S., including
research and development operations in Ingolstadt, Germany, and two
manufacturing facilities in Manila, Philippines. Furthermore, our current
integrated circuit packaging partner is, and future foundry and packaging
partners may be, located internationally. Accordingly, our operations and
financial results are influenced by:
. local economic and political instability;
. restrictive governmental actions (such as restrictions on repatriation
of funds and trade protection measures, including export duties and
quotas and customs duties and tariffs);
. changes in legal or regulatory requirements;
. changes in taxation policies;
. changes in import or export licensing requirements;
. nationalization of foreign operations;
. limitations on obtaining strong patent or intellectual property
protection internationally;
. difficulties with or work stoppages due to actions of labor unions; and
. the laws and policies of the U.S. affecting trade, foreign investment
and loans.
Any of these factors could affect the cost of producing and selling our
products internationally.
Our success could be jeopardized if key personnel leave.
Our future success depends largely upon the continued service of our
executive officers and other key management and technical personnel. Our
success also depends on our ability to continue to attract, retain and motivate
qualified personnel. Our personnel represent a significant asset as the source
of our technological and product innovations. The competition for qualified
personnel is intense in the radio frequency silicon and radio frequency systems
industries. We cannot assure you that we will be able to continue to attract
and retain qualified management, technical and other personnel necessary for
the design, development, manufacture and sale of our radio frequency products.
We may have difficulty attracting and retaining key personnel particularly
during periods of poor operating performance. The loss of the services of one
or more of our key employees or our inability to attract, retain and motivate
qualified personnel could harm our business.
We must manage our growth. If we fail to manage our growth, our reputation and
results of operations could be harmed.
Following our combination with Temic, our total number of employees has grown
from 51 to 142, excluding manufacturing personnel in Manila, Philippines. In
addition, as of June 30, 2000, we had
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<PAGE>
1,601 manufacturing personnel in the Philippines. The resulting growth has
placed, and is expected to continue to place, significant demands on our
personnel, management and other resources. We must continue to improve our
operational, financial and management information systems to keep pace with the
growth of our business.
Our business may be harmed if we fail to protect our proprietary technology.
We rely on a combination of patents, trademarks, copyrights, trade secret
laws, confidentiality procedures and licensing arrangements to protect our
intellectual property rights. We currently have patents issued and pending in
the U.S. and in foreign countries. We intend to seek further U.S and
international patents on our technology. We cannot be certain that patents will
be issued from any of our pending applications or that patents will be issued
in all countries where our products can be sold or that any claims will be
allowed from pending applications or will be of sufficient scope or strength to
provide meaningful protection or any commercial advantage. Our competitors may
also be able to design around our patents. The laws of some countries in which
our products are or may be developed, manufactured or sold, including various
countries in Asia, may not protect our products or intellectual property rights
to the same extent as do the laws of the U.S., increasing the possibility of
piracy of our technology and products. Although we intend to vigorously defend
our intellectual property rights, we may not be able to prevent
misappropriation of our technology. Our competitors may also independently
develop technologies that are substantially equivalent or superior to our
technology.
Our ability to sell our radio frequency tuners may suffer if any outstanding
claims of intellectual property infringement against us or one of our customers
is valid or if any other third party claims that we or our customers infringe
on their intellectual property.
The electronics industry is characterized by vigorous protection and pursuit
of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation. In addition, our
customers may be subject to infringement claims for products incorporating our
radio frequency products. If any claims of infringement are made against any of
our customers, our customers may seek to involve us in the infringement claim
and request indemnification from us. For example, in the past, we have been
notified of a claim against one of our customers for which the customer made a
claim for indemnification from us. The underlying claim has not been resolved;
however, we do not believe that our tuner infringes on the intellectual
property that is the subject of the underlying claim. We are not, nor have we
ever been, a party to this lawsuit. However, if the litigation results in an
adverse result for our customer, it may reduce or completely eliminate
marketing of its infringing product, which would decrease sales of our radio
frequency tuners to this customer. Further, if our customer prevailed in its
claim for indemnification against us, or if we were found to infringe on any
other third-party intellectual property, we could be required to:
. pay substantial damages;
. indemnify our customers for their legal fees and damages paid;
. stop manufacturing, using and selling the infringing products;
. expend significant resources to develop non-infringing technology;
. discontinue the use of some of our processes; or
. obtain licenses to the technology.
We may be unsuccessful in developing non-infringing products or negotiating
licenses upon reasonable terms, or at all. These problems might not be resolved
in time to avoid harming our results of operations.
15
<PAGE>
Furthermore, we may initiate claims or litigation against third parties for
infringement of our proprietary rights or to establish the validity of our
proprietary rights. Litigation by or against us or one of our customers could
result in significant expense and divert the efforts of our technical personnel
and management, whether or not the litigation results in a favorable
determination.
The products of our customers are subject to governmental regulation.
Governmental regulation could place constraints on our customers and
consequently minimize our customers' need or desire for our radio frequency
products.
The Federal Communications Commission, or FCC, has broad jurisdiction over
several of our target markets in the U.S. Similar governmental agencies
regulate our target markets in other countries. Although our products are not
directly subject to current regulations of the FCC or any other federal or
state communications regulatory agency, much of the equipment into which our
products are incorporated is subject to direct government regulation.
Accordingly, the effects of regulation on our customers or the industries in
which they operate may, in turn, impede sales of our products. For example, it
is possible that demand for our radio frequency products will decrease if
equipment incorporating our products fails to comply with FCC emissions
specifications.
You may not be able to sell your stock at or above the price you paid if a
public market does not exist for our stock.
We will determine the initial public offering price of the shares of our
common stock through negotiations with the underwriters, and this price may not
be indicative of the prices that will prevail in the trading market. The market
price of our common stock may fluctuate significantly in response to a number
of factors, some of which are beyond our control, including:
. changes in financial estimates and recommendations by securities
analysts;
. changes in market valuations of other companies supplying radio
frequency integrated circuits and tuners;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments; or
. fluctuations in stock market price and volume, which are particularly
common among the securities of technology companies.
As a result, you may not be able to sell your stock at or above the price you
paid.
Our business may be adversely affected by class action litigation due to stock
price volatility.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could severely harm our business, operating
results and financial condition.
We may be unable to obtain the additional capital required to grow our
business.
We expect the net proceeds from this offering, cash on hand, cash equivalents
and marketable securities will meet our working capital and capital expenditure
needs for at least the next 24 months. After that time, we may need to raise
additional funds, and we cannot be certain that we would be able to obtain
additional financing on favorable terms, if at all. Our capital requirements
depend upon several factors, including the rate of market acceptance, our
ability to expand our customer base, our level of expenditures for sales and
marketing, the cost of product and service upgrades and other factors. If our
capital requirements vary materially from those currently planned, we may
require
16
<PAGE>
additional financing sooner than anticipated. Further, if we issue equity
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise funds, if needed, on
acceptable terms, we may not be able to develop our products and services, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, any of which could harm our ability to grow our
business.
Our stockholders could be adversely affected if our management and larger
stockholders use their influence in a manner adverse to other stockholders'
interests.
Upon completion of this offering, executive officers and directors and 5%
stockholders will beneficially own, in the aggregate, approximately 97% of our
outstanding common stock. As a result, these stockholders will be able to
exercise significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which could delay or prevent someone from acquiring or merging
with us. These stockholders may use their influence to approve or take actions
that are adverse to your interests. See "Principal Stockholders."
Future sales of our common stock may cause our stock price to decline.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that those sales could occur. These sales
or the possibility that they may occur also could make it more difficult for us
to raise funds through future offerings of common stock. The number of shares
of common stock available for sale in the public market is limited by
restrictions under federal securities laws. In addition, we and the holders of
over 99% of our common stock (including our officers and directors) have agreed
that they will not sell shares of common stock without the consent of the
underwriters for 180 days after the date of this prospectus; provided, however,
that this restriction shall terminate with respect to our stockholders as to
20% of the shares after 90 days and an additional 20% of the shares after 120
days after the date of this prospectus, in the event that, at each of those
dates, the reported last sale price of our common stock on the Nasdaq National
Market is at least twice the initial public offering price specified in this
prospectus for a set period of time ending on those dates. Goldman Sachs may,
however, in its sole discretion and without notice, release all or any portion
of the shares from the restrictions in the lock-up agreements. To the extent
any of our stockholders have not entered into lockup agreements with the
underwriters, these stockholders are subject to lockup agreements with us,
which agreements provide that these stockholders may not sell their shares for
180 days after the date of this prospectus. We do not intend to release any of
these company lockups.
After this offering based on shares outstanding as of June 30, 2000 we will
have 37,620,441 shares of common stock outstanding, of which 321,184 shares are
subject to repurchase by us in the event covered employees' employment with us
is terminated.
Shares of our common stock will become eligible for future sale in the public
market as follows, assuming the conditions set forth above are met:
<TABLE>
<CAPTION>
Number of
Shares Date Eligible for Public Resale
--------- -------------------------------
<S> <C>
4,000,000 Shares sold in this offering
4,188,404 90 days after the date of this prospectus
4,728,404 120 days after the date of this prospectus
23,680,494 180 days after the date of this prospectus
1,023,139 At various times thereafter
</TABLE>
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<PAGE>
We intend to register on a Form S-8 registration statements under the
Securities Act of 1933 a total of approximately 14,083,407 shares of common
stock reserved for issuance under our employee and director stock plans. As of
June 30, 2000, there were outstanding options to purchase 7,791,281 shares of
common stock, of which 394,184 were vested and exercisable.
Provisions in our charter documents and Delaware law may deter takeover efforts
that you may feel would be beneficial to stockholder value.
Several provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable and therefore may harm our stock price. Those provisions
include:
. Authorizing the issuance of "blank check" preferred stock;
. Providing for a classified board of directors with staggered, three-year
terms;
. Prohibiting cumulative voting in the election of directors;
. Limiting the persons who may call special meetings of the board or the
stockholders;
. Prohibiting stockholder action by written consent;
. Establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings; and
. Establishing super-majority voting requirements in some instances.
See "Description of Capital Stock--Delaware Anti-Takeover Law and Charter and
Bylaw Provisions."
If our management does not effectively use the proceeds from this offering, we
may not be able to successfully operate and grow our business.
At present, we have a wide range of planned expenditures to be funded with
the proceeds of this offering due to our need to retain flexibility to respond
to factors affecting our business. Accordingly, our management will retain
broad discretion as to the allocation of the proceeds of this offering and may
use the proceeds in a manner with which you may not agree.
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<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" as well as in the
prospectus generally. Words such as "believes," "intends," "expects,"
"anticipates," "plans," and similar expressions are intended to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described above and elsewhere in this prospectus.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $50.7 million from the
sale of the 4,000,000 shares of common stock at an assumed initial public
offering price of $14.00 per share, or approximately $58.5 million if the
underwriters' over-allotment option is exercised in full, after deducting the
estimated underwriting discounts and offering expenses payable by us.
We intend to use the net proceeds of this offering primarily for general
corporate purposes and other operating expenses, including:
. capital expenditures of approximately $22.0 million, including
expenditures relating to the expansion of our manufacturing facilities;
and
. research and development expenses of approximately $15.0 million.
In addition, if appropriate opportunities arise to acquire or invest in
complementary companies, product lines, products or technologies, we may use a
portion of the net proceeds for this acquisition or investment. However, we are
not currently discussing any potential acquisition or investment with any third
party.
We believe that we need to retain flexibility with respect to the use of the
net proceeds of this offering to respond to factors affecting our business. The
amounts and timing of these expenditures will vary depending on a number of
factors, including competitive and technological developments, success of our
marketing efforts and rate of growth, if any, of our business. Pending the uses
described above, we will invest the net proceeds in investment grade, interest-
bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends. We currently expect to retain
future earnings, if any, for use in the operation and expansion of our business
and do not anticipate paying cash dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
. on an actual basis, which does not reflect the automatic conversion of
11,948,598 outstanding shares of preferred stock into 23,097,196 shares
of common stock or the automatic exercise of warrants to purchase
2,212,342 shares of common stock at a nominal exercise price upon the
closing of this offering;
. on an as adjusted basis to reflect (i) the automatic conversion of
11,948,598 outstanding shares of preferred stock into 23,097,196 shares
of common stock and the automatic exercise of warrants to purchase
2,212,342 shares of common stock at a nominal exercise price upon the
closing of this offering and (ii) the receipt of the estimated net
proceeds from the sale of 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $14.00 per
share, after deducting the estimated underwriting discount and estimated
offering expenses payable by us.
This information should be read in conjunction with our financial statements
and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of June 30, 2000
--------------------
Actual As Adjusted
------- -----------
(in thousands,
except share data)
<S> <C> <C>
Long-term debt ........................................... $ -- $ --
Stockholders' equity:
Preferred Stock, $0.001 par value per share; 18,999,513
shares authorized, actual; and 25,000,000 shares
authorized, as adjusted; 11,948,598 shares issued and
outstanding, actual; and no shares issued and
outstanding, as adjusted............................... 12 --
Common Stock, $0.001 par value per share, 150,000,000
shares authorized, actual and as adjusted; 8,310,903
shares issued and outstanding, actual; 37,620,441
shares issued and outstanding, as adjusted............. 8 38
Additional paid-in capital.............................. 111,481 162,143
Loans receivable from stockholders...................... (864) (864)
Accumulated other comprehensive income.................. (988) (988)
Accumulated deficit..................................... (38,579) (38,579)
------- --------
Total stockholders' equity............................ 71,070 121,750
------- --------
Total capitalization................................ $71,070 $121,750
======= ========
</TABLE>
The outstanding share information in the table above excludes:
. 7,351,281 shares of common stock issuable upon exercise of outstanding
options with a weighted average exercise price of $0.90 per share as of
June 30, 2000; and
. 440,000 shares of common stock issuable upon the exercise of outstanding
options with an exercise price of $8.00 per share issuable upon the
automatic conversion of options to purchase 220,000 shares of Series E
preferred stock at an exercise price of $16.00 per share in connection
with the offering.
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DILUTION
On a pro forma basis after giving effect to the automatic exercise of
warrants to purchase common stock issued to two of our stockholders that will
occur upon the closing of this offering, and the conversion of all outstanding
shares of preferred stock into common stock in connection with this offering,
our net tangible book value as of June 30, 2000 was $36.2 million or $1.08 per
share. Net tangible book value per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities and divided by
the total number of shares of common stock outstanding (reflecting the
conversion of all outstanding shares of preferred stock into shares of common
stock upon the closing of this offering). Without taking into account any other
change in our pro forma net tangible book value after June 30, 2000, other than
to give effect to the sale of 4,000,000 shares of common stock offered by this
prospectus at an assumed initial public offering price of $14.00 per share and
receipt of the estimated net proceeds therefrom, our pro forma net tangible
book value as of June 30, 2000 would have been approximately $86.9 million or
$2.31 per share. This represents an immediate increase in the net tangible book
value of $1.23 per share to existing stockholders and an immediate dilution of
$11.69 per share to the new investors. If the initial public offering price is
higher, the dilution to new investors will be greater; if the initial public
offering price is lower, the dilution to new investors will be less. The
following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $14.00
Pro forma net tangible book value per share as of June 30,
2000, before this offering................................... $1.08
Increase per share attributable to new investors.............. 1.23
-----
Net tangible book value per share after this offering......... 2.31
------
Dilution per share to new investors........................... $11.69
======
</TABLE>
The following table summarizes, as of June 30, 2000, on a pro forma basis to
reflect the adjustments described above, the differences between the existing
stockholders and the new investors with respect to the number of shares of
common stock purchased from us, the total consideration paid (or to be paid) to
us, and the average price per share paid (or to be paid) by existing
stockholders and by new investors at the assumed initial public offering price
of $14.00 per share, before deducting the estimated underwriting discounts and
offering expenses payable by us:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 33,620,441 89.4% $108,667,000 66.0% $ 3.23
New investors................... 4,000,000 10.6 56,000,000 34.0 14.00
---------- ----- ------------ -----
Total......................... 37,620,441 100.0% $164,667,000 100.0%
========== ===== ============ =====
</TABLE>
This table assumes that the underwriters do not exercise their over-allotment
option. This table also assumes that, except as described above, no options or
warrants have been or are exercised after June 30, 2000. As of June 30, 2000,
there were outstanding options to purchase an aggregate of 7,791,281 shares of
common stock at a weighted average exercise price of $1.30 per share. If all
the options and warrants had been exercised on June 30, 2000, our net tangible
book value on that date would have been $97.0 million or $2.14 per share, the
increase in net tangible book value attributable to new investors would have
been $1.02 per share and the dilution in net tangible book value to new
investors would have been $11.86 per share.
21
<PAGE>
SELECTED FINANCIAL DATA
You should read the data presented below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical and pro forma financial statements and the notes to those
financial statements included elsewhere in this prospectus. The historical
statement of operations data for each of the three fiscal years ended December
31, 1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and
1999 have been derived from our financial statements, which have been audited
by Ernst & Young LLP, independent auditors, and are included elsewhere in this
prospectus. The historical statement of operations data for the period May 28,
1996 (inception) and balance sheet data as of December 31, 1996 and 1997 have
been derived from our audited financial statements that are not included in
this prospectus. The historical balance sheet data as of June 30, 2000 and the
historical statement of operations data for the six months ended June 30, 1999
and 2000 have been derived from our unaudited interim financial statements
which are included elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
May 28, 1996
(inception) Six Months
through Year Ended December 31, Ended June 30,
December 31, ------------------------- ----------------
1996 1997 1998 1999 1999 2000
------------ ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues........... $ -- $ -- $ -- $ -- $ -- $28,961
Cost of revenues....... -- -- -- -- -- 19,931
------ ------- ------- ------- ------- -------
Gross margin........... -- -- -- -- -- 9,030
Operating expenses:
Research and
development:
Stock option
compensation......... -- -- -- 220 134 626
Other................. 484 2,091 3,174 5,913 2,511 5,677
------ ------- ------- ------- ------- -------
484 2,091 3,174 6,133 2,645 6,303
Acquired in-process
research and
development.......... -- -- -- -- -- 12,692
Selling, general and
administrative:
Stock option
compensation......... -- -- -- 630 415 1,378
Other................. 262 723 885 2,327 810 8,097
------ ------- ------- ------- ------- -------
262 723 885 2,957 1,225 9,475
Amortization of
intangible assets and
goodwill............. -- -- -- -- -- 4,393
------ ------- ------- ------- ------- -------
Total operating
expenses............ 746 2,814 4,059 9,090 3,870 32,863
------ ------- ------- ------- ------- -------
Loss from operations... (746) (2,814) (4,059) (9,090) (3,870) (23,833)
Other income
(expense)............. 123 408 572 582 198 1,027
------ ------- ------- ------- ------- -------
Loss before provision
for income taxes...... (623) (2,406) (3,487) (8,508) (3,672) (22,806)
Provision for income
taxes................. -- -- -- -- -- 750
------ ------- ------- ------- ------- -------
Net loss............... $ (623) $(2,406) $(3,487) $(8,508) $(3,672) (23,556)
====== ======= ======= ======= ======= =======
Basic and diluted loss
per common share(1)... $(0.44) $ (2.98) $ (1.04) $ (1.39) $ (0.63) $ (3.05)
====== ======= ======= ======= ======= =======
Weighted average shares
used in computing
basic and diluted loss
per common share(1)... 1,409 2,210 4,116 6,128 5,842 7,726
====== ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------- June 30,
1996 1997 1998 1999 2000
------ ------ ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
marketable securities..... $4,828 $6,552 $ 7,868 $20,129 $21,678
Working capital............ 4,727 4,023 7,186 19,643 29,588
Total assets............... 5,448 7,744 10,190 22,277 91,882
Long-term debt............. -- -- -- -- --
Total stockholders'
equity.................... 5,347 5,215 9,508 21,605 71,070
</TABLE>
--------
(1) See Note 2 of our Notes to Consolidated Financial Statements for
information concerning the computation of the number of shares used to
calculate net loss per common share.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements that appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs, including without limitation forward-
looking statements regarding anticipated revenue growth, trends in costs of
revenues and operating expenses, international expansion and introduction of
additional products. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to any differences include, but are not limited to, those discussed
below and elsewhere in this prospectus, particularly in "Risk Factors."
Overview
We are a leading radio frequency silicon and systems company, specializing in
high-performance radio frequency tuners and transceivers to the broadband
communications markets. We design and develop highly integrated broadband
gateway radio frequency integrated circuits and modules for use in cable
modems, PC/TVs, set-top boxes, cable telephony, digital TV and other consumer
electronics devices.
In March 2000, we began shipment of our silicon single chip tuner. Since
inception we have incurred significant losses, and as of June 30, 2000, we had
an accumulated deficit of approximately $38.6 million. As a result of our
combination with Temic, our primary activities have expanded to include the
design, manufacture and sale of radio frequency modules. Our limited combined
operating history makes the prediction of future results of operations
difficult, and accordingly, we may not achieve or sustain revenue growth or
profitability.
The time lag between product availability and volume shipment can be
significant due to a sales process that includes customer qualification of our
products and can take as long as two years, during which we continue to evolve
our technology. As a result of our combination with Temic, we have broadened
our product suite to include radio frequency modules, which generated all of
our net revenues on a pro forma basis, approximately $46.8 million for the year
ended December 31, 1999. Two of our customers, DaimlerChrysler and ATI
Technologies, accounted for approximately 28% and 14% of these revenues,
respectively. DaimlerChrysler and Motorola/General Instrument accounted for
approximately 25% and 10%, respectively, of our net revenues for the six months
ended June 30, 2000. We recognize revenues from our products upon shipment to a
customer or upon notification of customer receipt, depending on the contract
terms. We provide at least a one year warranty on all products and record a
related provision for estimated warranty costs at the date of sale.
We traditionally experience seasonal fluctuations in our revenues from
January through August, primarily as a result of consumer electronics
manufacturers using this time frame to develop new products for the holiday
season. We experienced this seasonality worldwide, but particularly in our
European markets in 1999. In addition, one of our key customers decreased its
production in the same time period.
We have invested heavily in research and development of our radio frequency
integrated circuits and systems technology. We expect to increase our
investment in these areas in absolute dollars to further develop our radio
frequency products. This investment will include the continued recruitment of
radio frequency and analog integrated circuit designers and systems engineers,
acquisition of test, development and production equipment and expansion of
facilities for research and manufacturing. As a result, we expect to incur
substantial operating losses for the foreseeable future. These losses may
increase significantly from current levels.
24
<PAGE>
We use IBM and x-FAB to manufacture our wafers and Amkor to assemble our
radio frequency integrated circuits. We perform final testing, packing and
shipping of our radio frequency integrated circuits at our facility in Plano,
Texas. With respect to our tuner modules, we perform all of our assembly,
tuning and test functions in our factories in Manila, Philippines. As a result
of our combination, we have recently experienced a period of rapid growth and
expansion. To manage this growth and any future growth effectively, we intend
to enhance our existing operational and financial systems and hire additional
qualified administrative, finance and information technology personnel. In
addition, we expect to move our current corporate headquarters to a new
facility during the second half of 2000, which will increase our operating
expenses in absolute dollars.
Our Histories
Microtune. We were incorporated in Texas in May 1996 and began operations in
August 1996. In June 2000, we reincorporated in Delaware. From inception until
December 31, 1999, our primary activities consisted of raising capital,
recruiting radio frequency and analog engineers, developing our silicon
integrated circuit tuner for broadband radio frequencies and initiating
relationships with potential customers and suppliers. We were formed as a spin-
off of Cirrus Logic under an agreement which provided for the transfer by
Cirrus Logic to us of intellectual property related to the development of
tuners and radio frequency technologies and the issuance of stock to Cirrus
Logic in consideration for the intellectual property and for administrative
services to be rendered to us by Cirrus Logic. In August 1997, December 1997
and in June 1998, we repurchased the shares held by Cirrus Logic. From August
1996 until August 1998, we faced significant technological challenges in our
development efforts, including incorporation of a low noise amplifier, which is
critical for system performance, and elimination of the need for a high-voltage
power supply. In August 1998, we saw our first partial success in developing a
radio frequency tuner on a silicon integrated circuit, and in July 1999, we
started shipments of our first fully-tested product samples, the MT 2000
series, in reference boards to potential customers. Since that time, we
continued to invest in research and development efforts to improve the
performance of our single-chip silicon tuner, which resulted in the shipment of
our first production single-chip silicon tuner to a customer in the first
quarter of 2000.
In January 2000, we combined with Temic Telefunken Hochfrequenztechnik GmbH
(now known as Microtune GmbH), a designer, developer and manufacturer of radio
frequency tuners and transceiver modules with operations in Germany, the
Philippines and the U.S.
Temic Telefunken Hochfrequenztechnik GmbH. Temic was founded in the early
1900's in Germany as Nuemberger Schraubenfabrik. In the late 1940's, Temic
began developing mechanical radio frequency tuners, and in the late 1960's, it
was the first company to develop an electronic radio frequency tuner. In
addition, in 1968, Temic was acquired by AEG TELEFUNKEN. AEG TELEFUNKEN was
then acquired by another company in 1982, and then by Daimler Benz (a
predecessor of DaimlerChrysler) in 1989. Daimler Benz combined all electronics
divisions under the Temic operations by 1992, and in 1996 high frequency
products were spun out to a separate company that was the precedessor of Temic.
In 1997, management of Temic purchased Temic in a management buy-out.
Prior to our combination with Temic, Temic had experienced year to year
decreases in revenues from $56 million in 1997 to $51 million in 1998 and $46
million in 1999. These decreases were primarily due to a change in the strategy
of Temic to focus on radio frequency tuners for new markets that management
believed offered more potential than some of the markets previously served,
such as the analog television market. In addition, in 1997, revenues included
products other than tuners that were discontinued in 1997. In December 1999,
Hicks, Muse, Tate & Furst Incorporated acquired Temic through a Bermuda
company, HMTF Acquisition (Bermuda), Ltd. Temic combined with Microtune in
January 2000, and the two companies have been operating as one company since
that time.
25
<PAGE>
Comparison of the Three Months Ended March 31, 2000 and June 30, 2000
The following table sets forth unaudited, quarterly results of operations for
the first and second quarters of 2000 and the results as a percentage of
revenues. The interim historical results are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30,
March 31, 2000 2000
--------------- -------------
(in thousands, except
percentages)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues................................ $ 13,896 100% $15,065 100%
Cost of revenues............................ 10,071 72 9,860 65
-------- ----- ------- ----
Gross margin................................ 3,825 28 5,205 35
Operating expenses:
Research and development:
Stock option compensation.................. 267 2 359 2
Other...................................... 2,584 19 3,093 21
-------- ----- ------- ----
2,851 21 3,452 23
Acquired in-process research and
development............................... 12,692 91 -- --
Selling, general and administrative:
Stock option compensation.................. 522 4 856 6
Other...................................... 3,302 24 4,795 32
-------- ----- ------- ----
3,824 28 5,651 38
Amortization of intangible assets and
goodwill.................................. 2,178 16 2,215 15
-------- ----- ------- ----
Total operating expenses.................. 21,545 156 11,318 76
-------- ----- ------- ----
Loss from operations........................ (17,720) (128) (6,113) (41)
Other income (expense)...................... 1,324 10 (297) (2)
-------- ----- ------- ----
Loss before provision for income taxes...... (16,396) (118) (6,410) (43)
Provision for income taxes.................. 364 3 386 3
-------- ----- ------- ----
Net loss.................................... $(16,760) (121)% $(6,796) (46)%
======== ===== ======= ====
</TABLE>
Net Revenues. Our net revenues increased 8.4% from $13.9 million for the
three months ended March 31, 2000 to $15.1 million for the three months ended
June 30, 2000, primarily as a result of increased production capacity at our
two manufacturing facilities to fulfill the increasing demand for our products,
in particular in the cable modem and PC/TV markets.
Cost of Revenues. Cost of revenues decreased from $10.1 million, or 72% of
revenues, in the three months ended March 31, 2000 to $9.9 million, or 65% of
revenues, in the three months ended June 30, 2000. The decrease in cost of
revenues as a percent of revenues and in absolute dollars is due primarily to
the change in our product mix to higher margin products, mainly in the cable
modem and PC/TV markets. We also achieved increased efficiences in our
manufacturing facilities and increased our capacity, particularly in our newer
manufacturing facility in Manila.
Research and Development. Research and development expenses increased 21%
from $2.9 million, or 21% of revenues, in the three months ended March 31, 2000
to $3.5 million, or 23% of revenues, in the three months ended June 30, 2000
due to the recruiting and hiring of engineers, increased stock option
compensation and increased purchases of prototype materials for the design and
development of new products.
Acquired In-Process Research and Development. As a result of our combination
with Temic, we recorded acquired in-process research and development costs of
$12.7 million in the three months ended March 31, 2000. Amounts allocated to
acquired in-process research and development
26
<PAGE>
were expensed at the date of combination because the purchased research and
development had not reached technological feasibility based on the status of
design and development activities that required further refinement and testing.
Selling, General and Administrative. Selling, general and administrative
expenses increased 48% from $3.8 million, or 28% of revenues, in the three
months ended March 31, 2000 to $5.7 million, or 38% of revenues, for the three
months ended June 30, 2000, due to the recruiting of additional sales and
administrative personnel, increased stock option compensation charges and one-
time charges totalling $1.1 million consisting primarily of a write-down of
certain leasehold improvements at the building we currently occupy in Plano,
TX, and severance costs related to the termination of an employee.
Other Income (Expense). Other income (expense) consists of interest income
from investment of cash and cash equivalents, foreign currency gains and losses
and other non-operating income and expenses. The decrease from $1.3 million of
income for the three months ended March 31, 2000 to $0.3 million of expense for
the three months ended June 30, 2000 consisted primarily of foreign currency
losses due to changes in foreign currency exchange rates.
Income Taxes. We recorded a provision for income taxes of $0.4 million in the
three month periods ended March 31, 2000 and June 30, 2000 related to our
foreign subsidiaries operations.
Results of Operations
The information included in the following discussion gives the historical
information for Microtune, Inc. and does not include the results of Temic for
periods prior to our combination with Temic in January 2000. These historical
results are not necessarily indicative of the future financial position or
results of operations of the combined company.
Comparison of the Six Months Ended June 30, 1999 and 2000.
Net Revenues. Revenues are recorded net of a provision for returns. Our net
revenues from the sale of our products were $29.0 million in the six months
ended June 30, 2000, primarily as a result of the inclusion of net revenues
from the sale of Microtune GmbH products in the six months ended June 30, 2000.
In addition, we began shipments of our silicon single chip tuner in March 2000.
We did not generate net revenues from the sale of our products in the six
months ended June 30, 1999. Recent supplier capacity constraints have affected
our ability to meet customer demand for our products in the six months ended
June 30, 2000. We expect these supplier capacity constraints to continue
through the remainder of 2000 and possibly into 2001, and they may adversely
affect revenue growth during that time.
Cost of Revenues. Cost of revenues includes the cost of purchases for
subcontracted materials, integrated circuit assembly, factory labor and
overhead and warranty costs. In addition, we perform final testing of our
products and incur cost for the depreciation of our test and handling
equipment, labor, quality assurance and logistics. We have only recently begun
manufacturing our silicon products and as a result expect our costs to decrease
as our suppliers and our test personnel develop experience in producing our
products. Our subcontracted materials experience cyclical trends in pricing due
to fluctuations in demand. In many cases, we do not have written commitments
from our suppliers for guaranteed supply. Our cost of revenues in the six
months ended June 30, 2000 was $19.9 million, or 69% of net revenues. We did
not generate revenues from the sale of products in the six months ended June
30, 1999 and, therefore, did not incur cost of revenues.
Research and Development. Research and development expenses consist of
personnel-related expenses, lab supplies, training and prototype subcontract
materials. We expense all of our research and development costs in the period
incurred. Research and development expenses increased 138%
27
<PAGE>
from $2.6 million in the six months ended June 30, 1999 to $6.3 million, or 22%
of net revenues, in the six months ended June 30, 2000. The increase in
research and development expenses in the six months ended June 30, 2000
primarily reflects the addition of $1.7 million of expenses associated with
Microtune GmbH operations, as well as recruiting of engineers, purchases of
additional prototype materials associated with the design process and an
increase in the stock compensation charge related to options granted to
employees. We expect that research and development expenses will increase in
absolute dollars in future periods, and may increase or fluctuate significantly
as a percentage of total revenues from period to period. Stock option
compensation does not affect our total stockholders' equity or cash flows.
Acquired In-Process Research and Development. As a result of our combination
with Temic, we recorded acquired in-process research and development costs of
$12.7 million for the six months ended June 30, 2000. Amounts allocated to
acquired in-process research and development were expensed at the date of
combination because the purchased research and development had not reached
technological feasibility based on the status of design and development
activities that required further refinement and testing.
Selling, General and Administrative. Selling, general and administrative
expenses include our personnel-related expenses for administrative, financial,
human resources, marketing and sales, and information technology departments,
and include expenditures related to legal, public relations and financial
advisors. In addition, these expenses include promotional and marketing costs,
and will include sales commissions and reserves for bad debts. Selling, general
and administrative expenses increased 673% from $1.2 million in the six months
ended June 30, 1999 to $9.5 million, or 33% of net revenues, in the six months
ended June 30, 2000. The increase in selling, general and administrative
expenses in the six months ended June 30, 2000 primarily reflects the addition
of $5.4 million of expenses associated with Microtune GmbH operations, as well
as recruiting of sales and administrative personnel, and an increase in the
stock option compensation charge related to options granted to employees. Stock
option compensation does not affect our total stockholders' equity or cash
flows.
Amortization of Intangible Assets and Goodwill. The amortization of
intangible assets and goodwill of $4.4 million in the six months ended June 30,
2000 results principally from our combination with Temic. The combination has
been accounted for using the purchase method of accounting. The purchase price
allocated to intangible assets of $8.0 million is being amortized over the
estimated useful lives of the related assets of one to five years. Goodwill
resulting from the transaction totaled $30.4 million and is being amortized
over five years. We had immaterial amortization charges in the six months ended
June 30, 1999.
Other Income (Expense). Other income (expense) consists of interest income
from investment of cash and cash equivalents, foreign currency gains and losses
and other non-operating income and expenses. Interest income increased 150%
from $0.2 million in the six months ended June 30, 1999 to $0.5 million in the
six months ended June 30, 2000. Interest income is earned from high quality,
short-term investments from cash generated by our four private placement equity
rounds of funding. The foreign currency translation and transaction gain of
$0.1 million in the six months ended June 30, 2000 relates to the operations
of Microtune GmbH. We use the Deutsche Mark as the functional currency for
Microtune GmbH's and its subsidiaries' financial statements. Foreign currency
exchange gains and losses resulting from the translation of financial
statements denominated in Deutsche Marks of Microtune GmbH into U.S. Dollars
are included as a component of stockholders' equity. Foreign currency exchange
gains and losses resulting from the remeasurement of financial statements not
denominated in Deutsche Marks of Microtune GmbH outside of Germany into
Deutsche Marks are recognized currently in the statements of operations as a
component of foreign currency gains and losses.
28
<PAGE>
Income Taxes. Prior to our combination with Microtune GmbH, or Temic, we had
not recognized any provision for income taxes. We have a net operating loss
carryforward for U.S. federal income tax purposes of approximately $13.5
million as of December 31, 1999. In addition, we have unutilized research and
development tax credits of $0.4 million. Due to the uncertainty of our ability
to utilize these deferred tax assets they have been fully reserved. The
provision for income taxes in the six months ended June 30, 2000 consists of
foreign income taxes on the income of Microtune GmbH.
Comparison of Years Ended December 31, 1997, 1998 and 1999.
Net Revenues. Our first silicon products were available for evaluation by our
customers in 1999. We did not generate net revenues from the sale of our
products in 1997, 1998 or 1999.
Cost of Revenues. We did not generate revenues from the sale of products in
1997, 1998 or 1999 and therefore have not incurred cost of revenues.
Research and Development. Research and development expenses increased 52%
from $2.1 million in 1997 to $3.2 million in 1998, and 93% to $6.1 million in
1999. These increases primarily reflect our increase of engineering personnel,
stock option compensation and purchases of additional prototype materials
associated with the design process. Stock option compensation does not affect
our total stockholder's equity or cash flows.
Selling, General and Administrative. Selling, general and administrative
expenses increased 22% from $0.7 million in 1997 to $0.9 million in 1998, and
234% to $3.0 million in 1999. The 1997 to 1998 increase was primarily due to
increased personnel-related costs of $0.2 million resulting from the growth of
our finance and marketing staffs. The larger increases from 1998 to 1999 were
primarily related to our personnel-related expenses in sales and marketing of
$0.7 million, stock option compensation of $0.6 million, promotions of $0.1
million and travel of $0.1 million as we prepared for our first half 1999
product announcements and began to develop our direct sales channels and
independent sales representative network. Stock option compensation does not
affect our total stockholders' equity or cash flows.
Other Income (Expense). Other income (expense) includes interest income which
increased 40% from $0.4 million in 1997 to $0.6 million in 1998. Interest
income was flat with $0.6 million in 1998 and 1999.
Income Taxes. Due to our net operating losses, we did not record any
provision for income taxes in 1997, 1998 or 1999.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through the issuance
of convertible preferred stock which has generated net cash proceeds of
approximately $44.2 million. As of June 30, 2000, we had net working capital of
$29.6 million, including $21.7 million of cash, cash equivalents and
marketable securities. Our marketable securities consist of high quality,
short-term investments.
At June 30, 2000, Microtune GmbH had credit agreements with two banks which
provide for borrowings of up to $2.4 million under each agreement. One of the
agreements is cancellable upon notification by the bank and the second
agreement expires August 31, 2000. Borrowings under these agreements bear
interest at rates determined from time to time by the banks (7.50% and 8.00%,
respectively, at June 30, 2000). At June 30, 2000, no borrowings were
outstanding under these credit agreements.
29
<PAGE>
Investments in property and equipment were $0.6 million in 1997, $1.5 million
in 1998, $0.9 million in 1999 and $6.5 million in the six months ended June 30,
2000. We expect capital expenditures to increase substantially over the next 12
months as we move to a new corporate facility in the second half of 2000 and
expand our manufacturing and test capacity to support our anticipated increase
in production. Other uses of cash include the funding of operating activities
which were $2.3 million in 1997, $2.7 million in 1998, $6.5 million in 1999 and
$4.9 million in the six months ended June 30, 2000.
We believe that the net proceeds from this offering, together with our
current cash balance will provide adequate liquidity to fund our operations and
meet our other cash requirements for at least the next 24 months following this
offering. However, we may find it necessary or we may choose to seek additional
financing if our investment plans change or if industry or market conditions
are favorable for that type of a financing. We cannot be sure that a financing
will be available on reasonable terms, or at all, when and if required. If we
raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be reduced.
Quantitative and Qualitative Disclosures About Market Risk
Following our combination with Temic, we now transact both sales and
purchases in multiple foreign currencies, including the Euro, Deutsch Marks and
the Philippine Peso. Due to the volatile nature of the currency markets, there
is a potential risk of foreign currency translation losses, as well as gains.
We currently do not use derivative financial instruments to hedge our balance
sheet exposures against future movements in exchange rates. However, we are
currently evaluating our exchange risk management strategy, including changes
in our organizational structure and other capital structuring techniques to
manage our currency risk. Our net investment in foreign subsidiaries,
translated into U.S. dollars using exchange rates at June 30, 2000 was $48
million. A potential loss in the value of this net investment resulting from a
hypothetical 10% adverse change in foreign exchange rates would be
approximately $4.8 million.
Euro Conversion
On January 1, 1999, 11 European Union member states (Germany, France, the
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal and
Luxembourg) adopted the Euro as their common national currency. Until
January 1, 2002, either the Euro or a participating country's national currency
will be accepted as legal tender. Beginning on January 1, 2002, Euro-
denominated bills and coins will be issued, and by July 1, 2002, only the Euro
will be accepted as legal tender. We do not expect future balance sheets,
statements of operations or statements of cash flows to be materially impacted
by the Euro conversion.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities", which we
are required to adopt by January 1, 2001. We do not currently use derivatives,
however, as those instruments may be used in the future, it is uncertain what,
if any impact the adoption of Statement 133 will have on our earnings or
financial position.
Year 2000
We have not incurred any material expense nor have we experienced any
material disruptions in our systems or those of our vendors and service
providers as a result of Year 2000 system processing.
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BUSINESS
Overview
We are a leading radio frequency silicon and systems company, providing high-
performance radio frequency tuners and transceivers to the broadband
communications markets. Using proprietary technologies and advanced design
methodologies, we have designed and developed radio frequency integrated
circuits and radio frequency modules for a variety of broadband communications
access devices including cable modems, PC/TVs, which are multimedia personal
computers with broadband reception capabilities, set-top boxes and digital TVs.
Our radio frequency tuners are the gateway devices for reception of video,
audio, data and/or voice over existing broadband communications
infrastructures, such as cable and terrestrial. Our transceivers enable
interactivity by permitting bi-directional communications. Our latest radio
frequency integrated circuit products offer a high level of integration,
resulting in significant cost, performance, size, reliability and
manufacturability benefits. Our radio frequency module products provide a
complete radio frequency system, eliminating a customer's need for radio
frequency design and manufacturing expertise.
Industry Background
In recent years, new classes of broadband digital entertainment, information
and communications services have emerged, such as high-speed Internet access,
web-enabled television, digital and high-definition TV and cable telephony.
These new services, which are increasingly interactive, involve the delivery of
video, audio, data and/or voice to a growing range of access devices, including
cable modems, PC/TVs, set-top boxes and digital TVs. In the future, we believe
broadband services will increasingly be delivered to mobile wireless devices
such as cell phones, personal digital assistants, and in-car information and
entertainment systems.
Several significant trends are now influencing the market for broadband
entertainment, information and communications services, including:
. the transition from analog to digital content, transmission systems and
access devices;
. the transition from proprietary to standards-based systems such as
DOCSIS (data over cable service interface specification)-based cable
modems, OpenCable set-top boxes and PacketCable telephony devices; and
. the convergence of Internet, personal computer and consumer electronics
functions.
Many of the new broadband entertainment, information and communications
services are transmitted over cable, terrestrial or satellite systems that use
the radio frequency spectrum. The radio frequency spectrum is finite and its
use is regulated by governmental agencies, such as the Federal Communications
Commission in the U.S. These regulations involve allocation of frequencies for
specific usage, rules regarding content of information transmitted in those
frequencies, and technical specifications for transmission and reception
equipment utilizing the radio frequencies. Radio frequency products that
incorporate solutions in consumer products that receive and/or transmit radio
frequency transmissions are regulated by the governmental agencies and must be
designed and manufactured within performance and standards guidelines that
allow this equipment to pass agency requirements.
Due to the increased demand for services using the radio frequency spectrum,
communications providers must use the limited amount of spectrum more
efficiently, by using every available channel and by packing data densely
within the channels. As a result, broadband communications providers are making
the transition to digital techniques because digital allows more efficient use
of the limited amount of spectrum than is possible with analog techniques. For
example, using digital techniques over cable, it is possible to broadcast two
high definition signals or as many as twenty standard definition signals in the
same amount of spectrum as a single standard definition signal using analog
techniques.
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Radio frequency tuners are the gateway devices between broadband
communications systems and the related access devices. Video, audio, data
and/or voice are transmitted through these communications systems at radio
frequencies. The radio frequency tuner plays a critical role by extracting
content from the desired radio frequency and converting the content into a form
that is useable by the access device. In interactive applications where bi-
directional communication is necessary, the radio frequency tuner, together
with an radio frequency transmitter, acts as a transceiver, both receiving and
transmitting radio frequency broadband data.
Every automotive radio, cable modem, set-top box, PC/TV, VCR and TV requires
at least one radio frequency tuner. Increasingly, some of these access devices
include multiple tuners for enhanced or additional services. Based on market
reports from Cahner's Instat Group and Kinetic Strategies, the worldwide demand
for radio frequency tuners in these markets could reach 300 million units by
2001.
Radio frequency tuner technology is complex and significantly influences
overall system performance. Unlike digital circuits, which address stable and
predictable inputs and outputs, analog circuits, including radio frequency,
must accommodate variable and unpredictable signals. Radio frequency tuners are
significantly more challenging than other analog products because they must
receive weak signals at very high frequencies in noisy environments. A poorly
performing tuner will result in interference that manifests itself in spurious
patterns, static and snow in an analog environment, and total loss of signal in
a digital environment.
The transition from analog to digital content and the convergence of
Internet, PC and consumer electronics functions pose significant challenges
that require even more complex, high performance radio frequency tuners. These
challenges include:
. more efficiently using the radio frequency spectrum;
. reliably receiving both analog and digital signals;
. handling the increasing bandwidth on broadband cable systems;
. serving many interconnected access devices; and
. complying with evolving standards in the broadband markets.
In addition to these performance challenges, radio frequency tuners must
maintain a small form factor, have a high level of integration and provide
customers rapid time-to-market.
Typical low-cost radio frequency tuners currently used in analog devices,
such as TVs and VCRs, fail to meet one or more of these challenges. Typical
high performance tuners have generally been prohibitively expensive for radio
frequency broadband applications. As a result, there is a demand for a class of
cost-effective radio frequency tuners capable of high performance. In addition,
we believe the increasing pressures of even higher performance and lower cost,
combined with the desirable traits of increased reliability, manufacturability
and reduced size, will drive the market toward radio frequency tuner products
with increasing levels of silicon content.
The Microtune Solution
We are a leading radio frequency silicon and systems company focused on
delivering radio frequency gateway tuner products, including both radio
frequency tuners and transceivers, to a range of existing and emerging
broadband communications markets. With our unique combination of silicon and
systems expertise, we provide complete and cost-effective radio frequency
tuners for high performance radio frequency tuner applications. Key features of
our products include:
High Performance Tuning. Our tuner delivers the high performance required to
meet the needs of advanced video, audio, data and/or voice applications
transmitted via sophisticated broadband
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communications systems. We believe our tuner products provide the following
benefits at a price consistent with the needs of the consumer electronics
marketplace:
. high channel selectivity by rejecting image and adjacent channel
interference, thereby permitting more efficient use of the radio
frequency spectrum;
. low phase noise that allows reliable reception of digital content;
. low distortion consistent with requirements of a cable system with
bandwidth that is fully utilized by concurrent analog and digital
broadcasts;
. operation at a high frequency to fully utilize the available bandwidth
of broadband cable systems;
. low incidence of spurious emissions to enable the interconnection of
multiple access devices; and
. compatibility with evolving standards, including the stringent
performance and functionality requirements of the DOCSIS standard.
Integrated Circuit Tuner Leadership. In January 1999, we introduced our
MicroTuner, the world's first single-chip radio frequency tuner. The
MicroTuner's high level of integration results in significant cost,
performance, size, reliability and manufacturability benefits. We believe that
the MicroTuner is the only single-chip tuner to incorporate all of the active
elements of a radio frequency tuner, including a low noise amplifier, which is
critical for system performance. Furthermore, our single-chip tuner
incorporates varactors, thereby eliminating the need for a high-voltage power
supply. In addition, the MicroTuner has a flexible architecture designed to
support multiple broadband communications systems, including analog and
digital, cable and terrestrial systems, and future broadband wireless mobile
networks. The MicroTuner architecture and the multiple integrated circuits
derived from the architecture are protected by 7 issued patents and 12 pending
U.S. patent applications.
Combination of Radio Frequency Silicon and Systems Expertise. We believe that
we differentiate ourselves from our competitors by possessing both leading
radio frequency silicon and systems expertise. Our silicon expertise allows us
to integrate increasing levels of functionality into fewer integrated circuits,
resulting in higher performance, smaller tuners. Our radio frequency systems
expertise allows us to offer tuners that can be rapidly and cost effectively
incorporated into our customers' products and that contribute to optimizing the
performance of those products in an radio frequency environment. Therefore,
complete radio frequency systems can be provided to customers that do not have
the expertise, time or desire to develop their own radio frequency tuners. Our
61 systems and integrated circuit engineers possess an average of more than 11
years of experience. Given the complexity of radio frequency tuner design, this
combination of silicon and systems expertise allows us to achieve optimal
technology integration and to provide a complete tuner product to our
customers' demanding and varied needs.
Broad Suite of Radio Frequency Tuner Products. We provide a full range of
radio frequency tuner products to the broadband communications market that
support both analog and digital systems. Our portfolio of products includes
integrated circuits with complete reference designs and manufacturing-ready
radio frequency modules, including MicroModules, which contain MicroTuner
integrated circuits. We believe our products allow our customers to integrate
radio frequency capabilities into their products quickly and easily. Our tuners
are customized for multiple markets, including the cable modem, PC/TV, set-top
box, cable telephony, digital TV and automotive markets. We believe the breadth
of our product portfolio allows us to be a sole source provider for our
customers and allows them to migrate easily, at their own pace, to silicon-only
implementations.
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Worldwide Sales, Support and Engineering Infrastructure. We offer our
products worldwide and provide our customers with global support. Our corporate
headquarters and a major design center are located in Plano, Texas, and our
European headquarters and another major design center in Ingolstadt, Germany.
Sales centers are located in San Diego and San Jose, California, and
Huntsville, Alabama with applications support in San Diego and Huntsville.
Captive Module Manufacturing. We currently operate our own manufacturing
facilities for assembly, tuning and testing our module products. We have two
manufacturing facilities located in Manila, Philippines, one of which is
qualified for both QS-9000 and ISO 9002. We are in the process of applying for
ISO 9002 certification for our second facility. Our QS-9000 qualified facility
allows us to supply radio frequency tuner modules that meet the exacting
standards required for automobile-based products, such as the ability to
operate in a wide range of temperatures. We are able to leverage our quality
manufacturing to benefit all of our customers as well as to win new customers.
Our Strategy
Our goal is to be the leading provider of radio frequency silicon and systems
tuner products to the broadband communications markets for the delivery of
video, audio, data and/or voice to home, office and mobile environments. Key
elements of our strategy include the following:
Strengthen And Broaden Broadband Radio Frequency Technology Leadership. We
intend to build on our technology capabilities and strengthen our position as a
technology leader in the broadband radio frequency market. As a technology
leader supplying complete tuner solutions to radio frequency broadband markets,
we believe we can drive the innovation of next-generation technologies for
these markets. We are aggressively building on our technology leadership by
devoting significant research and development resources to increasing the
performance of our products, while simultaneously reducing their power
requirements and size, and increasing their integration. We have assembled a
world-class team of engineers with silicon and systems design expertise in
radio frequency and analog technologies, and we intend to expand this team. In
addition, we have protected our technology developments with 7 U.S. patents
issued, the first of which expires in 2015, and with 15 U.S. patent
applications pending, as well as 7 foreign patents issued and 6 foreign patent
applications pending. We intend to vigorously protect our future innovations
through additional patent protection.
Target High Growth Broadband Radio Frequency Markets. We are currently a
market leader in radio frequency gateway tuners to the high growth DOCSIS cable
modem and PC/TV markets. We intend to leverage this market leadership and our
flexible MicroTuner architecture to penetrate emerging, high growth broadband
communications markets, such as the digital set-top box, digital TV and cable
telephony markets. Due to our flexible architecture, our radio frequency
gateway tuners can extract both digital and analog content and operate in both
cable and terrestrial communications systems. As a result, we believe we are
well positioned to expand our market leadership to broadband communications
opportunities as they emerge. Furthermore, our target markets are transitioning
to standards-based systems. Consequently, to be an early provider of standards-
compliant radio frequency tuner products, we are focusing significant resources
on developing products that conform to emerging standards. Cable Television
Laboratories, a consortium of companies operating cable networks, has created
specifications that attempt to standardize the digital technologies needed for
offering digital services over cable. The first of these, DOCSIS, has
standardized the digital technologies for cable modems and has been thoroughly
embraced by the industry. A second standard, OpenCable, attempts to standardize
the technology required for new digital set-top boxes that enable services such
as receiving digital television signals, internet access, pay-per-view
broadcast and video-on-demand. A third standard, PacketCable, attempts to
standardize technologies required for Internet-based voice and video products
over cable systems, including cable telephony. Based on the success of DOCSIS
standard, we believe that there is a
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strong likelihood that OpenCable and PacketCable will also be successful. We
believe that our expertise in the DOCSIS standard will allow us to rapidly
deploy products that comply with the emerging standards of OpenCable and
PacketCable due to the similarities in the radio frequency requirements of
these three standards.
Develop and Expand Relationships with Industry Leaders. We have established
relationships with key market and technology leaders within the broadband
communications market, including Motorola, Inc., Cisco Systems, Inc., 3Com
Corporation and Com21, Inc., within the broadband communications market. These
relationships include not only normal supply agreements based on purchase
orders, but also include strategic allocations of cable modem tuners in the
short term and cooperation in evaluating our future generation products for
incorporation into our customers' products. For example, we have entered into a
supply agreement, which expires in December 2001, with the Broadband
Communications Sector of Motorola, Inc., pursuant to which Motorola is required
to purchase from us a strategic amount of tuner modules for use in cable modems
through the second quarter of 2001 and to provide technical support for our
effort to develop the next generation of our silicon-based radio frequency
tuners. The Motorola agreement can be cancelled by Motorola with respect to
products ordered by it pursuant to our standard cancellation policy, except for
the minimum required quantities which cannot be cancelled except with the
mutual consent of the parties. We have entered into similar agreements with
Cisco Systems, 3Com and Com21.
Leading equipment suppliers that currently ship products that incorporate our
radio frequency products include:
. DOCSIS Cable Modem: Askey, Cisco Systems, Ericsson, Motorola/General
Instrument, Samsung, Thomson Consumer Electronics and 3Com;
. PC/TV: ATI, Hauppauge, Pinnacle and 3dfx; and
. Automotive: DaimlerChrysler.
In addition to these current customer relationships, we have design wins with
suppliers in the set-top box, cable telephony and cable modem markets. We
believe our relationships with market leaders enhance the acceptance of our
radio frequency tuners and allow us to anticipate market trends to expand our
market leadership. Finally, while we design products that can be used by
multiple customers, we believe our ability to design custom features based on
customers' needs enables our customers to improve their time-to-market,
differentiate their products and address new market opportunities. We believe
our ability to customize radio frequency tuners allows us to strengthen our
relationships with our existing and new customers.
Migrate Existing Customer Base to More Highly Integrated Products. We
currently have a significant base of existing customers in the high growth
broadband communications markets incorporating our tuner modules. For example,
we shipped products to more than 100 customers in the three months ended June
30, 2000. We believe that once a customer designs our tuners into its products,
that customer is more likely to continue to choose our tuners for their
products. As the market requires more integrated tuners to improve cost, size,
reliability and manufacturability, we believe that we can leverage our
incumbent position with our customers to migrate these customers across our
product line. Over time, we intend to transition our customers from module
tuners with discrete components to either module tuners incorporating our
integrated circuits or to integrated circuit-only tuners. By providing
identical functionality, as we replace discrete components with integrated
circuits in our tuner modules, we believe the customer can more easily make
this transition with minimal engineering effort. At the same time, more highly
integrated tuners reduce our costs and improve our margins.
Markets
While the infrastructure of the broadband communications markets is varied,
we leverage our core silicon technologies and systems capabilities in various
product implementations across multiple
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<PAGE>
complementary segments, including automotive radio, cable modem, PC/TV, set-top
box, VCR and TV. Based on market reports from Cahner's Instat Group and Kinetic
Strategies, the worldwide demand for radio frequency tuners in these markets
could reach 300 million units by 2001. Many industry analysts predict continued
high-growth rates for these markets, even though individual segments are at
different phases in their evolution. Specifically, we target existing high-
growth segments, such as cable modems and PC/TV, and emerging segments, such as
digital TV, set-top boxes and cable telephony. In addition, we target existing
high-volume markets such as the automotive market. We believe that these
markets demand, or will demand in the future, affordable radio frequency tuner
products at higher performance levels than previous tuner implementations.
These market requirements have created a significant opportunity for our
products.
Cable Modem. Major cable operators have been upgrading their networks to
support two-way communications, high-speed Internet access, and telecommuting
through the use of a cable modem. Paul Kagan and Associates estimates that in
2000, 75% of U.S. cable homes will have access to two-way cable, which
percentage is expected to grow to 93% by 2003. Cahner's InStat Group estimates
that 2.6 million cable modems were sold worldwide in 1999 with more than 1.25
million units shipped in the quarter ended March 31, 2000, representing a 42%
sequential increase in unit volumes during one quarter. In addition, 54% of
those units were standards-based DOCSIS modems. Cahner's Instat Group also
forecasts that a total of 6.8 million cable modems will ship during 2001. The
installed base of cable modem customers in North America alone is expected to
reach 15.9 million by 2003, according to the Kinetic Strategies.
In the cable market, factors such as the consolidation of systems operators
are driving a transition from proprietary cable modems to open architecture,
standards-based devices. The standard, called DOCSIS, enables interoperability
between different cable manufacturers' cable modems across different cable
networks. Major cable systems operators were offering DOCSIS-based services to
17% of all cable homes in North America at the end of 1999, expected to climb
84% by the end of 2003, according to the Kinetic Strategies. Every cable modem
must include at least one radio frequency tuner to receive the radio frequency
signal from the cable networks. Presently, Microtune provides its radio
frequency tuner module to multiple DOCSIS-certified cable modem manufacturers.
The information from Paul Kagan and Associates was obtained from the National
Cable Television Association website (www.neta.com/glance.html), and we have
notified the National Cable Television Association that we have used
information from that website in this prospectus.
PC/TV. Microsoft and Intel, through their PC guidelines and other industry
initiatives, have outlined rigorous specifications for high-resolution video
and audio services on the PC. These specifications reflect an initiative,
endorsed by computer original equipment manufacturers, to transform the PC into
a platform for entertainment, information and communications in both the home
and office. The power and interactivity of the PC, in combination with new
broadcast delivery mechanisms, including digital TV transmission, digital audio
broadcast and two-way cable, is expected to drive the demand for new
applications and services, and in turn, increase computer sales. With its high-
resolution monitor, the PC is already equipped to support the display
requirements of digital TV and it provides a low-cost alternative to high-
priced digital TV sets and receivers. Cahner's Instat Group predicts that sales
of digital TV tuners for PCs will reach 9 million units worldwide by 2004,
climbing to more than 15 million units by 2010. We currently supply our radio
frequency tuner products to PC/TV manufacturers and will seek to migrate our
customers to digital television tuner technology.
Set-top Box. According to Cahner's InStat Group the number of worldwide cable
subscribers at the end of 1999 was 258 million, and is expected to grow to 335
million by the end of 2003. In order to increase the number of channels,
provide higher picture quality and exploit the bandwidth of the
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existing cable infrastructure, cable service providers have begun offering
digital programming. Cahner's InStat Group estimates that major cable system
operators are planning to add an average of 15 new 6MHz digital channels to
existing cable plants this year, and 18 within the next 24 months. Consumers
receive this digital programming through a digital cable set-top box. Cahner's
InStat Group predicts that there will be more than 35 million digital cable
subscribers worldwide by 2003. The number of cable digital service customers in
the U.S. alone is expected to increase to 42.1 million homes by 2006, according
to Paul Kagan and Associates.
In addition, industry analysts predict that a new generation of digital
interactive set-top boxes will be introduced by the end of the year 2000 that
will facilitate interactive TV, Internet access, broadband multimedia services
and high-definition TV capability. These new set-top boxes, based on OpenCable
specifications, will also be interoperable, enabling set-top boxes from
multiple manufacturers to operate across different cable networks. Each set-top
box contains at least one tuner, and often multiple tuners, for reception of
analog and digital signals from the cable network. We are currently working
with customers who are developing OpenCable-compliant set-top boxes to supply
tuners that meet the radio frequency hardware requirements of the OpenCable
specification. In addition, we are working with suppliers of satellite and
terrestrial set-top box receivers to incorporate our products.
Cable Telephony. As the availability of bi-directional cable communications
becomes more widespread, we expect voice-over-cable will become more readily
available as part of a cable operator's service portfolio. Major cable
operators, including AT&T and TimeWarner, are beginning to compete with local
companies in providing telephone service and other services, such as
videoconferencing via the cable infrastructure. Cahner's Instat Group estimates
that worldwide cable telephony subscribers will increase from less than one
million in 1999 to over 20 million in the year 2004. The evolving standard,
PacketCable, provides the framework for identifying, qualifying and supporting
Internet protocol-based voice and video products via the cable network, and it
ensures a level of service consistent with that provided by telephone
companies. To conform with the PacketCable standard, suppliers must meet two
technical challenges: compliance with rigorous industrial-class environmental
operating standards and the delivery of a low-power solution. With our QS-9000
certified products that were developed for the automotive industry and our
success in developing low power products, we believe that we are well
positioned to meet the stringent environmental and power requirements for radio
frequency tuners in the PacketCable standard. We are currently working with
customers who are developing prototype cable telephony systems to supply radio
frequency tuners that meet their performance requirements.
Television. The worldwide infrastructure of traditional TV is undergoing
substantial change due to the transition to digital techniques. For example, in
the U.S., current FCC regulations, subject to specific exceptions, mandate that
all terrestrial broadcast stations in the U.S. convert solely to transmission
using digital techniques by 2006. Digital techniques will enable services such
as high-definition TV programming, data broadcasting, on-demand programming and
interactive TV. New equipment will be required by consumers to receive these
new digital services, and this equipment can include digital TVs, digital set-
top boxes as well as digital personal video recorders and other TV peripherals.
Cahner's InStat Group predicts that the number of digital TV tuners will reach
51 million units worldwide by 2004, climbing to 137 million units by 2010.
Cahners Instat group projects that installations of worldwide, stand-alone
digital land-based broadcast set-top boxes will grow from 695,000 in 2000 to
9.4 million in 2004. In addition, Cahner's projects that the number of digital
television sets in the U.S. and Europe will increase from 535,000 in 2000 to
6.5 million in 2004. Devices enabling the digital delivery of information
require at least one, and often more, radio frequency tuners. In addition, we
sell our radio frequency tuner modules in the analog TV market. We believe that
our tuners are well positioned to meet both digital and analog TV
manufacturers' requirements because of the high-performance of our tuners, and
their ability to reliably receive both digital and analog signals.
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Automotive. Today's consumers are interested in smarter and safer
automobiles, and the automotive industry is responding with system upgrades and
advanced features, including next-generation digital radio, TV-based
entertainment systems, and the integration of networking and communications
into the automobile. We believe that these advanced services will lead to
increasing demand for high-performance tuner systems based on a new breed of
radio frequency tuner technology and architectures. At the same time, the
demand for silicon content is increasing as automakers strive to provide more
electronic systems to meet automotive space constraints and QS-9000 quality
standards, while supporting industrial-class environmental operating
conditions. Given our experience in supplying FM and TV tuners to the
automotive industry, we believe that we can leverage our position in the tuner
market for automobiles into additional opportunities to incorporate our
products into other automotive uses of radio frequency technology.
Products
Our products include integrated circuits that perform tuning functions, as
well as tuner modules. Our tuner modules, which include a variety of electronic
components supplied by others, can be packaged with or without our integrated
circuits.
Single-Chip Silicon Broadband Tuners. Our MicroTuner is a semiconductor-based
tuner that uses dual conversion, or two steps, to convert the desired radio
frequency channel to the required output. Our MicroTuner incorporates all the
active components associated with receiving a cable or land based broadcast in
the radio frequency spectrum and converting it to a standard intermediate
frequency. Because of its small size, the MicroTuner is suitable particularly
for products that require high-performance but have constrained space or that
require multiple tuner implementations.
The MicroTuners are characterized by a number of features:
. compatibility with performance requirements of cable and terrestrial
environments, meeting the stringent requirements of new broadband
applications;
. support for analog and digital modes;
. support for worldwide standards;
. configurable implementation to meet a wide range of applications and
customer-customization requirements; and
. all-silicon implementation for reliable, stable, predictable operation
with lower manufacturing cost.
Modules: Complete, Production-Ready Radio Frequency Tuners. Our module
technology, an implementation medium for tuners, transceivers or other radio
frequency products, consists of circuit boards containing integrated circuits
and other electronic components that are enclosed by metal shielding. Our radio
frequency tuner modules are complete, production-ready radio frequency products
that are available for specific markets, including the cable modem, PC/TV, set-
top box, cable telephony, digital TV and automotive markets.
We offer modules based on conventional discrete components that provide high-
performance radio frequency capabilities and can include additional functions,
such as transmission capability enabling bi-directional communications,
packaged in a production-ready product. These modules are based on a tuner
architecture that uses single conversion, or one step, to convert the desired
radio frequency channel to the required output and offer customization
flexibility. We believe that these products, supported by our design and
applications engineering centers, have established a track record of
reliability, quality and performance.
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In March 2000, a new class of modules, called MicroModules, was introduced.
The MicroModules, containing the MicroTuner integrated circuit, package the
complete radio frequency functionality into a small, module form-factor,
designed for easy integration and implementation into customers' existing or
new systems. These high performance, smaller form factor modules provide
increased ease of manufacturability and increased reliability. We have
introduced four versions of this product line, targeted to meet the specific
requirements of the cable modem, set-top box, digital TV, and PC/TV markets.
Over time, we intend to increase the number of our own proprietary silicon
integrated circuits in our MicroModules and to sell various implementations
across all of our target markets.
Our modules are characterized by a number of features:
. complete, fully-tested radio frequency tuners, providing for easy
integration into a customer product;
. high-performance tuning capabilities, designed to meet performance
requirements of specific applications;
. high quality, with products manufactured to both ISO 9002 and QS-9000
standards;
. compliance with established worldwide industry standards; and
. customization capability, allowing our customers to differentiate their
products with added functions or unique features.
As part of our radio frequency integrated circuit and module product
portfolio, we develop and sell reference platforms that represent application
examples for incorporation into customers' equipment. By providing these
reference platforms, we can assist customers in achieving easier and faster
transitions from initial prototype designs to final production releases. These
reference-standard products enhance the customer's confidence that our products
will meet their market requirements and product introduction schedules.
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The following table summarizes our products by target market and
availability:
<TABLE>
<CAPTION>
Market Product Name and Description Availability
-----------------------------------------------------------------------------------------
<C> <C> <S> <C>
Cable Modem Silicon integrated circuit . MicroTuner Single-Chip Available Now
Silicon Tuner
Modules . MicroModule Expected Q4, 2000
incorporating the
MicroTuner
. Cable Modem Tuner Available Now
Module (only receives
signals)
. Cable Modem Available Now
Transceiver Module
(both receives and
transmits signals)
--------------------------------------------------------------------------------
PC/TV Silicon integrated circuit . MicroTuner Single-Chip Available Now
Silicon Tuner
Modules . MicroModule Expected Q4, 2000
incorporating the
MicroTuner
. PC/TV Tuner Module Available Now
. PC/TV Tuner Module Expected Q3, 2000
(smaller size)
. Digital PC/DTV Tuner Available Now
Module
--------------------------------------------------------------------------------
Set-top Box Silicon integrated circuit . MicroTuner Single-Chip Available Now
Silicon Tuner
Modules . MicroModule Expected Q4, 2000
incorporating the
MicroTuner
. Digital TV Tuner Available Now
Module
--------------------------------------------------------------------------------
Cable Telephony Silicon integrated circuit . MicroTuner Single-Chip Expected 2001
Silicon Tuner
Modules . Cable Modem Tuner Available Now
Module (only receives
signals)
. Cable Modem Available Now
Transceiver Module
(both receives and
transmits signals)
. Cable Telephony Expected Q4, 2000
Transceiver Module
(enhanced
functionality specific
to cable telephony
use)
--------------------------------------------------------------------------------
Television Silicon integrated circuit . MicroTuner Single-Chip Available Now
Silicon Tuner
Modules . MicroModule Expected Q4, 2000
incorporating the
MicroTuner
. Analog TV Tuner Module Available Now
(high performance
model)
. Analog TV Tuner Module Available Now
(low cost model)
--------------------------------------------------------------------------------
Automotive Modules . AM/FM Tuner Module Available Now
. FM Tuner Module Available Now
. TV Tuner Module Available Now
</TABLE>
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Although we anticipate that we will release the products in the table
immediately above in the time frame mentioned, the timing and success of
product releases remains unpredictable due to the complexity of our product
development, the compatibility of our products with the products of our
customers and market acceptance of our products. Moreover, once introduced, our
products may not generate any significant revenues.
Technology
We believe that one of our competitive advantages is our broad base of core
technologies across the range of engineering expertise for radio frequency
tuners, from silicon to systems. We strive to continuously improve our
technology and to develop new technologies in the area of radio frequency
communication. To date, we have developed radio frequency technologies in the
area of cable modem transceivers, television tuning systems employed in
personal computers, set-top boxes and digital video recorders, automotive
radios, and general television tuning technology for terrestrial and cable
applications. As of June 30, 2000, we have 7 patents granted and an additional
14 patent applications pending in the U.S. and 7 patents granted and an
additional 6 patent applications pending in other countries (which combined
include over 1,000 individual claims).
MicroTuner Integrated Circuit. The centerpiece of our technology is our
single-chip silicon tuner, the MicroTuner. The MicroTuner is a highly
integrated, solid-state device that incorporates all the active components
associated with receiving a cable or terrestrial signal in the radio frequency
spectrum and converting it to a standard intermediate frequency.
True Single-Chip Implementation. Our technology expertise has allowed us
to implement what we believe is the only single-chip tuner, incorporating
all of the active elements of a radio frequency tuner. Our MicroTuner
addresses the especially difficult challenge of integrating the low noise
amplifier circuit which is critical for system performance due to its role
in defining a receiver's sensitivity. Furthermore, our MicroTuner is the
first tuner to incorporate varactors, thereby eliminating the need for a
high-voltage power supply.
Dual Conversion Architecture. The MicroTuner uses a patented dual
conversion architecture that has been optimized for an integrated circuit
implementation. The dual conversion architecture is considered highly
desirable because of its performance with respect to image rejection and
the accuracy of its output. Traditionally, dual conversion tuners were more
expensive than single conversion tuners due to the additional conversion
step and were only used in demanding and less cost sensitive applications
such as cable set-top boxes. But in the new digital era, higher performance
is a common requirement and the characteristics of the dual conversion
architecture are ideal.
Programmability. The MicroTuner also provides for substantial flexibility
through its programmability. A key part of the reference designs that we
develop and provide to customers is a software module. This software
provides for common functionality such as channel changing, but also allows
flexibility in creating on-chip reference frequencies used for tuning. By
providing this flexibility, it is possible to optimize performance on a
channel by channel basis. We believe the software also provides a
convenient user interface for designers and aids in system diagnostics.
All-Silicon Tuner. Traditionally, radio frequency integrated circuits
have been based on a non-silicon material called gallium arsenide. However,
gallium arsenide suffers from two weaknesses: high cost and low
integration. Low integration means that few components can be implemented
on a single chip. Although silicon germanium has attracted publicity in
recent years due to its high performance, to date, it has been available
only at a high cost. In contrast, we use an all-silicon chip to combine a
high level of integration in our radio frequency integrated circuits,
several tens of thousands of components on one chip, and low cost. This
allows us to provide our customers with cost-effective products of small
physical size.
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High Performance Single Conversion Technology. Traditionally, high-
performance applications, such as cable TV tuners, have required performance
that was only realizable with a high-cost, dual conversion tuner module
composed of hundreds of discrete components. We have developed a proprietary
design for our single conversion tuner that extends its capabilities into the
cable and digital realm. While not offering all of the advanced capabilities of
the MicroTuner, the technology gives customers a choice of implementation
methods and cost alternatives. This has enabled us to sell reasonably priced
radio frequency modules to additional target markets.
Sales, Marketing and Technical Support
We have a worldwide sales, marketing and technical support organization
consisting of employees as of June 30, 2000, with sales and technical support
offices located in Plano, Texas, San Diego and San Jose, California,
Huntsville, Alabama, and Ingolstadt, Germany. To complement our direct sales
and support expertise, as of June 30, 2000 we had 23 sales representatives and
distributors in China (Hong Kong), Denmark, India, Israel, Japan, Korea,
Singapore, South Africa, Taiwan, Turkey and the United Kingdom. Products
shipped to North America accounted for approximately 47% of our total revenues
for 1999 on a pro forma basis and approximately 48% of our net revenues for the
six months ended June 30, 2000. In 1999, two customers, DaimlerChrysler
Corporation and ATI Technologies, accounted for greater than 10% of our
revenues, with approximately 28% and 14% of pro forma net revenues,
respectively. For the six months ended June 30, 2000, DaimlerChrysler and
Motorola/General Instrument accounted for approximately 25% and 10% of net
revenues, respectively.
In addition, our design and applications engineering staff is actively
involved with customers during all phases of design and production and provides
customer support through our worldwide sales and technical support offices and
major design centers in Plano, Texas, and Ingolstadt, Germany. We continue to
seek close technical collaboration with our customers during the design phase
of their new products to position us as the primary radio frequency tuner
supplier for our customers' new products. We also provide technical support to
our customers through our field application engineers, technical marketing and
factory systems engineers.
We market our products through our web page, industry trade shows and
exhibitions, presentations of technical papers at industry meetings and
technical articles placed in industry magazines.
Manufacturing
Our manufacturing objective is to produce reliable, high quality integrated
circuits and modules while maintaining a high level of on-time delivery to our
customers. By utilizing third parties for our wafer fabrication and integrated
circuit packaging, we are able to focus on module manufacturing and tuning and
radio frequency testing of both the integrated circuits and modules.
Integrated Circuit Manufacturing. We currently contract with two third-party
silicon foundries, IBM and x-FAB, for our wafer fabrication. Our integrated
circuits are currently produced using standard silicon technology, and we are
investigating using more advanced technologies for fabrication of future
products that increase the performance of our integrated circuits while
reducing die size. Once produced by the third party foundry, the die are then
assembled into packages by a third party assembler. Currently, Amkor is our
sole source integrated circuit assembly subcontractor; however, we have
recently identified a second assembly subcontractor with a qualified package,
and are continuing to investigate other assembly subcontractors for future use.
Once assembled, the packaged units are returned to our Plano, Texas facility
for final testing and quality assurance to insure that manufacturability and
yield enhancement objectives are met.
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Module Manufacturing. We currently operate our own manufacturing facilities
for assembly, tuning and testing our module products. We have two manufacturing
facilities located in Manila, Philippines, totaling 61,200 square feet of
space. One of our locations is qualified for both QS-9000 and ISO 9002. We
began manufacturing activities in the other facility in January 2000 and are in
the process of applying for ISO 9002 certification for this newer facility.
Module assembly is accomplished using the latest surface mount assembly
equipment utilizing 80% surface mount device components. Surface mount assembly
is completed with standard pick and place equipment, which is generally readily
available from several sources. The process takes surface mountable components
and places them on a printed circuit board. The printed circuit board is then
run through a furnace to harden (re-flow) the solder between the components and
printed circuit board. The use of surface mount equipment usually increases the
number of units that can be assembled by a factory line per hour. The modules
are then tuned and tested using our proprietary test software and equipment.
The tuning process is a manual process completed on an assembly line. Our
modules are tuned after the components are placed on a printed circuit board
and prior to full assembly. The equipment used for tuning is a personal
computed-based system that utilizes off the shelf radio frequency test
equipment, which is generally readily available.
Quality Assurance. Our quality control process is started during the design
phase of each product. Each of our products is designed for testability. During
the design phase for each product, we engage in specific layout rules for the
product and subject each product to extensive simulation at process,
temperature and voltage extremes prior to the product being prototyped. To
insure that the highest quality is maintained, our integrated circuits and
module prototypes are subjected to extensive reliability testing prior to being
released to high volume production. Once a product is qualified and released to
manufacturing, a product-monitoring plan is used to ensure the highest-quality
level is maintained. We continue our quality testing process by submitting a
statistically valid random sample of finished products to extensive testing on
a rotational basis.
Engineering, Research and Development
Our engineering team has substantial expertise in communications systems,
radio frequency integrated circuit technology, analog and mixed signal
technology, television systems engineering and PC systems and computer
networks. As of June 30, 2000, approximately 42 of our 61 research and
development engineers had advanced degrees. These engineers are involved in
advancing our technology core competencies and our product development
activities. Currently, our research and development efforts are focused on
increasing the functions of our radio frequency integrated circuits and
modules, while maintaining a level of low power consumption.
In 1997, 1998 and 1999 and the six months ended June 30, 2000, excluding the
effect of stock option compensation, we spent approximately $2.1 million, $3.2
million, $5.9 million and $5.7 million, respectively, on research and
development. On a pro forma combined basis in 1999, we spent approximately
$21.8 million, which includes $12.7 million of acquired in-process research and
development. We believe that we must continually enhance the performance and
flexibility of our products, and successfully introduce new products to
maintain our leadership position. Accordingly, we expect to continue to expend
significant amounts of funds for research and development activities in the
future.
Backlog
As of June 30, 2000, our six month backlog was approximately $66.2 million.
We expect to fulfill orders representing a significant portion of the backlog;
however, we will be capacity constrained and limited by component availability.
We include in backlog all accepted product purchase orders for which delivery
has been specified by the customer within six months. Product orders in our
backlog are subject to changes in delivery schedules or to cancellation at the
option of the purchaser without
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significant penalty. Our ability to fulfill backlog may vary significantly from
time to time depending upon the level of capacity available to satisfy unfilled
orders. Accordingly, although useful for scheduling production, backlog as of a
particular date may not be a reliable indicator of sales in any future period.
Patents and Proprietary Information
Our future success and competitive position depend upon our ability to obtain
and maintain protection for the proprietary technology used in our products. As
of June 30, 2000, we held 7 issued U.S. patents and had 14 additional U.S.
patent applications pending, of which a majority of the claims made for four
pending applications has been approved, and 7 patents granted and 6 patent
applications pending in other countries (which combined include over 1,000
individual claims). Our issued patents expire between 2015 and 2019.
Our issued patents and those with notices of allowance protect various
aspects of our technology at the broad architectural level as well as at the
circuit and building block level, including:
. Integrated dual conversion tuners;
. Multiple phase-locked loops on a single chip; and
. Integrated variable-gain low noise amplifier.
We also have one registered trademark in the U.S.
Because it is critical to our success that we are able to prevent competitors
from copying our innovations, we intend to continue to seek patent protection
for our products. We also rely on trade secret protection for our technology,
in part through confidentiality agreements with our employees, consultants and
third parties.
One of our customers has sought indemnification from us. The underlying claim
has not been resolved; however, we do not believe that our tuner infringes on
the intellectual property that is the subject of the underlying claim and we
have not been named as a defendent in the litigation against our customer. We
have not received any claims that we are infringing any other entity's patents
or trade secrets. We may, however, receive those types of claims in the future,
which could severely harm our rights to use our technology and, consequently,
our business.
Competition
The broadband communications markets and semiconductor industries are
intensely competitive and are characterized by rapid technological change,
evolving standards and price erosion. We expect competition to intensify as
current competitors expand their product offerings and new competitors enter
the market.
We believe that we compete primarily on the basis of:
. conformity to industry standards;
. performance relative to price;
. product availability;
. time-to-market;
. quality and reliability;
. adaptability and flexibility to customers' and target markets'
requirements;
. customer service and responsiveness;
. level of integration;
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. design and engineering capabilities; and
. new product innovation.
We believe that we compete favorably against our competitors with respect to
these factors.
We compete primarily with tuner manufacturers, such as Alps, Panasonic and
Philips Electronics, and potentially with semiconductor companies, such as
Broadcom and Conexant, who may produce competitive products in the future. We
believe that many of our customers also use radio frequency tuners provided by
our competitors. These relationships may influence our customer's decisions
regarding the volume of tuners purchased from us or our competitors, which
could decrease our sales to our customers. In addition, because of these
relationships, some of our competitors may acquire information related to our
customers' new products before we do, which could harm our future sales to
those customers. We expect to continue to face competition from these companies
and emerging companies developing new technologies that may meet the needs of
our customers.
We also compete with other technologies in our target markets. In particular,
the cable modem and cable telephony markets could also be served by products
using digital subscriber line technologies, which have some advantages over
cable technologies. For example, digital subscriber line technologies provide
transmission through an ordinary phone line, while cable technologies provide
transmission through a cable television network. To date, the number of
installed telephone lines has exceeded the number of cable lines installed.
Because of the prevalence of telephone access, it is possible that the use of
digital subscriber line technologies could surpass the use of cable
technologies. Typically, a consumer would select one method for high speed
access. Both allow for two-way, high-speed access between the Internet and a
consumer. Digital subscriber line technologies are dependent on the quality of
the telephone lines, and many of the installed telephone lines are old, which
may impact the availability and/or quality of the information flow as compared
to newer installed cable lines. The bandwith available to each cable modem user
decreases as the number of users increases. Cahners InStat Group estimates the
installed base of digital subscriber lines will increase from 1.3 million in
1999 to 36.0 million by 2003.
Environmental Matters
International, federal, state and local requirements relating to the
discharge of substances into the environment, the disposal of hazardous wastes
and other activities affecting the environment may have an impact on our
manufacturing operations. We believe that we are in material compliance with
applicable environmental laws and regulations. To date, compliance with
environmental requirements and resolution of environmental claims have been
accomplished without material effect on our liquidity or capital resources.
Facilities
Our principal administrative, sales, marketing, research and development and
final testing facility is located in a building of approximately 20,000 square
feet in Plano, Texas. This facility is leased through August 2003. We expect
that this facility will not be sufficient to meet our needs by the end of 2000.
In March 2000, we signed a lease covering approximately 44,000 square feet in a
facility in Plano, Texas, and we expect to relocate our offices to this
facility in late 2000. We also maintain an administrative, sales, marketing,
research and development office of approximately 25,000 square feet in
Ingolstadt, Germany, which is leased through December 2021. In addition, we
lease sales and technical support offices in San Diego and San Jose,
California, and Huntsville, Alabama.
Our manufacturing facilities are located in two buildings covering
approximately 25,200 and 36,000 square feet, respectively, located in Manila,
Philippines. Our leases for these properties
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expire in December 2000 and November 2004, respectively. We are currently
negotiating for an extension of our lease that expires in December 2000. We
believe that we will be able to obtain this extension. We believe that our
existing manufacturing facilities require additional expansion, which expansion
is not expected to be completed in 2000.
Employees
As of June 30, 2000, we had 142 employees worldwide (excluding our
manufacturing personnel in the Philippines), with 83 people in research and
development, 23 people in sales and marketing, 8 people in operations and 28
people in administration. In addition, as of June 30, 2000, we employed
1,601 people in our manufacturing facilities in Manila, Philippines, 665 of
whom are represented by a union. We believe that our future success will depend
in part upon our continued ability to attract and retain qualified personnel.
We consider our relations with our employees to be good. Our contract with our
unionized employees has recently been renewed for a term of three years,
expiring December 31, 2002.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not currently a party to
any material litigation.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information with respect to our executive
officers and directors as of June 30, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Douglas J. Bartek........ 50 Chief Executive Officer and Chairman
Martin Englmeier......... 49 Chief Operating Officer and Vice Chairman
James A. Fontaine........ 42 President
Everett (Buddy) Rogers... 43 Chief Financial Officer and Vice President of
Finance and Administration
John P. Norsworthy....... 43 Chief Technical Officer and Director
Thomas K. Widmer......... 40 Vice President of Marketing
Albert H. Taddiken....... 37 Vice President of Integrated Circuit Engineering
Barry F. Koch............ 35 Vice President of Systems Engineering and
Managing Director of Microtune GmbH
S. Vincent Birleson...... 53 Vice President of Systems Engineering
William E. Basso......... 38 Vice President of Manufacturing
Tamara G. Mattison....... 40 Vice President and General Counsel
Harvey B. (Berry) Cash... 61 Director
Walter S. Ciciora........ 57 Director
James H. Clardy.......... 66 Director
Kenneth G. Langone....... 64 Director
Philippe von
Stauffenberg............ 36 Director
Lawrence D. Stuart, Jr... 56 Director
William P. Tai........... 38 Director
</TABLE>
Douglas J. Bartek cofounded Microtune in May 1996 and has served as Chief
Executive Officer and Chairman since that time. From April 1992 to May 1996,
Mr. Bartek held various positions with Cirrus Logic, Inc., a semiconductor
company, most recently as a Division President. Mr. Bartek also serves as a
director of several privately held companies. Mr. Bartek holds a B.S. in
electrical engineering from The University of Texas at Austin and an M.S. in
engineering and computer science and an M.B.A. from Arizona State University.
Martin Englmeier joined Microtune as Vice Chairman and Managing Director of
Microtune GmbH in January 2000 at the time of our combination with Temic and
became our Chief Operating Officer in May 2000. Since 1974, Mr. Englmeier has
been with Temic and its predecessor companies, in various positions, most
recently as Managing Director of Temic. Mr. Englmeier holds a Dipl. Ing. (TU)
from the Technical University in Munich, Germany.
James A. Fontaine joined Microtune in August 1998 as Executive Vice President
of Sales and Marketing and was promoted to President in February 1999. From
October 1997 to July 1988, Mr. Fontaine was President of Sentient
Communications, Inc. a provider of telephone line interface solutions for the
analog modem and xDSL markets, and from December 1996 to September 1997, he was
a principal at The Fontaine Group & Gabriel Ventures, a provider of consulting
services and funding to start-up high technology companies. From March 1995 to
December 1996, Mr. Fontaine was with Cirrus Logic, Inc., a semiconductor
company, in various positions, most recently as the Vice President of Marketing
of Graphics Products. Mr. Fontaine holds a B.S. in electrical engineering from
Marquette University.
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Everett (Buddy) Rogers joined Microtune in January 1998 and has served as
Vice President of Finance and Administration since that time. In January 2000,
he was also named Chief Financial Officer. From January 1997 to January 1998,
Mr. Rogers was Director of Finance of Cypress Semiconductor, Inc., a
semiconductor company. From October 1993 to December 1996, Mr. Rogers was
Division Controller of Crystal Semiconductor, Inc., a semiconductor company.
Mr. Rogers holds a B.S. in business administration from Kentucky Wesleyan
College and an M.B.A. in international marketing from Huron University, London,
England.
John P. Norsworthy cofounded Microtune in May 1996 and has served as Chief
Technical Officer and Director since that time. From June 1991 to May 1996, Mr.
Norsworthy was Vice President of Pixel Semiconductor, Inc., a semiconductor
company and wholly owned subsidiary of Cirrus Logic, Inc. Mr. Norsworthy holds
a B.S. in electrical engineering from University of Illinois.
Thomas K. Widmer joined Microtune in January 2000 when we acquired The Tuner
Company (formerly known as Temic Telefunken RF-Technologies, Inc.) and has
served as Vice President of Marketing since that time. From April 1998 to
December 1999, Mr. Widmer was President of The Tuner Company, a sales
distribution company for Temic Telefunken Hochfrequenztechnik GmbH, and from
April 1994 to March 1998, he was Director of the Technical Support Center for
Temic Telefunken Hochfrequenztechnik GmbH. Mr. Widmer holds a Dipl. Ing. (FH)
from Fachhochschule in Munich, Germany.
Albert H. Taddiken joined Microtune in November 1996 as Director of radio
frequency integrated circuit development, and was named Vice President of
integrated circuit engineering in April 1998. From May 1983 to October 1996, he
held various positions with Texas Instruments, Inc., a semiconductor and
electronics company, serving most recently as radio frequency integrated
circuit Design Manager for Transmitters and PLLs and Member, Group Technical
Staff. Mr. Taddiken holds a B.S. in electrical engineering from Massachusetts
Institute of Technology.
Barry F. Koch joined Microtune as Director of Advanced Development in January
2000 at the time of our combination with Temic, and became Vice President of
Systems Engineering in May 2000. Mr. Koch has been with Temic and its
predecessors since June 1995, most recently as Director of Advanced
Development. Mr. Koch holds a B.S. in electrical engineering from University of
Missouri-Rolla and a M.S. in electrical engineering from Purdue University.
S. Vincent Birleson began working with Microtune as a consultant in December
1996, joined Microtune as Director of Systems Engineering in July 1997, was
named Vice President of Systems Engineering from February 1999 until May 2000,
and was named Vice President of Strategic Development in May 2000. From
September 1968 to December 1996, he held various positions with Texas
Instruments, Inc., a semiconductor and electronics company, serving most
recently as a TI Fellow. Mr. Birleson holds a B.S. in electrical engineering
from University of Michigan.
William E. Basso joined Microtune in August 1998 as Director of
Manufacturing, and was named Vice President of Manufacturing in January 2000.
From January 1998 to August 1998, Mr. Basso was Director of Operations of
Sentient Communications, a telecommunications company. From January 1984 to
January 1998, he held various positions with SGS-Thomson Microelectronics, an
electronics company, serving most recently as Senior Engineering Manager. Mr.
Basso holds a B.S. in electrical engineering from Clemson University and an
M.B.A. from University of Dallas.
Tamara G. Mattison joined Microtune in February 2000 and has served as Vice
President and General Counsel since that time. From June 1998 to February 2000
and from February 1995 to September 1997, Ms. Mattison was an attorney with
Wilson Sonsini Goodrich & Rosati, Professional
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Corporation. From October 1997 to June 1998, she was an attorney with Wolin,
Ridley and Miller. Ms. Mattison has a B.B.A. degree in accounting and economics
from University of Wisconsin--Eau Claire, an M.M. from Northwestern
University's J.L. Kellogg Graduate School of Management and a J.D. from
Northwestern University School of Law.
Harvey B. (Berry) Cash became a director of Microtune in August 1996. Mr.
Cash has been a general partner of InterWest Partners, a venture capital firm,
since 1986, and is an advisor to Austin Ventures, a venture capital firm. He
also currently serves on the Board of Directors of Ciena Corporation, a
designer and manufacturer of multiplexing systems for fiber optic networks,
Liberte Investors Inc., an investment company, Panja, Inc., a provider of
electronic information integration equipment, i2 Technologies, Inc., a provider
of marketplace services, Silicon Laboratories Inc., an integrated circuit
company, and several privately held companies. Mr. Cash holds a B.S. in
electrical engineering from Texas A&M University and an M.B.A. from Western
Michigan University.
Walter S. Ciciora became a director of Microtune in November 1996. Mr.
Ciciora has been an independent consultant for companies in the cable,
television, consumer electronics and telecommunications industries since
October 1993. Mr. Ciciora holds a B.S., M.S. and Ph.D. in electrical
engineering from the Illinois Institute of Technology and an M.B.A. from the
University of Chicago.
James H. Clardy became a director of Microtune in August 1996. Mr. Clardy has
been a venture partner of Austin Ventures, a venture capital firm, since
January 1998. From October 1997 to January 1998, Mr. Clardy was a private
consultant, and from October 1991 until October 1997, he was President of
Crystal Semiconductor, a wholly owned subsidiary of Cirrus Logic, Inc. He
currently serves on the Board of Directors of several privately held companies.
Mr. Clardy holds a B.S. in electrical engineering from University of Tennessee.
Kenneth G. Langone became a director of Microtune in November 1996. Since
1974, Mr. Langone has been Chairman of the Board, Chief Executive Officer and
President of Invemed Associates, Inc., a New York Stock Exchange member firm
engaged in investment banking and brokerage. He is one of the co-founders of
The Home Depot, Inc., a chain retail building supplies store, and has been a
director of that company since 1978. He also serves as a director of the
New York Stock Exchange, Inc., a stock exchange, General Electric Company, a
multinational conglomerate, Unifi, Inc., a provider of facsimile transmission
delivery services, DBT Online, Inc., a provider of online public records data,
and Tricon Global Restaurants, Inc., a food services company. Mr. Langone is
also a director of several privately held companies and serves on the boards of
a number of national charitable, civic and educational organizations. Mr.
Langone holds a B.A. in political science and economics from Bucknell
University and an M.B.A. from New York University.
Philippe von Stauffenberg became a director of Microtune in January 2000. Mr.
von Stauffenberg has been a principal of Hicks, Muse, Tate & Furst
Incorporated, a private investment firm since January 1999. From January 1996
to December 1998, he was the Chairman and Chief Executive Officer of Heitmann
International, a technical documentation and translation company. From
September 1992 to December 1995, Mr. von Stauffenberg was an associate at E.M.
Warburg Pincus & Co., a private equity company. Mr. von Stauffenberg also
serves on the Board of Directors of several privately held companies. Mr. von
Stauffenberg holds a B.A. in economics and an M.A. in history from Harvard
University and an M.B.A. from Harvard Business School.
Lawrence D. Stuart, Jr. became a director of Microtune in January 2000. Mr.
Stuart has been a partner of Hicks, Muse, Tate, & Furst Incorporated, a private
investment firm, since October 1995. From August 1989 to September 1995, Mr.
Stuart was an attorney with Weil, Gotshal & Manges, LLP, most recently serving
as Managing Partner of the Dallas office of that firm. Mr. Stuart also serves
on the Board of Directors of AMFM Inc., a radio broadcasting company, Home
Interiors &
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Gifts, Inc., a direct seller of home decorative accessories, and several
privately held companies. Mr. Stuart holds a B.A. in Economics and a J.D. from
Southern Methodist University.
William P. Tai became a director of Microtune in June 1998. Mr. Tai has been
a general partner of Institutional Venture Partners, a venture capital firm,
since July 1997. From August 1995 to February 1998, Mr. Tai served as founder
and Chairman of the Board, until July 1997, of iAsiaWorks, Inc., a pan-Asian
Internet solutions provider. From September 1991 to July 1997, Mr. Tai was
affiliated with the Walden Group of Venture Capital Funds, a venture capital
firm. Mr. Tai also serves on the Board of Directors of Netergy Networks, Inc.,
a provider of IP telephony solutions, and several privately held companies
including iAsiaWorks, Inc., Chemconnect Inc. and Transmeta Corp. Mr. Tai holds
a B.S. in electrical engineering from University of Illinois and an M.B.A. from
Harvard University.
Board Composition
Our Board of Directors currently consists of ten directors. In accordance
with the terms of our Restated Certificate of Incorporation, the terms of
office of the members of the Board of Directors are divided into three classes:
Class I, whose term will expire at the annual meeting of stockholders to be
held in 2001, Class II, whose term will expire at the annual meeting of
stockholders to be held in 2002, and Class III, whose term will expire at the
annual meeting of stockholders to be held in 2003. The Class I directors are
Messrs. Cash, Ciciora and Langone, the Class II directors are
Messrs. Englmeier, Norsworthy and von Stauffenberg, and the Class III directors
are Messrs. Bartek, Clardy, Stuart and Tai. At each annual meeting of
stockholders after the initial classification, the successors to the directors
whose term will then expire will be elected to serve from the time of election
and qualification until the third annual meeting following election. In
addition, our Amended and Restated Bylaws provide that the authorized number of
directors may be changed only by resolution of the Board of Directors. Any
additional directorships resulting from an increase in the number of directors
may be changed only by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the Board of Directors may have the effect of delaying or preventing changes
in our control or management.
Each officer is appointed by, and serves at the discretion of, the Board of
Directors. Each of our officers and directors, other than non-employee
directors, devotes full time to our affairs. Our non-employee directors devote
the time to our affairs as is necessary to discharge their duties.
Board Committees
The Audit Committee reviews our audited financial statements and accounting
practices, and considers and recommends the employment of, and approves the fee
arrangements with, independent accountants for both audit functions and for
advisory and other consulting services. The current members of the Audit
Committee are Messrs. Clardy, Langone and Stuart.
The Compensation Committee reviews and approves the compensation and benefits
for our key executive officers, administers our employee benefit plans and
makes recommendations to the Board of Directors regarding grants of stock
options and any other incentive compensation arrangements. The current members
of the Compensation Committee are Messrs. Cash and Ciciora.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or Compensation Committee.
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Director Compensation
Non-employee directors are reimbursed for their reasonable travel expenses in
attending meetings of our Board of Directors. Prior to the completion of this
offering, non-employee directors were eligible to receive options under our
1996 Stock Option Plan and, effective upon consummation of this offering, they
will be eligible to be granted options under our 2000 Director Option Plan.
Change of Control Arrangements/Employment Agreements
Shares subject to options granted under our 1996 Stock Option Plan generally
vest over five years, with 20% of the shares vesting after one year and the
remaining shares vesting in monthly installments over the next 48 months. We
have approved option agreements for some of our key employees that provide for
variations in our standard vesting and for accelerated vesting of a portion of
the employees' unvested option shares if the employee is terminated without
cause by the surviving corporation following a "change of control." A "change
of control" is defined in the respective employee's option agreement, but
typically is defined to mean the sale of all or substantially all of our
assets, or the acquisition of us by another entity by means of consolidation or
merger pursuant to which our then current stockholders shall hold less than 50%
of the voting power of the surviving corporation.
Agreement with Douglas J. Bartek
On March 23, 2000, we entered into an employment agreement with Douglas J.
Bartek, our chief executive officer and chairman of our Board of Directors.
This agreement provides for an initial term of three years and an initial base
annual salary of $150,000. In addition, he is entitled to participate in
employee benefit plans for which other senior executives are generally
eligible. Mr. Bartek is eligible for an annual discretionary bonus as
determined by our board of directors.
Under the terms of the employment agreement, Mr. Bartek may not terminate his
employment prior to March 23, 2003, except for reasons enumerated in the
agreement, including:
. a reduction in his compensation or benefits that is not part of a
generally applicable reduction for all of our executives,
. a material demotion in his responsibilities or duties,
. a relocation of his workplace to a place more than 50 miles from Dallas,
Texas, or
. a material breach of the agreement by us.
We may terminate Mr. Bartek's employment at any time with 30 days notice, but
if we terminate his employment without cause, or if there is constructive
termination, he is entitled to receive his base annual salary plus the highest
bonus paid to him in the three years prior to his termination. He is also
entitled to receive any and all employee benefits for two years from the date
of termination. In addition, any stock options and stock subject to repurchase
rights held by him that would have vested during the salary continuation period
will fully vest upon termination.
If Mr. Bartek's employment is terminated within two years of the date that we
experience a change in control, as defined in the agreement, he shall be
entitled to receive a lump sum severance payment equal to two times the sum of
his base annual compensation plus the highest bonus paid to him in the three
years prior to the change in control. All unvested stock options will
immediately vest upon his termination, and he will continue to receive any and
all employee benefits for 24 months. Mr. Bartek has agreed not to compete with
us and not to solicit our customers or employees for a period of three years
from the date of the termination of his employment.
Agreement with James A. Fontaine
Mr. James Fontaine entered into an employment agreement with us on August 1,
1998. Mr. Fontaine's initial base annual salary was set at a rate of $150,000,
and he is eligible for an
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<PAGE>
annual discretionary bonus as determined by our Board of Directors. If Mr.
Fontaine's employment is terminated by us without cause prior to August 1,
2000, then we are obligated to continue paying Mr. Fontaine's salary and
benefits for an additional six months. In addition, Mr. Fontaine agreed not to
compete with us for 12 months following the termination of his employment, and
not to solicit our customers or employees for 24 months following the
termination of his employment, with limited exceptions.
Agreement with John P. Norsworthy
Under an employment agreement dated August 8, 1996, John P. Norsworthy agreed
to hold the position of Founder and Chief Technology Officer of Microtune at an
initial base annual salary of $150,000. Mr. Norsworthy is eligible for an
annual discretionary bonus as determined by our Board of Directors. If Mr.
Norsworthy's employment is terminated by us without cause prior to August 8,
2001, then we are obligated to continue paying Mr. Norsworthy's salary, bonus
and benefits for an additional twelve months. In addition, options granted to
him under the Stock Option Plan, if any, will continue to vest during the
salary continuation period.
If Mr. Norsworthy's employment is terminated within two years of the date
that we experience a change in control, as defined in the agreement, he shall
be entitled to receive a lump sum severance payment equal to two times the sum
of his base annual compensation plus the highest bonus paid to him in the three
years prior to the change in control. All unvested stock options would be
deemed fully vested and would be fully exercisable subject to U.S. securities
laws. He would also continue to be indemnified pursuant to our Certificate of
Incorporation. Mr. Norsworthy agreed not to compete with us and not to solicit
our customers or employees prior to August 8, 2001.
Executive Compensation
The following summary compensation table sets forth the compensation paid to
our Chief Executive Officer and our next four most highly compensated executive
officers, during the fiscal year ended December 31, 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options(1) Compensation(2)
--------------------------- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C>
Douglas J. Bartek................ $149,551 -- 350,000 $319
Chairman and Chief Executive
Officer
James A. Fontaine................ 150,000 -- 300,000 199
President
John P. Norsworthy............... 150,000 -- 100,000 193
Chief Technical Officer
S. Vincent Birleson.............. 149,313 -- 60,000 603
Vice President of Systems
Engineering
William E. Basso................. 109,875 $12,000 32,000 72
Vice President of Manufacturing
</TABLE>
--------
(1) All options granted pursuant to the 1996 Stock Option Plan permit early
exercise and shares obtained pursuant thereto are subject to rights of
repurchase in our favor pending full vesting according to their respective
schedules.
(2) These amounts consist solely of reimbursement for life insurance premiums
paid by us for each employee.
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information with respect to stock options
granted to each of the Chief Executive Officer and the next four most highly
compensated executive officers during the fiscal year ended December 31, 1999:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value at
Percent of Assumed Annual
Number of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise over Option Term(2)
Options Employees in Price Per Expiration -------------------
Name Granted(1) Fiscal Year Share Date 5% 10%
---- ---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Bartek(3).... 350,000 16.2% $0.688(6) 06/01/09 $939,334 $1,638,366
James A. Fontaine(4).... 300,000 13.9% 0.375(7) 01/27/09 732,896 1,233,652
John P. Norsworthy(5)... 100,000 4.6% 0.625(6) 06/01/09 274,681 474,405
S. Vincent Birleson(4).. 60,000 2.8% 0.375(7) 01/27/09 146,579 246,730
William E. Basso........ 22,000 1.0% 0.625(6) 06/01/09 60,430 104,369
10,000 0.5% 0.375(8) 02/01/09 25,570 42,937
</TABLE>
--------
(1) All options were granted under our 1996 Stock Option Plan. Except as set
forth below, options granted under the 1996 Stock Option Plan vest over a
five-year period with 20% vesting at the first anniversary date of the
vesting commencement date and the remaining shares vesting in monthly
installments over the next 48 months. The Board of Directors retains
discretion to modify the terms, including the price and exercisability, of
outstanding options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The
potential realizable values have been calculated using the deemed fair
value of the common stock as of the date of grant. The assumed 5% and 10%
annual rates of stock price appreciation from the date of grant to the end
of the option term are provided in accordance with rules of the Securities
and Exchange Commission and do not represent our estimate or projection of
the future common stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of our common stock,
overall market conditions and the option holders' continued employment
through the vesting period. This table does not take into account any
actual appreciation in the price of the common stock from the date of grant
to the present.
(3) This option vests as to 1/7 of the shares subject to the option on October
19, 2000 and an additional 1/7 of the shares subject to the option at the
end of each six month period thereafter.
(4) These options vest upon the completion of milestones established by us. As
of December 31, 1999, none of these milestones had been deemed met.
(5) This option vests as to 1/2 of the shares on each of September 1, 2001 and
2002.
(6) The deemed fair value of the common stock as of the date of grant of these
options was $2.07.
(7) The deemed fair value of the common stock as of the date of grant of these
options was $1.73.
(8) The deemed fair value of the common stock as of the date of grant of these
options was $1.80.
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<PAGE>
Aggregate Option Exercises and Option Values
The following table sets forth certain information regarding exercised stock
options during the fiscal year ended December 31, 1999, and unexercised options
held as of December 31, 1999 by each of the Named Executive Officers. The Named
Executive Officers exercised options in 1999 as follows:
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Shares Value Underlying Value of Unexercised
Acquired Realized Unexercised Options at In-the-Money Options at
on for Fiscal Year-End(1) Fiscal Year-End(2)
Exercise Exercised ------------------------- -------------------------
Name of Options Options(3) Exercisable Unexercisable Exercisable Unexercisable
---- ---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Bartek....... -- -- 5,000 350,000 $10,350 $599,200
James A. Fontaine....... -- -- -- 300,000 -- 607,500
John P. Norsworthy...... -- -- -- 100,000 -- 177,500
S. Vincent Birleson..... 66,680 $55,011 30,006 163,314 68,264 356,537
William E. Basso........ 14,500 25,738 833 66,667 1,687 129,501
</TABLE>
--------
(1) All options were granted under our 1996 Stock Option Plan. Our Board of
Directors retains discretion to determine the terms, including the price
and exercisability of outstanding options.
(2) Calculated on the basis of the deemed fair market value of the underlying
shares as of December 31, 1999 of $2.40 per share, minus the per share
exercise price, multiplied by the number of shares underlying the option.
(3) Calculated on the basis of the deemed fair market value of the underlying
shares as of the date of exercise of the options, minus the per share
exercise price, multiplied by the number of shares underlying the option.
Stock Plans
1996 Stock Option Plan. Our 1996 Stock Option Plan was adopted by our Board
of Directors and approved by our stockholders in August 1996. Our 1996 Stock
Option Plan provides for the grant of incentive stock options, which may
provide for preferential tax treatment, to our employees, and for the grant of
nonstatutory stock options and stock purchase rights to our employees and
directors. We have reserved an aggregate of 19,704,310 shares of our common
stock for issuance under this plan. As of June 30, 2000, 6,610,903 shares had
been issued pursuant to the exercise of options and stock purchase rights,
options to purchase 7,351,281 shares of common stock were outstanding and
5,742,126 shares were available for future grant. After the consummation of
this offering, we will not grant any additional stock options under our 1996
Stock Option Plan although options granted under the 1996 Stock Option Plan
will remain outstanding in accordance with their terms. Instead, the shares
available for issuance under the 1996 Stock Option Plan will be assumed under
our 2000 Stock Plan, and we will grant all future options under that stock
plan.
Options to Purchase Series E Preferred Stock. In connection with our
combination with Temic, we granted to two employees in Germany options to
purchase an aggregate of 220,000 shares of Series E preferred stock, which
shares are convertible into an aggregate of 440,000 shares of our common stock.
These options are exercisable at a per preferred share purchase price of
$16.00, have the same terms and provisions as the options granted under our
1996 Stock Option Plan and vest over a five year period.
2000 Stock Plan. Our 2000 Stock Plan was adopted by our Board of Directors on
March 23, 2000, and by our stockholders in June 2000. The 2000 Stock Plan
becomes effective upon the consummation of this offering and provides for the
grant of incentive stock options to our employees and nonstatutory stock
options and stock purchase rights and common stock equivalents to our
54
<PAGE>
employees, directors and consultants. The number of shares reserved for
issuance pursuant to our 2000 Stock Plan equals any shares of common stock that
were reserved but unissued under our 1996 Stock Option Plan and any shares that
are subsequently returned to the 1996 Stock Option Plan as a result of
termination of options or our repurchase of shares issued under the 1996 Stock
Option Plan. No options have yet been issued pursuant to the 2000 Stock Plan.
The number of shares reserved for issuance under our 2000 Stock Plan will
increase annually on January 1st of each calendar year, effective beginning in
2001, equal to the lesser of:
. 5% of the outstanding shares of our common stock on the first day of the
year;
. 3,000,000 shares of our common stock; or
. a lesser amount as our Board of Directors may determine.
However, there shall be no annual increase in the number of shares available
under the 2000 Stock Plan in the event that the increase plus any annual
increases under our other employee and director stock plans would be greater
than 30% of the total outstanding shares of our stock unless otherwise approved
by our Board of Directors.
The Compensation Committee or our Board of Directors administers the 2000
Stock Plan. The administrator has the power to determine the terms of the
options, stock purchase rights or common stock equivalents granted, including
the exercise price, the number of shares subject to each option, stock purchase
right or common stock equivalent, the exercisability of the options and the
form of consideration payable upon exercise. The administrator determines the
exercise price of options, restricted stock awards or common stock equivalents
granted under our 2000 Stock Plan, but with respect to incentive stock options,
the exercise price must at least be equal to the fair market value of our
common stock on the date of grant. Additionally, the term of an incentive stock
option may not exceed ten years. The administrator determines the term of all
other options, restricted stock awards or common stock equivalents. The 2000
Stock Plan generally does not allow for the transfer of options or stock
purchase rights and only the optionee may exercise an option, stock purchase
right or common stock equivalent during his or her lifetime.
No optionee may be granted an option to purchase more than 500,000 shares in
any fiscal year. In connection with his or her initial service, an optionee may
be granted an additional option to purchase up to 1,000,000 shares of our
common stock. After termination of an employee, director or consultant, he or
she may exercise his or her option for the period of time stated in his or her
option agreement. If termination is due to death or disability, the option will
generally remain exercisable for 12 months following his termination. In all
other cases, the option will generally remain exercisable for two months.
However, an option may never be exercised later than the expiration of its
term.
The administrator determines the number of and exercise price of stock
purchase rights granted under our 2000 Stock Plan. Unless the administrator
determines otherwise, the restricted stock purchase agreement will grant us a
repurchase option that we may exercise upon the voluntary or involuntary
termination of the purchaser's service with us for any reason (including death
or disability). The purchase price for shares we repurchase will generally be
the original price paid by the purchaser.
The administrator determines the number of common stock equivalents that will
be awarded to any particular employee, director or consultant. Upon exercise of
a common stock equivalent, we will deliver to the awardee a number of shares of
our common stock equal to the number of common stock equivalents in the
awardee's book account as of that date.
The 2000 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of all or substantially all of our assets, the
successor corporation will assume or substitute for each option, stock purchase
right or common stock equivalent. If the outstanding options, stock purchase
rights or common stock equivalents are not assumed or substituted for, all
outstanding
55
<PAGE>
options, stock purchase rights or common stock equivalents will become
immediately vested and exercisable as of the closing of a merger or sale of
assets. The 2000 Stock Plan will automatically terminate in 2010, unless we
terminate it sooner. In addition, our Board of Directors has the authority to
amend, suspend or terminate the 2000 Stock Plan provided it does not adversely
affect any option previously granted under our 2000 Stock Plan.
2000 Director Option Plan. Our 2000 Director Option Plan was adopted by our
Board of Directors in March 2000, and by our stockholders in June 2000. The
2000 Director Option Plan becomes effective upon the consummation of this
offering and provides for the periodic grant of nonstatutory stock options to
our non-employee directors. A total of 150,000 shares was reserved for issuance
under the 2000 Director Option Plan, none of which was issued and outstanding.
In addition, our 2000 Director Option Plan provides for annual increases in the
number of shares available for issuance under the 2000 Director Option Plan on
January 1st of each year, beginning in 2001, equal to the lesser of:
. 1% of the outstanding shares of our common stock on the first day of the
calendar year;
. 75,000 shares of our common stock; or
. a lesser amount as our Board of Directors may determine.
However, there shall be no annual increase in the number of shares available
under the 2000 Director Option Plan in the event that the increase plus any
annual increases under our other employee and director stock plans would be
greater than 30% of the total outstanding shares of our stock, unless otherwise
approved by our Board of Directors. All grants of options to our non-employee
directors under the 2000 Director Option Plan are automatic. We will grant each
new non-employee director elected or appointed after the effective date of the
2000 Director Option Plan an option to purchase 10,000 shares when that person
first becomes a non-employee director (except for those directors who became
non-employee directors by ceasing to be employee directors). All non-employee
directors who have been directors for at least six months receive an option to
purchase 5,000 shares on the date of our annual stockholders' meeting of each
year. Each option granted under our 2000 Director Option Plan has a term of ten
years and an exercise price equal to the fair market value on the date of
grant. Each initial option becomes exercisable as to 33 1/3% of the shares
subject to the option on the first three anniversaries of the date of grant and
each subsequent option becomes exercisable as to 50% of the shares subject to
the option on the first and second anniversary of the date of grant, provided
the non-employee director remains a director on those dates. After termination
as a non-employee director with us, an optionee must exercise an option at the
time set forth in his or her option agreement. If termination is due to death
or disability, the option will remain exercisable for 12 months. In all other
cases, the option will remain exercisable for a period of three months.
However, an option may never be exercised later than the expiration of its
term.
A non-employee director may not transfer options granted under our 2000
Director Option Plan other than by will or the laws of descent and
distribution. Only the non-employee director may exercise the option during his
or her lifetime. In the event of our merger with or into another corporation or
a sale of all or substantially all of our assets, the successor corporation
will assume or substitute each option. If an assumption or substitution occurs,
the options will continue to be exercisable according to the same terms as
before the merger or sale of assets. Following an assumption or substitution,
if a non-employee director is terminated other than by voluntary resignation,
the option will become fully vested and exercisable and generally will remain
exercisable for a period of three months. If the outstanding options are not
assumed or substituted for, our Board of Directors will notify each non-
employee director that he or she has the right to exercise the option as to all
shares subject to the option for a period of 30 days following the date of the
notice. The option will terminate upon the expiration of the 30-day period.
56
<PAGE>
Unless terminated sooner, our 2000 Director Option Plan will automatically
terminate in 2010. Our Board of Directors has the authority to amend, alter,
suspend or discontinue the 2000 Director Option Plan, but no action may
adversely affect any grant made under the 2000 Director Option Plan.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan was
adopted by our Board of Directors on March 23, 2000 and by our stockholders in
June 2000, and becomes effective upon the consummation of this offering. A
total of 400,000 shares of our common stock will initially be made available
for sale under the 2000 Employee Stock Purchase Plan. In addition, our 2000
Employee Stock Purchase Plan provides for annual increases in the number of
shares available for issuance thereunder on January 1st of each year, beginning
in 2001, equal to the lesser of:
. 2% of the outstanding shares of our common stock on the first day of the
calendar year;
. 400,000 shares of common stock; or
. a lesser amount as our Board of Directors may determine.
However, there shall be no annual increase in the number of shares available
under the 2000 Employee Stock Purchase Plan in the event that the increase plus
any annual increases under our other employee and director stock plans would be
greater than 30% of the total outstanding shares of our stock unless otherwise
approved by our Board of Directors. Our Board of Directors or the Compensation
Committee has full and exclusive authority to interpret the terms of the 2000
Employee Stock Purchase Plan and determine eligibility. All of our employees
are eligible to participate if they are customarily employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, an employee may not be granted an option
to purchase stock under the 2000 Employee Stock Purchase Plan if the employee:
. immediately after the grant owns stock possessing 5% or more of the
total combined voting power or value of all classes of our capital
stock; or
. whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
Our 2000 Employee Stock Purchase Plan is intended to qualify for preferential
tax treatment and contains consecutive, overlapping 24-month offering periods.
Each offering period includes four 6-month purchase periods. The offering
periods generally start on the first trading day on or after May 1 and November
1 of each year, except for the first offering period that will commence on the
first trading day on or after the effective date of this offering and will end
on the last trading day on or before October 31, 2002.
The 2000 Employee Stock Purchase Plan permits participants to purchase common
stock through payroll deductions of up to 15% of their eligible compensation
that includes a participant's base straight time gross earnings and
commissions, but excludes all other compensation paid to our employees. A
participant may purchase no more than 5,000 shares during any 6-month purchase
period.
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each 6-month purchase period. The
price is 85% of the lower of the fair market value of our common stock at the
beginning of an offering period or after a purchase period ends. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will be withdrawn from
the current offering period following their purchase of shares on the purchase
date and will be automatically re-enrolled in a new offering period.
Participants may end their participation at any time during an offering period,
and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
A participant may not transfer rights granted under the 2000 Employee Stock
Purchase Plan other than by will, the laws of descent and distribution or as
otherwise provided under the 2000 Employee Stock Purchase Plan.
57
<PAGE>
Our 2000 Employee Stock Purchase Plan will terminate in 2010. However, our
Board of Directors has the authority to amend or terminate our 2000 Employee
Stock Purchase Plan, except that, subject to exceptions described in the 2000
Employee Stock Purchase Plan, no action may adversely affect any outstanding
rights to purchase stock under our 2000 Employee Stock Purchase Plan.
401(k) Plan. Our 401(k) plan covers our full-time employees located in the
U.S. The 401(k) plan is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended. Consequently, contributions to the
401(k) plan by employees or by us, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) plan. Further,
contributions by us, if any, will be deductible by us when made. Employees may
elect to contribute up to 15% of their current compensation to the 401(k) plan
up to the statutorily prescribed annual limit, which is $10,500 in 2000. The
401(k) plan permits, but does not require, additional matching contributions to
the 401(k) plan by us on behalf of all participants in the 401(k) plan. To
date, we have not contributed to the 401(k) on behalf of any employee, but may
elect to contribute in the future.
Limitation of Liability and Indemnification
Upon completion of our reincorporation into Delaware, our Amended and
Restated Certificate of Incorporation will limit the liability of directors to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:
. breach of their duty of loyalty to the corporation or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Upon completion of our reincorporation into Delaware, our Bylaws will provide
that we shall indemnify our directors, officers, employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
Bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our Bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in that capacity, regardless of whether our Bylaws permit
any indemnification.
We intend to enter into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our Bylaws and
Certificate of Incorporation. These agreements indemnify our directors,
executive officers and other agents for expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any of them in any action
or proceeding, including any action by or in the right of Microtune arising out
of that person's services as a Microtune director, officer, employee, agent or
fiduciary, any subsidiary of us or any other company or enterprise to which the
person provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
At present, there is no pending litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.
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<PAGE>
RELATED PARTY TRANSACTIONS
Since our inception in May 1996, we have not been a party to, and we have no
plans to be a party to, any transaction or series of similar transactions in
which the amount involved exceeds $60,000, and in which any director, executive
officer, or holder of more than 5% of any class of our voting stock, or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest, other than as described under
"Management" and the transactions described below.
The share numbers and per share prices for the transactions described below
have been adjusted to give effect to the stock split effected on January 18,
2000. Upon the consummation of this offering, all outstanding shares of Series
A preferred stock, Series B preferred stock, Series C preferred stock, Series D
preferred stock and Series E preferred stock will automatically convert into
shares of common stock on a one-for-two basis and all outstanding shares of
Series F preferred stock will automatically convert into shares of common stock
on a one-for-one basis.
We believe that all transactions between us and our officers, directors,
principal stockholders and other affiliates have been and will be on terms no
less favorable to us than could be obtained from unaffiliated third parties.
The holders of shares of preferred stock converted into common stock are
entitled to demand and piggy-back registration rights. See "Description of
Capital Stock--Registration Rights."
In August 1996, we sold 2,800,000 shares to Douglas J. Bartek and 1,400,000
shares to John P. Norsworthy as founders in consideration for $70,000 and
$35,000, respectively.
On August 31, 1998, James A. Fontaine, our President, issued a promissory
note to us in the principle amount of $118,000 to purchase 400,000 shares of
our common stock. The note bears interest at 5.77%, is secured by the shares of
common stock purchased and is due and payable 48 months after the date of the
note. The total amount of the principle and accrued interest in the amount of
$130,482 on the note is outstanding as of June 30, 2000.
During the past three years, we have issued convertible preferred stock as
follows:
. In August 1997, we sold 1,000,000 shares of Series B preferred stock in
a private placement at a per share purchase price of $4.00.
. In June and July 1998, we sold 1,462,666 shares of Series C preferred
stock in a private placement at a per share purchase price of $6.00.
. In October and December 1999, we sold 1,367,418 shares of Series D
preferred stock in a private placement at a per share purchase price of
$12.00.
. In June 2000, we sold 800,000 shares of Series F preferred stock in a
private placement at a per share purchase price of $12.00.
The investors in these issuances of preferred stock include the following
entities, which are 5% stockholders or affiliated with directors, or both:
<TABLE>
<CAPTION>
Series B Series C Series D
Preferred Preferred Preferred
Purchaser(1) Stock Stock Stock
------------ --------- --------- ---------
<S> <C> <C> <C>
HMTF Temic/Microtune Cayman, L.P............... -- -- 833,334
Quantum Industrial Partners.................... 166,667 203,333 --
Institutional Venture Partners................. 450,000 666,667 --
</TABLE>
--------
(1) See notes to table of beneficial ownership in "Principal Stockholders" for
information relating to the beneficial ownership of these shares.
59
<PAGE>
In January 2000, we combined with Microtune GmbH (formerly Temic Telefunken
Hochfrequenztechnik GmbH) and its wholly owned subsidiaries and affiliated
companies, by acquiring HMTF Acquisition (Bermuda), Ltd. In connection with
this combination, we issued 2,898,602 shares of our Series E preferred stock
and a warrant to acquire 1,932,402 shares of our common stock to HMTF
Temic/Microtune Cayman, L.P. and 419,911 shares of our Series E preferred stock
and a warrant to acquire 279,940 shares of our common stock to TIN
Vermogensverwaltungsgesellschaft mgH. The Series E preferred stock and warrants
were valued in the aggregate at $63.0 million. At the time of the combination,
an affiliate of HMTF Temic/Microtune Cayman, L.P. held 833,334 shares of our
Series D preferred stock. At the time of our combination with Temic, Lawrence
D. Stuart, Jr. and Philippe von Stauffenberg, two of our outside directors,
were an officer, director and stockholder of Hicks, Muse, & Co. Partners and an
officer of Hicks, Muse Tate & Furst, Limited, respectively, which entities were
affiliated with HMTF Temic/Microtune Cayman, L.P. In addition, at the time of
the combination, Martin Englmeier, a director and officer of Microtune, held
approximately 42% of the outstanding shares of TIN and each of Thomas K. Widmer
and Barry F. Koch, each an officer of our company, held approximately 10% of
the outstanding shares of TIN. The warrants will be automatically exercised
with nominal consideration paid upon the closing of this offering, assuming an
initial price to the public of $14.00 per share. In addition, we entered into a
Monitoring and Oversight Agreement with Hicks, Muse & Co. Partners, L.P., a
Texas limited partnership and affiliate of HMTF Temic/Microtune Cayman, L.P.
The Monitoring and Oversight Agreement provides that we will pay Hicks, Muse &
Co. Partners, L.P. an annual fee of $200,000 for services we request from them.
This agreement terminates upon the completion of this offering, at which time
we will pay the amount of the fee accrued to the date of termination. Hicks,
Muse & Co. Partners has advised us regarding strategic discussions with a large
potential customer, and capital markets and financing alternatives and helped
evaluate potential underwriters.
Effective December 31, 1999, we acquired the principal assets of The Tuner
Company for an aggregate consideration of $1,010,000, which consisted of a cash
payment of $931,000, the assumption of liabilities and the cancellation of
indebtedness owed to our German operations. The Tuner Company was the exclusive
distributor and representative for Temic for North America. Thomas K. Widmer,
one of our executive officers, is the sole shareholder of The Tuner Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of June 30, 2000 (assuming conversion of all outstanding shares of preferred
stock into common stock upon the closing of this offering and as adjusted to
reflect the sale of the shares offered by this prospectus) by:
. each person who is known by us to beneficially own more than 5% of our
common stock;
. the Chief Executive Officer and each of the next four most highly
compensated executive officers;
. each of our directors; and
. all of our executive officers and directors as a group.
Percentage of ownership is based on 33,620,441 shares outstanding as of June
30, 2000, assuming conversion of the preferred stock, the automatic exercise of
warrants to purchase 2,212,342 shares of common stock and 37,620,441 shares
outstanding after this offering and assuming no exercise of the underwriters'
over-allotment options. Beneficial ownership is calculated based on SEC
requirements. All shares of the common stock subject to options currently
exercisable or exercisable within 60 days after June 30, 2000 are deemed to be
outstanding for the purpose of computing the percentage of ownership of the
person holding the options, but are not deemed to be outstanding for computing
the percentage of ownership of any other person. Unless otherwise indicated
below, each stockholder named in the table has sole voting and investment power
with respect to all shares beneficially owned, subject to applicable community
property laws.
<TABLE>
<CAPTION>
Percentage of
Shares
Number of Outstanding
Shares -----------------
Number of Underlying Before After
Name Shares Options Offering Offering
---- ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
HMTF Temic/Microtune Cayman,
L.P.(1)............................. 9,396,274 27.9% 25.0%
c/o Hicks, Muse, Tate & Furst
Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
George Soros(2)...................... 5,355,126 15.9% 14.2%
c/o Michael C. Neus
Soros Fund Management
888 Seventh Avenue
New York, NY 10106
Quantum Industrial Partners, LDC..... 3,840,000 11.4% 10.2%
c/o Michael C. Neus
Soros Fund Management
888 Seventh Avenue
New York, NY 10106
Institutional Venture Partners(3).... 3,473,334 10.3% 9.2%
c/o William P. Tai
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Directors & Officers:
Douglas J. Bartek(4)................. 2,800,000 5,000 8.3% 7.5%
c/o Microtune, Inc.
2540 East Plano Parkway, Suite 188
Plano, Texas 75074
John P. Norsworthy(5)................ 1,400,000 4.2% 3.7%
James A. Fontaine(6)................. 395,000 76,000 1.4% 1.2%
S. Vincent Birleson.................. 112,030 30,004 * *
William E. Basso..................... 14,500 9,500 * *
Harvey B. (Berry) Cash............... 140,000 * *
Walter S. Ciciora.................... 66,000 4,000 * *
James H. Clardy(7)................... 68,000 4,000 * *
Kenneth G. Langone(8)................ 828,460 11,334 2.5% 2.2%
Lawrence D. Stuart, Jr.(9)........... 13,948 * *
William P. Tai(10)................... 3,473,334 10.3% 9.2%
Philippe von Stauffenberg(9)......... 4,198 * *
All officers and directors as a group
(17 persons)(11).................... 10,202,826 316,653 31.0% 27.7%
</TABLE>
61
<PAGE>
--------
1. Includes 1,932,402 shares issuable upon exercise of warrants to purchase
shares of our common stock, which warrants will be automatically exercised
upon the closing of this offering, assuming an initial price to the public
of $14.00 per share.
2. Includes 3,840,000 shares held by Quantum Industrial Partners, LDC ("QIP").
Mr. Soros is the sole shareholder of QIH Management, Inc., the sole general
partner of the investment advisory firm that manages QIP and has investment
discretion over the shares held by QIP. Mr. Soros is also the Chairman of
Soros Fund Management LLC, and has agreed to use his best efforts to cause
QIH Management, Inc. to act at the discretion of Soros Fund Management LLC.
Mr. Soros may be deemed a beneficial owner of the shares held by QIP;
however, he expressly disclaims beneficial ownership of the shares held by
QIP except to the extent of his pecuniary interest therein.
3. Represents 108,666 shares held by Institutional Venture Management VII,
3,277,834 shares held by Institutional Venture Partners VII and 86,834
shares held by IVP Founders Fund I, L.P.
4. The shares of common stock outstanding are held by Bartek Investments-1,
Ltd., of which Mr. Bartek is the general partner.
5. Of these shares, 16,667 are unvested and subject to repurchase by Microtune
upon the termination of Mr. Norsworthy's employment with Microtune.
6. These shares are held by The Fontaine Family Limited Partnership, of which
Mr. Fontaine is the general partner. Of these shares, 200,000 shares are
unvested and subject to repurchase by Microtune upon the termination of Mr.
Fontaine's employment with Microtune.
7. Includes 25,000 shares of common stock held by trusts, of which Mr. Clardy
acts as co-trustee, for the benefit of Mr. Clardy's children, none of whom
are dependents of Mr. Clardy.
8. Includes 387,500 shares held of record by Invemed Associates, Inc. Mr.
Langone is the Chairman of the Board, Chief Executive Officer and President
of Invemed Associates, Inc. and may be deemed to beneficially own these
shares.
9. Represents the number of shares each director is expected to receive upon a
distribution to partners and principals of Hicks, Muse & Co. Partners of
some of the Microtune shares held by HMTF/Temic Microtune Cayman, L.P. upon
consummation of this offering. Each director holds a minority limited
partnership interest in HMTF/Temic Microtune Cayman, L.P., but neither
director is a member or a manager of HMTF/Temic Microtune Cayman, L.P. or
of its sole general partner.
10. Includes 108,666 shares held by Institutional Venture Management VII,
3,277,834 shares held by Institutional Venture Partners VII and 86,834
shares held by IVP Founders Fund I, L.P. Mr. Tai is a general partner of
the general partner of each of these partnerships, shares voting and
dispositive power with respect to the shares held by each of these entities
and disclaims beneficial ownership of the shares held by these entities,
except to the extent of his pecuniary interest.
11. Includes 216,667 shares unvested and subject to repurchase by Microtune
upon the termination of the holder's termination as an employee or director
of Microtune.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our Amended and Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of up to
150 million shares of common stock, par value $0.001 per share, and 25 million
shares of preferred stock, par value $0.001 per share, the rights and
preferences of which may be established from time to time by our Board of
Directors. As of June 30, 2000, 8,310,903 shares of common stock and warrants
to purchase 2,212,342 shares of common stock at a nominal exercise price, which
warrants will be automatically exercised upon the closing of this offering,
were outstanding, and 11,948,598 shares of preferred stock convertible into
23,097,196 shares of common stock upon the completion of this offering were
issued and outstanding. As of June 30, 2000, we had 137 stockholders.
Common Stock
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably the dividends, if any, as may be declared
from time to time by our Board of Directors out of funds legally available
therefor. Please see "Dividend Policy." In the event of our liquidation,
dissolution or winding up, holders of common stock would be entitled to share
in our assets remaining after the payment of liabilities and the satisfaction
of any liquidation preference granted to the holders of any outstanding shares
of preferred stock. Holders of common stock have no preemptive or conversion
rights or other subscription rights and there are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and the shares of common stock offered by us in this offering, when
issued and paid for, will be, fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by the rights of the holders of shares of any series
of preferred stock, which we may designate in the future.
Preferred Stock
Upon the closing of this offering, our Board of Directors will be authorized,
subject to any limitations prescribed by law, without stockholder approval,
from time to time to issue up to an aggregate of 25 million shares of preferred
stock, $0.001 par value per share, in one or more series, each of the series to
have the rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by our Board of Directors. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. We have no present plans to issue any shares of preferred stock.
Registration Rights
Pursuant to the Fifth Amended and Restated Registration Rights Agreement
dated as of June 16, 2000, the holders of approximately 27,097,196 shares of
common stock will have enumerated rights to register those shares under the
Securities Act of 1933, as amended six months after the sale of the shares
offered hereby. Subject to limitations in the Fifth Amended and Restated
Registration Rights Agreement and upon written request, we will have to
register those shares.
. The holders of at least ten percent (10%) of the then outstanding
registrable securities may require, on four occasions beginning 180 days
after the date of this prospectus, that we
63
<PAGE>
register their shares for public resale. We are obligated to register
these shares if the holders of at least ten percent (10%) of the shares
request registration and only if the net proceeds of the registration
would be greater than $10 million.
. The holders of at least fifteen percent (15%) of the then outstanding
registrable securities may require not more than one time in every six-
month period that we register their shares for public resale on Form S-3
or similar short-form registration, provided we are eligible to use Form
S-3 or similar short-form registration and provided further that the
value of the securities to be registered is at least $1,000,000.
. If we register any of our shares of common stock for purposes of
effecting any public offering, the holders of registrable securities are
entitled to include their shares of common stock in the registration,
subject however to our right to reduce the number of shares proposed to
be registered in view of market conditions.
We will bear all registration expenses in connection with any registration
(other than underwriting discounts and commissions). All registration rights
terminate with respect to each holder of registrable securities with less than
1% of the then outstanding shares of capital stock, at the time that the holder
is entitled to sell all of its shares in any three-month period under Rule 144
of the Securities Act of 1933.
The underwriters have the ability to limit the number of shares included in
the offering so requested. If they do limit the shares, the shares to be
included in the offering will be allocated among the holders of our capital
stock entitled to registration rights, as required by the Fifth Amended and
Restated Registration Rights Agreement.
In addition, under the Fifth Amended and Restated Registration Rights
Agreement, each investor agreed not to acquire more than 50% of the voting
power of us unless it first obtains the unanimous consent of our Board of
Directors. This standstill provision terminates with respect to any holder at
that time that the holder holds less than three percent of our total voting
power.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult our acquisition by means of a tender offer, a proxy
contest or otherwise and the removal of incumbent officers and directors. These
provisions, summarized below, are expected to discourage coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us to first negotiate with our Board of Directors. We
believe that the benefits of increased protection of our ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging those proposals
because negotiation of those proposals could result in an improvement of their
terms.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover 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 (with
specific exceptions):
. The board of directors approves the transaction in which the stockholder
became an interested stockholder prior to the date the interested
stockholder attained to that status;
. When the stockholder became an interested stockholder, he or she owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding shares owned by persons who
are directors and also officers; or
64
<PAGE>
. On or subsequent to the date the business combination is approved by the
board of directors, the business combination is authorized at an annual
or special meeting of stockholders.
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% or more of a
corporation's voting stock. The existence of this provision would be expected
to have an anti-takeover 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.
Provisions of Our Certificate of Incorporation and Bylaws. Upon the closing
of this offering, our Amended and Restated Certificate of Incorporation will
provide for our Board of Directors to be divided into three classes, as nearly
equal in number as possible, serving staggered terms. Approximately one-third
of the board will be elected each year. Our having a classified board could
prevent a party who acquires control of a majority of the outstanding voting
stock from obtaining control of our Board of Directors until the second annual
stockholders meeting following the date the acquiror obtains the controlling
stock interest. A classified board could also have the effect of discouraging a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of us and could increase the likelihood that incumbent directors will
retain their positions.
Our Amended and Restated Certificate of Incorporation will provide that our
directors may be removed (i) with cause by the affirmative vote of the holders
of at least a majority of the voting power of all of the then outstanding
shares of voting stock, voting as a single class or (ii) without cause by the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
of the then-outstanding shares of the voting stock.
Our Bylaws establish an advance notice procedure for stockholder proposals to
be brought before our annual meeting of stockholders, including proposed
nominations of persons for election to our Board of Directors. Stockholders at
an annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of our
Board of Directors or by a stockholder who was a stockholder of record on the
record date for the meeting, who is entitled to vote at the meeting and who has
given to our Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although the
Bylaws do not give our Board of Directors the power to approve or disapprove
stockholder nominations of candidates or proposals regarding other business to
be conducted at a special or annual meeting of the stockholders, the Bylaws may
have the effect of precluding the conduct of business at a meeting if the
proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of our company.
Under Delaware law, a special meeting of stockholders may be called by the
Board of Directors or by any other person authorized to do so in the Amended
and Restated Certificate of Incorporation or the Bylaws. Our Bylaws authorize a
majority of the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or a holder
of at least 15% of our outstanding stock to call a special meeting of
stockholders. The elimination of the right of minority stockholders to call a
special meeting means that a stockholder can not force stockholder
consideration of a proposal over the opposition of our Board of Directors by
calling a special meeting of stockholders prior to the time that a majority of
our Board of Directors believes that consideration to be appropriate or until
the next annual meeting provided that the requestor meets the notice
requirements. The restriction on the ability of stockholders to call a special
meeting means that a proposal to replace our Board of Directors could be
delayed until the next annual meeting.
65
<PAGE>
Our Amended and Restated Certificate of Incorporation will provide for the
elimination of actions by written consent of stockholders upon the closing of
this offering. Under Delaware law, stockholders may execute an action by
written consent in lieu of a stockholder meeting. Delaware law permits a
corporation to eliminate such actions by written consent. Elimination of
written consents of stockholders may lengthen the amount of time required to
take stockholder actions since actions by written consent may not be subject to
the minimum notice requirement of a stockholder's meeting. The elimination of
stockholders' written consents, however, deters hostile takeover attempts.
Without the availability of stockholder's actions by written consent, a holder
or group of holders controlling a majority in interest of our capital stock
would not be able to amend our Bylaws or remove directors pursuant to a
stockholders' written consent. Any holder or group of holders would have to
obtain the consent of a majority of our Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the Chief Executive Officer, the
President or a holder of at least 15% of our outstanding stock to call a
stockholders' meeting and wait until the notice periods, as determined by the
Board of Directors pursuant to our Bylaws, expire prior to taking any action.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Harris Trust and
Savings Bank, 1601 Elm Street, Thanksgiving Tower, Suite 2320, Dallas, Texas,
75201, phone: (214) 665-6031.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock.
Upon completion of this offering, we will have outstanding an aggregate of
37,620,441 shares of common stock, assuming the issuance of 4,000,000 shares of
common stock offered hereby and no exercise of options after June 30, 2000. Of
these shares, the 4,000,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, except for any shares purchased by our "Affiliates" as that term is
defined in Rule 144 under the Securities Act of 1933 (whose sales would be
subject to limitations and restrictions described below).
The remaining 33,620,441 shares of common stock held by existing stockholders
were issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act of 1933. Of these shares, 33,339,525 shares,
representing over 97% of our outstanding shares, will be subject to "lock-up"
agreements described below on the effective date of this offering.
Specifically, our officers and directors and most of our existing stockholders
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of this offering; provided, however, that this
restriction shall terminate as to 20% of the shares after 90 days and an
additional 20% of the shares after 120 days after the date of this prospectus,
in the event that, at those dates, the reported last sale price of our common
stock on the Nasdaq National Market is at least twice the initial public
offering price specified in this prospectus for a specific period of time
ending on those dates. Goldman Sachs may, however, in its sole discretion and
without notice, release all or any portion of the shares from the restrictions
in the lock-up agreements. As a result of these contractual restrictions, and
assuming that the conditions to release of these shares are met as of 90 days
and 120 days after the date of this prospectus, subject to delays as a result
of the timing of our earnings releases and compliance with our insider trading
policies, shares will become eligible for sale, subject in most cases to the
limitations of Rule 144 and the lapse of repurchase rights held by us. To the
extent that any of our stockholders have not entered into lockup agreements
with the underwriters, these stockholders are subject to lockup agreements with
us, which agreements provide that these stockholders may not sell their shares
for 180 days after the date of this prospectus. We do not intend to release any
of these company lockups.
<TABLE>
<CAPTION>
Approximate
Shares
Eligible
Days After Date for Future
of this Prospectus Sale Comment
------------------ ----------- -------
<S> <C> <C>
Upon effectiveness 4,000,000 Shares sold in the offering
90 days after 4,188,404 Conditional Initial release of 20% of the shares
effectiveness subject to lock up; shares saleable under Rules
144 and 701
120 days after 4,728,404 Conditional Initial release of 20% of the shares
effectiveness subject to lock up; shares saleable under Rules
144 and 701
180 days after 23,680,494 All lock-ups released; shares salable under
effectiveness Rules 144 and 701
At various times 1,023,139
thereafter
</TABLE>
In addition, holders of stock options could exercise the options and sell the
shares issued upon exercise as described below.
67
<PAGE>
As of June 30, 2000, there were a total of 7,351,281 shares of common stock
subject to outstanding options under our 1996 Stock Option Plan, of which
394,184 were vested and exercisable, and options to purchase 440,000 shares of
common stock upon the automatic conversion of options to purchase 220,000
shares of Series E preferred stock, none of which were vested and exercisable.
However, all of these shares are subject to lock-up agreements described above.
Immediately after the completion of this offering, we intend to file
registration statements on Form S-8 under the Securities Act of 1933 to
register all of the shares of common stock issued or reserved for future
issuance under the 1996 Stock Option Plan, 2000 Stock Plan, the 2000 Employee
Stock Purchase Plan and the 2000 Director Stock Option Plan. After the
effective dates of the registration statements on Form S-8, shares purchased
upon exercise of options granted pursuant to the 1996 Stock Option Plan, the
2000 Stock Plan, the 2000 Employee Stock Purchase Plan and the 2000 Director
Plan generally would be available for resale in the public market. On the date
180 days after the effective date of this offering, a total of approximately
1.7 million shares of common stock subject to outstanding options will be
vested and exercisable.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell in "broker's
transactions" or to market makers, within any three-month period, a number of
shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding (which will
equal approximately 376,204 shares immediately after this offering); or
. the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are generally subject to the availability of current
public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been an affiliate of us
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell
shares without having to comply with the manner of sale, public information,
volume limitation or notice filing provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell shares 90 days after the
effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended, along with the shares acquired
upon exercise of the options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than "affiliates" (as defined in Rule 144) subject only to the manner of
sale provisions of Rule 144 and by "affiliates" under Rule 144 without
compliance with its one-year minimum holding period requirements.
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<PAGE>
UNDERWRITING
Microtune and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Chase Securities
Inc., SG Cowen Securities Corporation and Bear, Stearns & Co. Inc. are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co................................................
Chase Securities Inc...............................................
SG Cowen Securities Corporation....................................
Bear, Stearns & Co. Inc............................................
---------
Total............................................................ 4,000,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 600,000
shares from Microtune to cover those sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Microtune. The amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Microtune
-----------------
No
Exercise Full Exercise
-------- -------------
<S> <C> <C>
Per Share................................................ $ $
Total.................................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price.
Any securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and
the other selling terms.
Microtune, its directors, officers, employees and substantially all of its
stockholders have agreed with the underwriters not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives; provided, however, that with
respect to our officers, directors, and substantially all of our stockholders,
this restriction shall terminate as to 20% of the shares after 90 days and an
additional 20% of the shares after 120 days after the date of this prospectus,
subject to delays as a result of the timing of Microtune's earnings releases
and compliance with Microtune's insider trading policies, in the event that, at
those dates, the reported last sale price of Microtune's common stock on the
Nasdaq National Market is at least twice the initial public offering price
specified in this prospectus for a specific period of time ending on those
dates. See "Shares Eligible for Future Sale" for a discussion of the transfer
restrictions.
69
<PAGE>
At Microtune's request, the underwriters have reserved, at the initial public
offering price, up to 320,000 shares of common stock for sale to entities and
individuals identified by Microtune through a directed share program. There can
be no assurance that any of the reserved shares will be so purchased. The
number of shares available for sale to the general public will be reduced by
the number of reserved shares sold. Any reserved shares not so purchased will
be offered to the general public on the same basis as other shares offered
hereby. Shares sold under the directed share program will not be subject to a
lock-up.
Prior to this offering, there has been no public market for the common stock.
The initial public offering price has been negotiated among Microtune and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price of the shares, in addition to
prevailing market conditions, will be Microtune's historical performance,
estimates of Microtune's business potential and earnings prospects, an
assessment of Microtune's management and the consideration of the above factors
in relation to market valuation of companies in related businesses.
Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "TUNE."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from the issuer in the offering. The
underwriters may close out any covered short position by either exercising
their option to purchase additional shares or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase shares through the overallotment option. "Naked" short
sales are any sales in excess of such option. The underwriters must close out
any naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who purchase in the
offering. Stabilizing transactions consist of various bids for or purchases of
common stock made by the underwriters in the open market prior to the
completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions may have the
effect of preventing or retarding a decline in the market price of the issuer's
stock and, together with the imposition of the penalty bid, may stabilize,
maintain or otherwise affect the market price of the common stock. As a result,
the price of the common stock may be higher than the price that otherwise might
exist in the open market. If these activities are commenced, they may be
discontinued at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed five
percent of the total number of shares offered.
Microtune estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$1,400,000.
Microtune has agreed to indemnify the underwriters against specified
liabilities, including liabilities under the Securities Act of 1933.
70
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Microtune by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Austin, Texas. Legal matters will be passed upon for the Underwriters by
Brobeck Phleger & Harrison LLP. As of the date of this prospectus, an employee
of Wilson Sonsini Goodrich & Rosati, Professional Corporation, beneficially
owns an aggregate of 750 shares of Microtune Series D preferred stock which
will convert into 1,500 shares of common stock upon completion of this
offering.
EXPERTS
The consolidated financial statements of Microtune, Inc. as of December 31,
1998 and 1999 and for each of the three years in the period ended December 31,
1999, and the consolidated financial statements of Temic as of December 31,
1998 and for the nine months ended September 30, 1997, the three months ended
December 31, 1997, the year ended December 31, 1998, and the period January 1,
1999 through December 22, 1999, and the consolidated financial statements of
HMTF Acquisition (Bermuda) Ltd. as of December 31, 1999 and for the period
December 23, 1999 through December 31, 1999, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon the reports given on the authority of that firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits and schedules) under the Securities
Act of 1933, with respect to the shares to be sold in this offering. This
prospectus does not contain all of the information set forth in the
registration statement. For further information with respect to us and the
common stock offered in this prospectus, reference is made to the registration
statement, including the exhibits thereto, and the financial statements and
notes filed as a part thereof. With respect to each document filed with the SEC
as an exhibit to the registration statement, reference is made to the exhibit
for a more complete description of the matter involved.
We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at
the public reference facilities of the SEC in Washington, D.C. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from the SEC's website at
http://www.sec.gov.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Combined Condensed Pro Forma Financial Statements (Unaudited):
Combined Condensed Pro Forma Statement of Operations for the Year Ended
December 31, 1999 (Unaudited).......................................... F-3
Notes to Combined Condensed Pro Forma Statement of Operations
(Unaudited)............................................................ F-4
Microtune, Inc.:
Report of Ernst & Young LLP, Independent Auditors....................... F-6
Consolidated Balance Sheets as of December 31, 1998 and 1999 and June
30, 2000 (Unaudited)................................................... F-7
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999 and for the Six Months Ended June 30, 1999 and 2000
(Unaudited)............................................................ F-8
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1998 and 1999 and for the Six Months Ended June 30,
2000 (Unaudited)....................................................... F-9
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999 and for the Six Months Ended June 30, 1999 and 2000
(Unaudited)............................................................ F-10
Notes to Consolidated Financial Statements.............................. F-11
HMTF Acquisition (Bermuda), Ltd. and Temic Telefunken Hochfrequentztechnik
GmbH:
Report of Ernst & Young LLP, Independent Auditors....................... F-26
Consolidated Balance Sheets as of December 31, 1998 and 1999............ F-27
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1997, the Three Months Ended December 31, 1997, the Year
Ended December 31, 1998, the period January 1, 1999 through December
22, 1999 and the Period December 23, 1999 through December 31, 1999.... F-28
Consolidated Statements of Stockholders' Equity for the Nine Months
Ended September 30, 1997, the Three Months Ended December 31, 1997, the
Year Ended December 31, 1998, the period January 1, 1999 through
December 22, 1999 and the Period December 23, 1999 through December 31,
1999................................................................... F-29
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997, the Three Months Ended December 31, 1997, the Year
Ended December 31, 1998, the period January 1, 1999 through December
22, 1999 and the Period December 23, 1999 through December 31, 1999.... F-30
Notes to Consolidated Financial Statements.............................. F-31
</TABLE>
F-1
<PAGE>
MICROTUNE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On January 10, 2000, Microtune, Inc. (the Company) acquired HMTF Acquisition
(Bermuda) Ltd. (HMTF Acquisition). HMTF Acquisition was incorporated in
November 1999 for the purpose of serving as the ultimate parent company of
Temic Telefunken Hochfrequenztechnik GmbH (Temic), which is now called
Microtune GmbH. HMTF Acquisition acquired Temic on December 22, 1999.
The combination with HMTF Acquisition has been accounted for as a purchase
business combination by the Company. The pro forma combined condensed statement
of operations is based on the historical financial statements of the Company,
HMTF Acquisition and Temic and assumes the combination had been completed on
January 1, 1999.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the results of operations that would
have been reported if such transactions had been completed as presented in the
accompanying unaudited pro forma combined condensed statement of operations nor
is it necessarily indicative of the Company's future results of operations. The
pro forma adjustments and the assumptions on which they are based are described
in the accompanying notes to unaudited pro forma combined condensed statement
of operations.
The unaudited pro forma combined condensed statement of operations is based
on, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of the Company for the year
ended December 31, 1999, the consolidated financial statements and the related
notes thereto of HMTF Acquisition for the period December 23, 1999 through
December 31, 1999 and the consolidated financial statements and the related
notes thereto of Temic for the period January 1, 1999 through December 22, 1999
included elsewhere in this prospectus.
F-2
<PAGE>
MICROTUNE, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
HMTF
Temic Acquisition
Historical Historical
The Company Period Period
Historical January 1, December 23, Purchase
Year Ended 1999 Through 1999 Through Accounting
December 31, December 22, December 31, Pro Forma Pro Forma
1999 1999 1999 Adjustments Combined
------------ ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ -- $45,178 $ 1,058 $ 523 (c) $ 46,759
Cost of revenues........ -- 30,590 719 704 (b) 32,013
------- ------- -------- ------- --------
Gross margin............ -- 14,588 339 (181) 14,746
Operating expenses:
Research and
development:
Stock option
compensation........ 220 -- -- 212 (d) 432
Other................ 5,913 2,949 70 141 (b) 9,073
------- ------- -------- ------- --------
6,133 2,949 70 353 9,505
Acquired in-process
research and
development........... -- -- 12,692 (12,692)(a) --
Selling, general and
administrative:
Stock option
compensation........ 630 -- -- 608 (d) 1,238
Other................ 2,327 6,800 176 (229)(c) 9,168
94 (b)
------- ------- -------- ------- --------
2,957 6,800 176 473 10,406
Employee bonuses....... -- 4,314 -- (4,314)(a) --
Amortization of
intangible assets and
goodwill.............. -- (532) 210 8,222 (b) 8,700
800 (c)
------- ------- -------- ------- --------
Total operating
expenses............ 9,090 13,531 13,148 (7,158) 28,611
------- ------- -------- ------- --------
Income (loss) from
operations............. (9,090) 1,057 (12,809) 6,977 (13,865)
Other income (expense):
Interest income........ 582 165 5 -- 752
Interest expense....... -- (31) -- -- (31)
Foreign currency
translation and
transaction gains
(losses), net......... -- 1,245 1 -- 1,246
Other.................. -- 795 41 99 (c) 935
------- ------- -------- ------- --------
Income (loss) before
provision (benefit) for
income taxes........... (8,508) 3,231 (12,762) 7,076 (10,963)
Provision (benefit) for
income taxes........... -- 959 188 (950)(e) 197
------- ------- -------- ------- --------
Net income (loss)....... $(8,508) $ 2,272 $(12,950) $ 8,026 $(11,160)
======= ======= ======== ======= ========
Basic and diluted
earnings (loss) per
common share (Note 3).. $ (1.39) $ (1.82)
======= ========
Shares used to compute
per share data (Note
3)..................... 6,128 6,128
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
MICROTUNE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
1. General
The combination with HMTF Acquisition has been accounted for as a purchase
business combination by the Company. The accompanying unaudited pro forma
combined condensed statement of operations reflects an aggregate cost of the
combination of approximately $63.1 million, consisting of the fair market value
of the Company's securities issued to the shareholders of HMTF Acquisition plus
costs directly related to the combination as follows (in thousands, except
share data):
<TABLE>
<S> <C>
Fair market value of 3,318,513 shares of Series E Preferred Stock.. $55,548
Fair market value of warrants to purchase 2,212,342 shares of the
Company's common stock............................................ 7,411
Transaction costs.................................................. 185
-------
Total combination cost............................................. $63,144
=======
</TABLE>
The warrants have an exercise price of $0.001 per share. The fair values of
the Series E Preferred Stock and the warrants were based on the estimated fair
value of the Company's common stock at the date of the combination and the cash
purchase price paid by HMTF Acquisition for Temic on December 22, 1999.
The aggregate purchase price has been allocated to the net assets acquired on
the basis of preliminary estimates of fair values as follows:
<TABLE>
<S> <C>
Working capital................................................. $11,206
Property and equipment.......................................... 6,118
Intangible assets............................................... 8,037
Goodwill........................................................ 30,428
Acquired in-process research and development costs charged to
expense........................................................ 12,692
Deferred income taxes........................................... (4,020)
Other assets and liabilities, net............................... (2,329)
Loans receivable from stockholders.............................. 1,012
-------
$63,144
=======
</TABLE>
The estimates of the fair values of intangible assets and acquired in-process
research and development were determined based on information furnished by
management of Microtune GmbH. The Company is in the process of evaluating the
other assets and liabilities, principally inventories and property and
equipment, that HMTF Acquisition acquired. The final allocation of the purchase
price, which is expected to be completed in the third quarter of 2000, will be
based on the complete evaluation of the assets and liabilities of HMTF
Acquisition. Although management does not expect the final valuation of the
assets and liabilities acquired to result in values that are significantly
different from the estimates included in the table above, there can be no
assurance that such differences will not occur.
Amounts allocated to acquired in-process and development were expensed at the
date of the combination because the purchased research and development had no
alterative future uses, and had not reached technological feasibility based on
the status of design and development activities that required further
refinement and testing. The estimates used
F-4
<PAGE>
MICROTUNE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(Continued)
Year Ended December 31, 1999
in valuing the research and development were based upon assumptions regarding
future events and circumstances management believes to be reasonable, but that
are inherently uncertain and unpredictable.
In connection with the acquisition of HMTF Acquisition, the Company acquired
the principal assets of The Tuner Company, an independent distributor of
products for Temic in North America, for $931,000 and the assumption of certain
liabilities.
2. Unaudited Pro Forma Combined Condensed Statement of Operations
The accompanying unaudited pro forma combined condensed statement of
operations have been prepared as if the combination with HMTF Acquisition
(including its acquisition of Temic) and the acquisition of the assets of The
Tuner Company were completed as of January 1, 1999 and reflects the following
pro forma adjustments:
(a) To eliminate nonrecurring charges for acquired in-process research and
development recorded by HMTF Acquisition and employee cash bonuses
recorded by Temic resulting from the acquisition of Temic by HTMF
Acquisition on December 22, 1999.
(b) To record the depreciation and amortization of property and equipment,
intangible assets and goodwill resulting from the allocation of the
cost of the combination with HMTF Acquisition. The allocation of the
cost is preliminary and amounts are subject to adjustment. The acquired
intangible assets are being amortized over periods of one to five
years. Goodwill is being amortized over five years.
(c) To record the effect on revenues and operating costs of combining the
results of operations of The Tuner Company and HMTF Acquisition, net of
the elimination of intercorporate accounts.
(d) To record stock option compensation resulting from the issuance of
options to purchase 1.7 million shares of the Company's common stock at
an exercise price of $0.875 per share to employees of Temic in
connection with the combination. The aggregate compensation expense
resulting from the issuance of these options of $4.1 million is being
amortized over the vesting periods of the options.
(e) To adjust the provision for income taxes to reflect the impact of the
results of operations of HMTF Acquisition and Temic and related pro
forma adjustments.
3. Unaudited Pro Forma Combined Earnings Per Common Share Data
The unaudited pro forma combined basic earnings per common share data is
computed by dividing pro forma combined income per share by the pro forma
weighted average number of common shares outstanding. Because the combined pro
forma results of operations are a loss for the period, the effects of the
assumed exercise of stock options warrants, restricted common stock subject to
repurchase rights, and the conversion of outstanding convertible preferred
stock does not have a dilutive effect.
F-5
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Microtune, Inc.
We have audited the accompanying consolidated balance sheets of Microtune,
Inc. (the Company), as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Microtune, Inc.,
at December 31, 1998 and 1999, and the consolidated results of its operations
and its consolidated cash flows for the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Dallas, Texas
March 24, 2000
F-6
<PAGE>
MICROTUNE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1998 1999 2000
ASSETS ------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 712 $ 6,331 $ 8,346
Marketable securities ............................. 7,156 13,798 13,332
Accounts receivable, net of allowance for doubtful
accounts of $735 at June 30, 2000................. -- 164 8,227
Inventories ....................................... -- -- 12,066
Deferred income taxes ............................. -- -- 965
Other current assets............................... -- 22 1,068
------- -------- --------
Total current assets............................... 7,868 20,315 44,004
Property and equipment, at cost:
Leasehold improvements............................. 413 418 708
Manufacturing equipment............................ -- -- 9,036
Other equipment.................................... 1,567 2,445 2,571
Furniture and fixtures............................. 16 82 661
Computer software.................................. 777 724 1,785
------- -------- --------
2,773 3,669 14,761
Less accumulated depreciation...................... 895 1,879 (3,463)
------- -------- --------
1,878 1,790 11,298
Intangible assets, net of accumulated amortization of
$1,710 ............................................. -- -- 7,467
Goodwill, net of accumulated amortization of $3,010
.................................................... -- -- 27,418
Deferred income taxes ............................... -- -- 392
Other assets and deferred charges.................... 444 172 1,303
------- -------- --------
Total assets................................... $10,190 $ 22,277 $ 91,882
======= ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable................................... $ 447 $ 223 $ 7,532
Accrued expenses................................... 12 84 5,633
Accrued compensation............................... 98 365 1,251
Payable to stockholder............................. 125 -- --
------- -------- --------
Total current liabilities........................ 682 672 14,416
Deferred income taxes ............................... -- -- 5,290
Other noncurrent liabilities......................... -- -- 1,106
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value
Authorized shares--18,999
Issued and outstanding Series A through F
convertible shares--
6,463 at December 31, 1998, 7,830 at December 31,
1999, and 11,949 at June 30, 2000................. 7 8 12
Common stock, $0.001 par value:
Authorized shares--100,000
Issued and outstanding shares--6,948 at December
31, 1998,
7,943 at December 31, 1999, and 8,311 at June 30,
2000.............................................. 7 8 8
Additional paid-in capital.......................... 19,216 36,819 111,481
Stock subscription -- funds held in escrow for
Series A Preferred Stock........................... (3,000) -- --
Loans receivable from stockholders.................. (207) (207) (864)
Accumulated other comprehensive income.............. -- -- (988)
Accumulated deficit................................. (6,515) (15,023) (38,579)
------- -------- --------
Total stockholders' equity....................... 9,508 21,605 71,070
------- -------- --------
Total liabilities and stockholders' equity..... $10,190 $ 22,277 $ 91,882
======= ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE>
MICROTUNE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues..................... $ -- $ -- $ -- $ -- $ 28,961
Cost of revenues................. -- -- -- -- 19,931
------- ------- ------- ------- --------
Gross margin..................... -- -- -- -- 9,030
Operating expenses:
Research and development:
Stock option compensation.... -- -- 220 134 626
Other........................ 2,091 3,174 5,913 2,511 5,677
------- ------- ------- ------- --------
2,091 3,174 6,133 2,645 6,303
Acquired in process research
and development............... -- -- -- -- 12,692
Selling, general and
administration:
Stock option compensation.... -- -- 630 415 1,378
Other........................ 723 885 2,327 810 8,097
------- ------- ------- ------- --------
723 885 2,957 1,225 9,475
Amortization of intangible
assets and goodwill........... -- -- -- -- 4,393
------- ------- ------- ------- --------
Total operating expenses..... 2,814 4,059 9,090 3,870 32,863
------- ------- ------- ------- --------
Loss from operations............. (2,814) (4,059) (9,090) (3,870) (23,833)
Other income (expense):
Interest income................ 408 572 582 198 496
Foreign currency translation
and transaction gains
(losses), net................. -- -- -- -- 71
Other.......................... -- -- -- -- 460
------- ------- ------- ------- --------
Loss before provision for income
taxes........................... (2,406) (3,487) (8,508) (3,672) (22,806)
Provision for income taxes....... -- -- -- -- 750
------- ------- ------- ------- --------
Net loss......................... (2,406) (3,487) (8,508) (3,672) (23,556)
Preferred stock dividends........ (4,183) (811) -- -- --
------- ------- ------- ------- --------
Net loss applicable to common
stockholders.................... $(6,589) $(4,298) $(8,508) $(3,672) $(23,556)
======= ======= ======= ======= ========
Basic and diluted loss per common
share........................... $ (2.98) $ (1.04) $ (1.39) $ (0.63) $ (3.05)
======= ======= ======= ======= ========
Weighted average shares used in
computing basic and diluted loss
per common share................ 2,210 4,116 6,128 5,842 7,726
======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-8
<PAGE>
MICROTUNE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Series A
Through F
Convertible
Preferred
Stock Common Stock
------------- ------------- Stock Loans Accumulated
Number Number Additional Subscription Receivable Other Total
of Par of Par Paid-In -Funds Held From Comprehensive Accumulated Stockholders'
Shares Value Shares Value Capital in Escrow Stockholders Income Deficit Equity
------ ----- ------ ----- ---------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996........... 5,000 $ 5 6,770 $ 7 $ 9,056 $(3,000) $ (98) $ -- $ (622) $ 5,348
Issuance of
common stock
upon exercise
of stock
options for
cash........... -- -- 25 -- 2 -- -- -- -- 2
Repurchase of
common shares
for cash and
extinguishment
of note
receivable..... -- -- (81) -- (2) -- 2 -- -- --
Contribution
from Series A
Preferred
Stockholder
under formation
agreement ..... -- -- -- -- 185 -- -- -- -- 185
Repurchase of
Series A
Preferred
Stock.......... (950) (1) -- -- (542) -- -- -- -- (543)
Deemed dividend
on preferred
stock.......... -- -- -- -- (2,352) -- -- -- -- (2,352)
Issuance of
Series A
Preferred Stock
for cash....... 250 -- -- -- 750 -- -- -- -- 750
Issuance of
Series B
Preferred Stock
for cash net of
issuance costs
of $6.......... 1,000 1 -- -- 3,993 -- -- -- -- 3,994
Proceeds to
Microtune,
Inc., for the
transfer of 650
shares of
Series A
Preferred Stock
from Cirrus
Logic, Inc.,
and Cirrus
Logic
International,
Ltd., to other
investors...... -- -- -- -- 237 -- -- -- -- 237
Net loss........ -- -- -- -- -- -- -- -- (2,406) (2,406)
------ --- ----- --- -------- ------- ------ ----- -------- --------
Balance at
December 31,
1997........... 5,300 5 6,714 7 11,327 (3,000) (96) -- (3,028) 5,215
Issuance of
common stock
upon exercise
of stock
options for
cash and
notes.......... -- -- 401 -- 120 -- (118) -- -- 2
Repurchase of
common shares
for
extinguishment
of note
receivable..... -- -- (167) -- (4) -- 4 -- -- --
Contribution
from Series A
Preferred
Stockholder
under formation
agreement ..... -- -- -- -- 109 -- -- -- -- 109
Repurchase of
Series A
Preferred Stock
for cash....... (300) -- -- -- (279) -- -- -- -- (279)
Deemed dividend
on preferred
stock.......... -- -- -- -- (811) -- -- -- -- (811)
Issuance of
Series C
Preferred Stock
for cash net of
issuance costs
of $20......... 1,463 2 -- -- 8,754 -- -- -- -- 8,756
Payments on
loans
receivable from
stockholders... -- -- -- -- -- -- 3 -- -- 3
Net loss........ -- -- -- -- -- -- -- -- (3,487) (3,487)
------ --- ----- --- -------- ------- ------ ----- -------- --------
Balance at
December 31,
1998........... 6,463 7 6,948 7 19,216 (3,000) (207) -- (6,515) 9,508
Issuance of
common stock
upon exercise
of stock
options........ -- -- 995 1 220 -- -- -- -- 221
Issuance of
Series D
Preferred Stock
for cash....... 1,367 1 -- -- 16,408 -- -- -- -- 16,409
Stock option
compensation... -- -- -- -- 850 -- -- -- -- 850
Funds released
from escrow for
Series A
Preferred
Stock.......... -- -- -- -- -- 3,000 -- -- -- 3,000
Other........... -- -- -- -- 125 -- -- -- -- 125
Net loss........ -- -- -- -- -- -- -- -- (8,508) (8,508)
------ --- ----- --- -------- ------- ------ ----- -------- --------
Balance at
December 31,
1999........... 7,830 8 7,943 8 36,819 -- (207) -- (15,023) 21,605
Issuance of
common stock
upon exercise
of stock
options
(unaudited).... -- -- 368 -- 103 -- (35) -- -- 68
Issuance of
Series E
Preferred Stock
and warrants to
purchase common
stock in the
combination
with HMTF
Acquisition
(Bermuda) Ltd.
(unaudited).... 3,319 3 -- -- 62,956 -- (1,012) -- -- 61,947
Issuance of
Series F
Preferred Stock
for cash
(unaudited).... 800 1 -- -- 9,599 -- -- -- -- 9,600
Stock option
compensation
(unaudited).... -- -- -- -- 2,004 -- -- -- -- 2,004
Payments on
loans
receivable from
stockholders
(unaudited).... -- -- -- -- -- -- 390 -- -- 390
Net loss
(unaudited).... -- -- -- -- -- -- -- -- (23,556) (23,556)
Unrealized
foreign
currency loss
(unaudited).... -- -- -- -- -- -- -- (988) -- (988)
------ --- ----- --- -------- ------- ------ ----- -------- --------
Total
comprehensive
loss
(unaudited).... -- -- -- -- -- -- -- -- -- (24,544)
------ --- ----- --- -------- ------- ------ ----- -------- --------
Balance at June
30, 2000
(unaudited).... 11,949 $12 8,311 $ 8 $111,481 $ -- $ (864) $(988) $(38,579) $ 71,070
====== === ===== === ======== ======= ====== ===== ======== ========
</TABLE>
See accompanying notes.
F-9
<PAGE>
MICROTUNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
---------------------------- -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net loss..................... $ (2,406) $ (3,487) $ (8,508) $(3,672) $(23,556)
Adjustments to reconcile net
loss to net cash used in
operating activities, net of
effects of business
combination:
Depreciation................. 278 554 1,007 498 2,527
Amortization of intangible
assets and goodwill......... -- -- -- -- 4,393
Acquired in-process research
and development............. -- -- -- -- 12,692
Foreign currency translation
and transaction gains
(losses), net............... -- -- -- -- (71)
Stock option compensation.... -- -- 850 549 2,004
Deferred income taxes........ -- -- -- -- (754)
Changes in operating assets
and liabilities:
Accounts receivable......... -- -- (164) -- (231)
Inventories................. -- -- -- -- (2,796)
Other assets................ (262) (138) 250 43 196
Accounts payable............ 37 333 (224) (203) 2,976
Accrued expenses............ -- 13 72 56 929
Accrued compensation........ 30 46 267 49 613
Employee bonuses............ -- -- -- -- (3,775)
-------- -------- -------- ------- --------
Net cash used in operating
activities................ (2,323) (2,679) (6,450) (2,680) (4,853)
Investing Activities
Net cash aquired in
acquisition of HMTF
Acquisition................. -- -- -- -- 3,550
Purchases of marketable
securities.................. (11,000) (14,653) (30,958) (8,400) (33,415)
Proceeds from sales and
maturities of marketable
securities.................. 7,100 11,397 24,316 8,876 33,881
Purchases of property and
equipment................... (588) (1,546) (919) (654) (6,483)
Sale of property and
equipment................... -- -- -- -- 237
Purchase of intangible
assets...................... -- -- -- -- (849)
Payments on loans
receivable.................. -- -- -- -- (52)
Proceeds from loans
receivable.................. -- -- -- -- 249
-------- -------- -------- ------- --------
Net cash used in investing
activities................ (4,488) (4,802) (7,561) (178) (2,882)
Financing Activities
Proceeds from issuance of
Series A Preferred Stock.... 935 -- -- -- --
Repurchase of Series A
Preferred Stock............. (2,895) (982) -- -- --
Proceeds from issuance of
Series B Preferred Stock.... 3,994 -- -- -- --
Proceeds from issuance of
Series C Preferred Stock.... -- 8,756 -- -- --
Proceeds from issuance of
Series D Preferred Stock.... -- -- 16,409 -- --
Proceeds from issuance of
Series F Preferred Stock.... -- -- -- -- 9,600
Proceeds from transfer of
shares of Series A Preferred
Stock....................... 237 -- -- -- --
Proceeds from issuance of
common stock................ 2 2 221 221 103
Proceeds from the release of
funds in escrow............. -- -- 3,000 3,000 --
Proceeds from loans
receivable from
stockholders................ -- 3 -- -- 355
Increase (decrease) in
payable to stockholder...... 2,363 (2,238) -- -- --
-------- -------- -------- ------- --------
Net cash provided by
financing activities...... 4,636 5,541 19,630 3,221 10,058
Effect of foreign currency
exchange rate changes on
cash......................... -- -- -- -- (308)
-------- -------- -------- ------- --------
Net increase (decrease) in
cash and cash equivalents.... (2,175) (1,940) 5,619 363 2,015
Cash and cash equivalents at
beginning of period.......... 4,827 2,652 712 712 6,331
-------- -------- -------- ------- --------
Cash and cash equivalents at
end of period................ $ 2,652 $ 712 $ 6,331 $ 1,075 $ 8,346
======== ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-10
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
1. Description of Business and Basis of Presentation
Description of Business
Microtune, Inc. (the Company), was incorporated on May 28, 1996, and
commenced operations on August 21, 1996. The Company operates in a single
business segment and is engaged in the design, manufacture, and marketing of
high performance RF tuners and transceivers to the broadband communications
markets. Effective June 9, 2000, the Company changed its state of incorporation
from Texas to Delaware. As part of the incorporation in Delaware, the common
stock shares authorized were increased to 150,000,000.
The consolidated financial statements include the Company and its wholly
owned subsidiaries. All significant intercompany transactions and balances have
been eliminated.
Acquisition of HMTF Acquisition (Bermuda), Ltd.
On January 10, 2000, the Company combined with HMTF Acquisition (Bermuda)
Ltd. (HMTF Acquisition), the ultimate parent company of Temic Telefunken
Hochfrequenztechnik GmbH (Temic), in a transaction accounted for as a purchase
business combination. HMTF Acquisition acquired Temic on December 22, 1999.
Temic is now called Microtune GmbH. Microtune GmbH is a leading provider of RF
systems solutions. The consideration in the combination consisted of 3,318,513
shares of Series E Preferred Stock and 2,212,342 warrants to purchase shares of
common stock at an exercise price of $.001 per share. The results of operations
of HMTF Acquisition are included in the results of the Company from the date of
acquisition.
The components of the aggregate cost of the combination were as follows (in
thousands, except share data):
<TABLE>
<S> <C>
Fair market value of 3,318,513 shares of Series E Preferred Stock.. $55,548
Fair market value of warrants to purchase 2,212,342 shares of the
Company's common stock............................................ 7,411
Transaction costs.................................................. 185
-------
Total combination cost............................................. $63,144
=======
</TABLE>
The fair values of the Series E Preferred Stock and the warrants were based
on the estimated fair value of the Company's common stock at the date of the
combination and the cash purchase price paid by HMTF Acquisition for Temic on
December 22, 1999 of $60.0 million.
The cost of the acquisition has been allocated to the assets and liabilities
acquired and to acquired in-process research and development, with the
remainder recorded as excess cost over net assets acquired, based on estimates
of fair values as follows (in thousands):
<TABLE>
<S> <C>
Working capital.................................................. $ 11,206
Property and equipment........................................... 6,118
Intangible assets................................................ 8,037
Goodwill......................................................... 30,428
Acquired in-process research and development costs charged to
expense......................................................... 12,692
Deferred income taxes............................................ (4,020)
Other assets and liabilities, net................................ (2,329)
Loans receivable from stockholders (Note 8)...................... 1,012
--------
$ 63,144
========
</TABLE>
F-11
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
The estimates of the fair values of intangible assets and acquired in-process
research and development were determined based on information furnished by
management of Microtune GmbH. The Company is in the process of evaluating the
other assets and liabilities, principally inventories and property and
equipment, that HMTF Acquisition acquired. The final allocation of the purchase
price, which is expected to be completed in the third quarter of 2000, will be
based on the complete evaluation of the assets and liabilities of HMTF
Acquisition. Although management does not expect the final valuation of the
assets and liabilities acquired to result in values that are significantly
different from the estimates included in the table above, there can be no
assurance that such differences will not occur.
Amounts allocated to acquired in-process and development were expensed at the
date of acquisition because the purchased research and development had no
alternative future uses, and had not reached technological feasibility based on
the status of design and development activities that required further
refinement and testing. The acquired in-process research and development
projects were assessed, analyzed and valued using the exclusion approach
articulated by the Securities and Exchange Commission. The estimates used in
valuing the research and development were based upon assumptions regarding
future events and circumstances management believes to be reasonable, but that
are inherently uncertain and unpredictable. The relative stage of completion
and projected operating cash flows of the underlying in-process projects
acquired were the most significant and uncertain assumptions utilized in the
valuation analysis of the acquired in-process research and development. Such
uncertainties could give rise to unforeseen budget overruns and revenue
shortfalls in the event that the Company is unable to successfully complete and
commercialize the projects.
The acquired in-process technology relates to the development of new tuners
and modules for cable modem, set-top box, multimedia and automotive
applications, focusing on increased functionality, cost effectiveness and size
reduction, while maintaining a low level of power consumption. The estimated
percentage completion of the development projects as of the acquisition date
was approximately 70%, 50%, 70% and 60% for projects in the cable modem, set-
top box, multimedia and automotive product groups, respectively. The estimated
cost of completion of the development projects as of the acquisition date was
approximately $375,000, $50,000, $375,000 and $2,050,000 for projects in the
cable modem, set-top box, multimedia and automotive product groups,
respectively. As of June 30, 2000, the amounts expended towards completing the
development projects as of the acquisition date were approximately $175,000,
$20,000, $135,000 and $740,000 for projects in the cable modem, set-top box,
multimedia and automotive product groups, respectively. There have been no
significant changes in estimates of costs required to complete the development
efforts since the acquisition date. The estimated dates of completion of the
development projects as of June 30, 2000 were December 2000, October 2000,
November 2000 and March 2002 for projects in the cable modem, set-top box,
multimedia and automotive product groups, respectively.
The value of the acquired in-process research and development was determined
by discounting the estimated projected net cash flows related to the applicable
products for the next ten years, including costs to complete the development of
the technology and the future revenues to be earned upon release of the
products. The rate utilized to discount the net cash flows to present value was
22% based on the weighted average cost of capital adjusted for the risks
associated with the estimated growth, profitability, developmental and market
risks of the acquired development projects. Projected net cash flows from such
products are based on estimates of revenues and operating profit
F-12
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
related to such products. Management expects that the purchased research and
development generally will be successfully developed into commercially viable
products. However, there can be no assurance that commercial viability or
timely release of these products will be achieved.
In connection with the combination with HMTF Acquisition, the Company
acquired the principal assets of The Tuner Company, an independent distributor
of products for Temic in North America, for $931,000 and the assumption of
certain liabilities.
The following unaudited pro forma information presents the results of
operations of the Company as if the combination with HMTF Acquisition and the
acquisition of The Tuner Company had occurred as of January 1, 1999. The pro
forma information has been prepared by combining the results of operations of
the Company, HMTF Acquisition, Temic and The Tuner Company with adjustments to
eliminate the 1999 charge for acquired in-process research and development
costs and to record additional amortization expense and the impact on the
provision for income taxes resulting from the application of purchase
accounting. The pro forma information does not purport to be indicative of what
would have occurred had the acquisition occurred as of that date, or of results
of operations that may occur in the future (in thousands, except per share
data):
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Revenue.................................................... $46,759
Loss from operations....................................... (13,865)
Net loss................................................... (11,160)
Basis and diluted net loss per common share................ (1.82)
</TABLE>
Prior to the combination with HMTF Acquisition, the Company was in the
development stage and had been engaged primarily in raising capital, recruiting
RF and analog engineers, product research and development, and developing
relationships with potential customers and suppliers.
Interim Financial Information
The interim consolidated financial information as of June 30, 2000 and for
the six months ended June 30, 1999 and June 30, 2000 is unaudited but, in the
opinion of management, includes all adjustments which are of a normal recurring
nature and are necessary for a fair presentation of the financial position and
results of operations for the periods presented. Results of operations for the
six months ended June 30, 2000 are not necessarily indicative of results of
operations to be expected for the entire fiscal year.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of bank deposits and money market funds.
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
F-13
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual cost determined on a first-in, first-out basis, or estimated realizable
value.
Marketable Securities
The Company's investments in debt securities are comprised of high-credit
quality debt securities in accordance with the Company's investment policy.
Management determines the appropriate classification of its investments in debt
securities at the time of purchase and reevaluates such determinations at each
balance sheet date. At December 31, 1998 and 1999, the Company's debt
securities are classified as available for sale.
As of December 31, 1998, the Company owned an interest in a municipal bond
with a cost basis of $1,200,000. This investment was carried at cost, which
approximated its fair market value at December 31, 1998. The Company's
ownership interest in the municipal bond had a coupon option under which the
interest rate earned by the Company was adjusted every 35 days if the Company
elected to continue to hold the investment.
As of December 31, 1998 and 1999, the Company owned asset-backed commercial
paper stated at cost of $5,956,162 and $13,798,244, respectively, which
approximated its fair value at December 31, 1999. The Company's investment in
asset-backed commercial paper matured within 8 days and 32 days of December 31,
1998 and 1999, respectively.
The fair value of marketable securities is estimated based on quoted market
prices.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which are
currently three to five years. The Company capitalizes costs associated with
software developed or obtained for internal use when both the preliminary
project stage is completed and management has authorized further funding for
the project which it deems probable will be completed and used to perform the
function intended. Capitalization of such costs ceases no later than the point
at which the project is substantially complete and ready for its intended use.
Intangible Assets and Goodwill
Intangible assets, which consist primarily of the customer base, patents and
other intangible assets acquired in the acquisition of HMTF Acquisition, are
being amortized on the straight-line basis over one to five years.
Goodwill resulting from the acquisition of HMTF Acquisition is being
amortized over a period of five years.
The carrying value of goodwill and other intangible assets will be reviewed
if the facts and circumstances suggest that they may be permanently impaired.
If a comparison of the undiscounted cash flow method to the carrying value of
goodwill and other intangible assets indicates that these assets will not be
recoverable, the assets will be reduced to their estimated recoverable value.
Estimated recoverable value is determined by applying the discounted cash flow
method.
F-14
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
Research and Development Costs
Research and development costs, consisting of the costs of designing,
developing, and testing new or significantly enhanced products, are expensed as
incurred.
Revenue Recognition
Revenues are recognized when products have been shipped and title to the
product has been transferred to the customer. Title to the product may transfer
to the customer when shipped or when received by the customer based on the
specific customer agreement. Provision is made currently for estimated returns.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and related interpretations
in accounting for its employee stock options. The Company accounts for stock-
based compensation for non-employees under the fair value method prescribed by
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. Through June 30, 2000, there have been no significant
grants to non-employees.
Warranty Costs
The Company provides a minimum of a one-year warranty on all products and
records a related provision for estimated warranty costs at the date of sale.
Foreign Currency Translation
The accompanying financial statements have been prepared using the United
States (U.S.) dollar as the functional currency, except that the Deutsch Mark
(DM) is used as the functional currency for Microtune GmbH and its
subsidiaries. Foreign currency exchange gains and losses resulting from the
translation of financial statements denominated in DM of Microtune GmbH into
U.S. dollars are included as a component of stockholders' equity. Foreign
currency exchange gains and losses resulting from the remeasurement of
financial statements not denominated in DM of Microtune GmbH outside of Germany
into DM are recognized currently in the statement of operations as a component
of foreign currency gains and losses.
Income Taxes
The Company's income taxes are computed using the asset and liability method
of accounting. Under the asset and liability method, a deferred tax asset or
liability is recognized for estimated future tax effects attributable to
temporary differences and carryforwards. The measurement of deferred income tax
assets is adjusted by a valuation allowance, if necessary, to recognize future
tax benefit only to the extent, based on available evidence, it is more likely
than not such benefit will be realized.
Earnings Per Share
Basic earnings (loss) per common share is computed by dividing income (loss)
applicable to common stockholders by the weighted average number of common
shares outstanding during each period. Diluted earnings (loss) applicable to
common stockholders is computed by dividing income
F-15
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
(loss) applicable to common stockholders by the weighted average number of
common shares outstanding during each period and common equivalent shares
consisting of preferred stock, stock options, warrants, and restricted common
stock subject to repurchase rights.
Preferred stock dividends added to net loss to derive net loss applicable to
common stockholders resulted from certain purchases of outstanding shares of
Series A Preferred Stock, which occurred during 1997 and 1998 (Note 8). The
excess of the cash consideration to purchase the shares over the carrying
amount of the shares has been treated as dividends paid to the stockholders of
the preferred shares in the earnings per share calculation.
The following table sets forth anti-dilutive securities which have been
excluded from diluted earnings per share:
<TABLE>
<CAPTION>
December 31, June 30,
-------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Preferred stock convertible into common
stock................................. 10,600 12,925 15,660 12,925 23,097
Stock options.......................... 1,069 1,844 2,945 2,696 7,791
Warrants............................... 41 41 41 41 2,253
Restricted common stock................ 2,748 1,788 681 1,209 321
------ ------ ------ ------ ------
Total anti-dilutive securities
excluded.............................. 14,458 16,598 19,327 16,871 33,462
====== ====== ====== ====== ======
</TABLE>
Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period,
except those resulting from investments by owners and distributions to owners.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade accounts receivable. Products are
sold to customers in the broadband communications industry internationally,
principally in Europe and the United States. The Company continually evaluates
the creditworthiness of its customers' financial condition and generally does
not require collateral. Microtune GmbH also maintains credit insurance covering
certain receivables. The Company has not experienced significant losses on
uncollectible accounts.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which, as
amended, is required to be adopted by the Company beginning January 1, 2001.
The Company does not currently use derivatives, however, as such instruments
may be used in the future, it is uncertain what, if any, impact the adoption of
Statement 133 will have on the earnings or the financial position of the
Company.
Risk and Uncertainties
The future results of operations and financial condition of the Company will
be impacted by the following factors, among others: the level of difficulty
experienced in the integration of acquired businesses, dependence on the
broadband communications markets, lengthy sales cycle,
F-16
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
dependence on third party manufacturers and subcontractors, dependence on new
personnel, technological change and dependence on new products, international
operations, property rights, and product liability.
3. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
2000
--------
<S> <C>
Finished goods...................................................... $ 3,419
Work-in process..................................................... 2,535
Raw materials....................................................... 6,112
-------
$12,066
=======
</TABLE>
4. Commitments
In May 1998, the Company entered into a five-year operating lease for office
space in Plano, TX. The lease requires no rent payments during the first three
years. In November 1999, the Company modified the lease to include additional
office space. Lease expense under this lease is recognized on the straight-line
basis over the lease term. In March 2000, the Company entered into a new five-
year operating lease for office space in Plano, TX to be used as its
headquarters and for administrative, sales and marketing and research and
development. Microtune GmbH leases its administrative, sales and marketing and
research and development facility in Germany under an operating lease with a
twenty two year term, which began in December 1999. The Company also leases
certain other facilities, equipment and computer software under operating
leases. Future minimum lease payments required under operating leases that have
an initial or remaining noncancelable lease terms in excess of one year as of
June 30, 2000 are as follows (in thousands):
<TABLE>
<S> <C>
Six months ended December 31, 2000.................................. $ 1,022
Year ended December 31, 2001........................................ 1,626
Year ended December 31, 2002........................................ 1,411
Year ended December 31, 2003........................................ 1,358
Year ended December 31, 2004........................................ 1,092
Thereafter.......................................................... 5,544
-------
$12,053
=======
</TABLE>
As of June 30, 2000, future minimum payments required under the operating
lease for the facility in Germany include $3.5 million guaranteed by Microtune
GmbH relating to obligations issued to finance the land and building.
Rent expense for the years ended December 31, 1997, 1998 and 1999, was
$75,516, $70,082 and $72,783, respectively.
The Company is involved in legal proceedings that arise in the ordinary
course of business. In the opinion of management, the outcome of pending legal
proceedings will not have a material adverse affect on the consolidated
financial statements.
F-17
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
5. Accrued Expenses
Accrued expenses consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1998 1999 2000
------ ------ --------
<S> <C> <C> <C>
Accrued warranty obligation........................... $ -- $ -- $ 799
Accrued income taxes (Note 7)......................... -- -- 1,937
Deferred income taxes (Note 7)........................ -- -- 585
Other................................................. 12 84 2,312
------ ------ ------
$ 12 $ 84 $5,633
====== ====== ======
</TABLE>
6. Note Payable
At June 30, 2000, Microtune GmbH has credit agreements with two banks which
provide for borrowings of up to $2.4 million under each agreement. One of the
agreements is cancellable upon notification by the bank and the second
agreement expires August 31, 2000. Borrowings under these agreements bear
interest at rates determined from time to time by the banks (7.50% and 8.00%,
respectively, at June 30, 2000). At June 30, 2000, no borrowings were
outstanding under these credit agreements.
7. Income Taxes
The provision (benefit) for income taxes is reconciled with the U.S. federal
statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
----------------------- ----------------
1997 1998 1999 1999 2000
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Expense (benefit) computed at the
U.S. federal statutory rate..... $(818) $(1,198) $(2,893) $(1,248) $(7,754)
Benefit of losses not
recognized...................... 736 1,196 2,598 1,061 2,544
Non-deductible stock option
compensation.................... -- -- 289 187 681
Acquired in-process research and
development costs for which no
tax benefit was recognized...... -- -- -- -- 4,315
Non-deductible goodwill
amortization.................... -- -- -- -- 1,054
Other, net....................... 82 2 6 -- (90)
------ ------- ------- ------- -------
Income tax provision ............ $ -- $ -- $ -- $ -- $ 750
====== ======= ======= ======= =======
</TABLE>
The provision for the six months ended June 30, 2000 consists of foreign
income taxes.
F-18
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
The significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1998 1999 2000
------ ------ --------
<S> <C> <C> <C>
Deferred tax liabilities:
Accrued expenses.................................... $ -- $ -- $ 820
Unrealized foreign currency gains................... -- -- 304
Property and equipment.............................. 59 -- 287
Identifiable intangible assets...................... -- -- 3,710
Other............................................... 6 -- --
------ ------ ------
Total deferred tax liabilities.................... 65 -- 5,121
Deferred tax assets:
Inventory........................................... -- -- 466
Property and equipment.............................. -- 115 326
Accrued expenses.................................... 48 -- --
Net operating losses................................ 2,133 4,603 6,814
Research and development credits.................... 251 383 522
Other, net.......................................... 199 129 583
------ ------ ------
Total deferred tax assets......................... 2,631 5,230 8,711
Valuation allowance................................... 2,566 5,230 8,108
------ ------ ------
Total deferred tax liabilities, net............. $ -- $ -- $4,518
====== ====== ======
</TABLE>
The Company has established a valuation allowance to fully reserve its U.S.
deferred tax assets at December 31, 1998 and 1999 and June 30, 2000 due to the
uncertainty of the timing and amount of future taxable income. For federal
income tax purposes, at December 31, 1999, the Company had a net operating loss
carryforward of approximately $13,500,000 and an unused research and
development credit carryforward of approximately $383,000, which begins to
expire in the year 2011. The occurrence of a change in ownership, as defined in
the Internal Revenue Code, may limit utilization of the U.S. federal net
operating loss and research and development credit carryforwards.
The income tax returns of the Company, HMTF Acquisition and Microtune GmbH
are subject to review and examination in the various jurisdictions in which
they operate. Management believes that all income tax issues which have been or
may be raised as a result of such reviews and examinations will be resolved
with no material impact on the financial position or future results of
operations of the Company.
F-19
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
8. Convertible Preferred Stock
The Company has authorized 18,998,513 shares of $0.001 par value preferred
stock, of which 14,798,513 shares have been designated in six series, A through
F. Information with respect to each of the six series of preferred stock is
summarized below (in thousands, except per share data):
<TABLE>
<CAPTION>
Series A Series B Series C
------------- ------------- -------------
<S> <C> <C> <C>
Number of shares authorized......... 5,000 1,250 1,500
Number of shares issued and
outstanding:
December 31, 1997.................. 4,300 1,000 --
December 31, 1998.................. 4,000 1,000 1,463
December 31, 1999.................. 4,000 1,000 1,463
June 30, 2000...................... 4,000 1,000 1,463
Conversion ratio of preferred shares
into common........................ One for two One for two One for two
Liquidation preference.............. $2.58 per $4.00 per $6.00 per
share, plus share, plus share, plus
all declared all declared all declared
but unpaid but unpaid but unpaid
dividends dividends dividends
Dividend rights..................... $0.2064 per $0.32 per $0.48 per
share per share per share per
annum (if annum (if annum (if
declared) declared) declared)
and and and
noncumulative noncumulative noncumulative
<CAPTION>
Series D Series E Series F
------------- ------------- -------------
<S> <C> <C> <C>
Number of shares authorized......... 2,600 3,649 2,000
Number of shares issued and
outstanding:
December 31, 1997.................. -- -- --
December 31, 1998.................. -- -- --
December 31, 1999.................. 1,367 -- --
June 30, 2000...................... 1,367 3,319 800
Conversion ratio of preferred shares
into common........................ One for two One for two One for one
Liquidation preference.............. $12.00 per $20.56 per $12.00 per
share, plus share, plus share plus
all declared all declared all declared
but unpaid but unpaid but unpaid
dividends dividends dividends
Dividend rights..................... $0.96 per $1.36 per $0.96 per
share per share annum share per
annum (if (if annual (if
declared) declared) declared)
and and and
noncumulative noncumulative noncumulative
</TABLE>
The preferred stockholders have voting rights equal to the number of common
shares they would have upon conversion into common stock. In the event that the
Company obtains additional private financing at less than the then current
conversion price of a respective preferred stock series, the rate at which the
preferred shares of that stock series are convertible into common stock shall
be adjusted to prevent dilution to the stockholders. All outstanding shares of
preferred stock convert automatically to common stock upon the closing of a
firm underwritten public offering of the Company's securities provided the
aggregate sales price of such securities equals or exceeds
F-20
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
$10,000,000 with respect to the Series A, Series B and Series C Preferred
Stock, and $20,000,000 with respect to the Series D and Series F Preferred
Stock. At December 31, 1999, the Company had 15,660,170 shares of common stock
reserved for conversion of the preferred stock.
In August 1996, Cirrus Logic, Inc., and Cirrus Logic International, Ltd.
(collectively called Cirrus), and the Company entered into a Formation
Agreement whereby Cirrus contributed certain technology, patents, copyrights,
trademarks, equipment, and computer software. Additionally, Cirrus committed to
provide ongoing support through payment of certain operating expenses to be
incurred by the Company for a period of two years. In exchange for the above
consideration, the Company issued 1,899,999 shares of Series A Preferred Stock.
The net book value, which totaled $544,574, of the equipment and computer
software contributed by Cirrus was recorded as par value of the Series A
Preferred Stock and additional paid-in capital. Operating expenses incurred on
behalf of the Company by Cirrus were recorded as a credit to additional paid-in
capital as the expenses were incurred (Note 12).
In August 1997, the Company repurchased 950,000 shares of Series A Preferred
Stock from Cirrus for $2,895,000, which resulted in a deemed preferred stock
dividend of $2,352,000. In December 1997, the Company facilitated the sale of
650,000 Series A shares owned by Cirrus to new and existing investors resulting
in net proceeds to the Company of $237,000. The sale of shares by Cirrus
resulted in a deemed preferred stock dividend of $1,831,000. These transactions
with Cirrus resulted in total deemed preferred stock dividends of $4,183,000 in
1997. During 1998, the Company repurchased 299,999 shares of Series A Preferred
Stock from Cirrus for $1,090,000 which resulted in a deemed preferred stock
dividend of $811,000.
In August 1996, the Company issued 1,937,493 shares of Series A Preferred
Stock to investors for cash proceeds of $5,000,000. Additionally, the investors
contributed cash of $3,000,000 in exchange for 1,162,508 shares of Series A
Preferred Stock, which were subject to an escrow agreement. The investors could
vote the shares while held in escrow. The escrow agent was required to invest
the funds held in escrow in AAA-rated short-term investments, and was required
to pay interest earned on the investments to the Company on a monthly basis. In
1999, the funds held in escrow were released by the escrow agent to the Company
upon the successful demonstration by the Company of a working prototype of an
integrated circuit.
In connection with the 250,000 shares of Series A Preferred Stock issued to
an investor in 1997, the investor received a warrant to purchase 40,698 shares
of Series A at an exercise price of $0.01 per share. The warrant shall become
exercisable, in whole, only beginning immediately prior to the liquidation,
dissolution, or winding up of the Company in which the price per share of the
Series A Preferred Stock immediately prior to the liquidation, dissolution, or
winding up of the Company is less than $3.00 per share. At December 31, 1999,
there are 40,698 shares of Series A Preferred Stock reserved for the exercise
of this warrant.
9. Common Stock
At December 31, 1999, 5,222,082 shares of common shares were issued and
outstanding under stock repurchase and restriction agreements that restrict the
transfer of ownership of such stock. Pursuant to the stock purchase and
restriction agreements, ownership vests based on employment over periods which
range from four to five years from the date of grant. At December 31, 1999,
4,541,452 of these shares were vested. Upon termination of employment of a
holder of restricted
F-21
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
shares, the Company has the right but not the obligation to purchase any
unvested shares, at the stockholder's original cost. At December 31, 1999,
680,630 shares with an original cost of $90,349 were subject to the repurchase
right. Further, the Company and certain stockholders have right of first
refusal and co-sale rights with respect to sales of both common and preferred
shares as specified in a Founders Right of First Refusal and Co-Sale Agreement
dated August 21, 1996.
In January 2000, the Board of Directors declared a stock dividend of one
share of common stock for each outstanding share of common stock of the
Company. The stock dividend would also have the effect of adjusting the
conversion prices for each series of Preferred Stock to the Company such that
each share of the Company's Preferred Stock would be convertible into two
shares of Common Stock. The effect of the stock dividend is reflected
retroactively in the accompanying financial statements.
At June 30, 2000, the Company has loans receivable from employees of
Microtune GmbH totaling $681,000, which were acquired in the merger with HMTF
Acquisition (Note 1). The loans receivable are secured by shares of Series E
Preferred Stock and warrants to purchase common stock of the Company owned by
the employees, are guaranteed by the employees, bear interest at 3% per annum
and are due December 2001.
10. Stock Plans
The Company's 1996 Stock Option Plan provides for incentive stock options and
nonqualified stock options to be granted to key employees, certain directors,
and consultants of the Company. The terms of each option granted under the 1996
Stock Option Plan are established by the Board of Directors. At December 31,
1999, the Company had reserved 10,368,458 shares of common stock for issuance
upon exercise of options granted pursuant to the 1996 Stock Option Plan.
A summary of the Company's stock option activity and related information for
the years ended December 31, 1997, 1998 and 1999 follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year...... 765,000 $0.09 1,069,000 $0.11 1,843,700 $0.17
Granted................ 449,000 0.14 1,175,900 0.27 2,160,150 0.55
Exercised.............. (24,802) 0.07 (401,200) 0.31 (994,784) 0.22
Canceled............... (120,198) 0.10 -- -- (64,000) 0.36
--------- --------- ---------
Options outstanding at
end of year............ 1,069,000 0.11 1,843,700 0.17 2,945,066 0.42
========= ========= =========
Options exercisable at
end of year............ 299,748 0.09 616,768 0.12 419,314 0.21
========= ========= =========
Weighted average grant-
date fair value of
options granted during
the year............... $0.04 $0.06 $1.39
===== ===== =====
</TABLE>
The options outstanding at December 31, 1999, have exercise prices which
range from $0.025 to $0.875 per share, and have a weighted average remaining
contractual life of 8.77 years.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided
F-22
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
for under Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock based Compensation, requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, no compensation expense is recorded when the exercise price of the
Company's employee stock options equals the fair value of the underlying stock
on the date of grant. Compensation equal to the intrinsic value of employee
stock options is recorded when the exercise price of the stock options is less
than the fair value of the underlying stock on the date of grant. Any resulting
compensation is amortized to expense over the vesting periods of the options.
During the year ended December 31, 1999, the Company granted options to
purchase 2,160,150 shares of common stock with a weighted average exercise
price of $0.55 per share. Although the Company's Board of Directors believed
that the exercise price per share assigned to these stock options was equal to
the fair value on the dates of grant, the Company concluded an independent
appraisal was necessary to validate its estimates of fair value due to the
subjective nature of such estimates. Therefore, the Company commissioned an
independent appraisal of its common stock as of January 10, 2000. The appraised
value was used as a basis to estimate compensation on stock option grants
during 1999. Based on this valuation, the Company incurred aggregate deferred
stock option compensation expense of $3.2 million related to the options
granted in 1999, which is being recognized over the respective vesting periods
of the options which range from less than one year to five years. As of
December 31, 1999, unamortized deferred stock compensation was $2.3 million.
During the period January 1, 2000 through June 30, 2000, the Company granted
options to purchase 4,828,250 shares of common stock with a weighted average
exercise price of $1.15. These options have exercise prices which were less
than the deemed fair market value of the Company's common stock on the date of
grant, resulting in aggregate deferred stock option compensation expense of
$15.9 million, which is being recognized over the respective vesting periods of
the options which range from less than one year to six years. As of June 30,
2000, unamortized deferred stock compensation was $16.3 million.
In January 2000, the Company also granted options to purchase 330,000 shares
of the Company's Series E Preferred Stock with an exercise price of $16.00 per
share. Upon an initial public offering of the Company's common stock, these
options will automatically convert into options to purchase 660,000 shares of
common stock with an exercise price of $8.00 per share.
The Company received $98,000 and $118,000 in recourse notes upon exercise of
stock options in 1996 and 1998, respectively. Under the terms of the notes, a
lump-sum payment is due four years from the date of issuance, with interest
accrued at a rate of 6.7% per annum. At December 31, 1999, $206,979 of the
notes remained outstanding.
Information regarding pro forma net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of SFAS 123. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing model with
no volatility and the following assumptions for 1997, 1998 and 1999,
respectively: weighted-average risk free interest rate of 6.24%, 4.65% and
5.49%, no dividends, and weighted average expected life of 5.0, 5.0 and 4.52
years.
The Black Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option
F-23
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
(in thousands, except
per share data)
<S> <C> <C> <C>
Pro forma net loss applicable to common
stockholders.................................. $(6,603) $(4,318) $(8,652)
======= ======= =======
Basic and diluted pro forma loss per share..... $ (2.99) $ (1.05) $ (1.41)
======= ======= =======
</TABLE>
11. Employee Benefit Plans
In January 1997, the Board of Directors and Stockholders approved a plan
which provides retirement benefits under the provisions of Section 401(k) of
the Internal Revenue Code. The Plan covers substantially all employees who meet
a minimum service requirement. Under the Plan, the Company can elect to make
voluntary contributions. No contributions were made by the Company in 1997,
1998 and 1999.
Microtune GmbH sponsors defined benefit retirement plans for its employees.
Retirement benefit expense for the six months ended June 30, 2000 was not
significant.
12. Transactions with Cirrus Logic, Inc.
Under the terms of the Formation Agreement (Note 8) and for partial
consideration of stock received, Cirrus agreed to fund certain operating
expenses during the Company's start-up period. Additionally, Cirrus agreed to
provide rent, phone, and computer network access over a period of two years. In
1997 and 1998, Cirrus contributed $185,409 and $109,456, respectively, to the
Company for these expenses. The contribution of these expenses has been
classified as additional paid-in capital. In August 1998, the two year period
that Cirrus was to pay these expenses expired.
At December 31, 1997, the Company had a payable to Cirrus in the amount of
$2,363,273 relating to proceeds received by the Company on behalf of Cirrus
from the sale of Series A Preferred Stock by Cirrus to other investors. The
Company made a cash payment to Cirrus in January 1998 to settle this
obligation.
F-24
<PAGE>
MICROTUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the Six Months Ended June 30, 1999 and June 30, 2000 is
Unaudited)
13. Geographic Information and Significant Customers
The Company's headquarters and main design center are located in Plano,
Texas. The Company also has other sales offices and design centers in the
United States. The Company has a significant design center in Germany and two
manufacturing facilities in the Philippines. Revenues by geographical area are
summarized below for the six months ended June 30, 2000 (in thousands):
<TABLE>
<CAPTION>
June 30,
2000
--------
<S> <C>
North America........................................................ $13,851
Europe............................................................... 6,595
Asia Pacific......................................................... 7,976
Other................................................................ 539
-------
$28,961
=======
The locations of property and equipment are summarized below (in thousands):
<CAPTION>
June 30,
2000
--------
<S> <C>
United States........................................................ $ 1,469
Germany.............................................................. 5,813
Philippines.......................................................... 4,016
-------
$11,298
=======
</TABLE>
Sales to DaimlerChrysler and Motorola/General Instrument accounted for
approximately 25% and 10%, respectively, of consolidated net revenues for the
six months ended June 30, 2000.
F-25
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
HMTF Acquisition (Bermuda) Ltd.
We have audited the accompanying consolidated balance sheet of HMTF
Acquisition (Bermuda) Ltd. (HMTF Acquisition), as of December 31, 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the period December 23, 1999 through December 31, 1999. We have also
audited the consolidated balance sheet of Temic Telefunken Hochfrequenztechnik
GmbH (Temic) as of December 31, 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the nine months ended
September 30, 1997, the three months ended December 31, 1997, the year ended
December 31, 1998, and the period January 1, 1999 through December 22, 1999.
These financial statements are the responsibility of the respective companies'
managements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements of HMTF Acquisition referred to
above present fairly, in all material respects, the consolidated financial
position of HMTF Acquisition as of December 31, 1999, and the consolidated
results of its operations and its consolidated cash flows for the period
December 23, 1999 through December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our
opinion, the financial statements of Temic referred to above present fairly, in
all material respects, the consolidated financial position of Temic as of
December 31, 1998, and the consolidated results of its operations and its
consolidated cash flows for the nine months ended September 30, 1997, the three
months ended December 31, 1997, the year ended December 31, 1998, and the
period January 1, 1999 through December 22, 1999, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
March 24, 2000
F-26
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
(Note 1)
CONSOLIDATED BALANCE SHEETS
(U.S. dollars, in thousands, except per share data)
<TABLE>
<CAPTION>
HMTF
Temic Acquisition
December 31, December 31,
1998 1999
ASSETS ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................................... $ 5,702 $ 3,936
Accounts receivable, net of allowance for doubtful accounts of $835 at December 31, 1998, and $412
at December 31, 1999.............................................................................. 6,896 7,832
Inventories........................................................................................ 8,161 9,269
Loan receivable.................................................................................... -- 391
Deferred income taxes.............................................................................. 197 279
Other current assets............................................................................... 1,251 2,197
------- -------
Total current assets............................................................................. 22,207 23,904
------- -------
Property and equipment, at cost...................................................................... 6,326 6,149
Less accumulated depreciation...................................................................... (3,497) (31)
------- -------
Property and equipment, net.......................................................................... 2,829 6,118
Intangible assets, net of accumulated amortization of $55............................................ -- 7,982
Goodwill, net of accumulated amortization of $155.................................................... -- 30,093
Deferred income taxes................................................................................ 740 72
Other assets and deferred charges.................................................................... 3 --
------- -------
Total assets..................................................................................... $25,779 $68,169
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities........................................................... $ 8,467 $ 8,923
Employee bonuses................................................................................... -- 3,775
Notes payable...................................................................................... 1,115 --
------- -------
Total current liabilities........................................................................ 9,582 12,698
Employee bonuses..................................................................................... -- 515
Deferred income taxes................................................................................ 1,602 5,353
Excess of fair value over cost of net assets acquired net of accumulated amortization of $1,083 at
December 31, 1998................................................................................... 3,037 --
Accrued retirement costs............................................................................. 817 606
Commitments and contingencies
Stockholders' equity:
Temic:
Subscribed capital................................................................................. 3,400 --
Other comprehensive income......................................................................... 237 --
Retained earnings.................................................................................. 7,104 --
HMTF Acquisition:
Common stock $0.10 par value:
Authorized shares--1,200; issued and outstanding shares--158 at December 31, 1999.................. -- 16
Additional capital................................................................................. -- 62,943
Loans receivable from employee stockholders........................................................ -- (1,012)
Retained earnings (deficit)........................................................................ -- (12,950)
------- -------
Total stockholders' equity....................................................................... 10,741 48,997
------- -------
Total liabilities and stockholders' equity..................................................... $25,779 $68,169
======= =======
</TABLE>
See accompanying notes.
F-27
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
(Note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars, in thousands)
<TABLE>
<CAPTION>
HMTF
Temic Acquisition
---------------------------------------------------- ------------
Period Period
Nine Months Three Months January 1, December 23,
Ended Ended Year Ended 1999 Through 1999 Through
September 30, December 31, December 31, December 22, December 31,
1997 1997 1998 1999 1999
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues ............................................. $42,413 $13,637 $50,961 $45,178 $ 1,058
Cost of revenues.......................................... 39,137 8,486 31,960 30,590 719
------- ------- ------- ------- --------
Gross margin.............................................. 3,276 5,151 19,001 14,588 339
Operating expenses:
Research and development................................ 3,056 221 2,198 2,949 70
Acquired in-process research and development............ -- -- -- -- 12,692
Selling, general and administrative..................... 5,877 1,673 7,359 6,800 176
Employee bonuses........................................ -- -- -- 4,314 --
Amortization of intangible assets, goodwill and excess
of fair value over cost of net assets acquired......... -- (207) (827) (532) 210
------- ------- ------- ------- --------
Total operating expenses.............................. 8,933 1,687 8,730 13,531 13,148
------- ------- ------- ------- --------
Profit (loss) from operations............................. (5,657) 3,464 10,271 1,057 (12,809)
Other income (expense):
Interest income......................................... 228 61 279 165 5
Interest expense........................................ (129) (77) (108) (31) --
Foreign currency translation and transaction gains
(losses), net.......................................... 935 (1,167) (335) 1,245 1
Other................................................... 795 (763) 846 795 41
------- ------- ------- ------- --------
Income (loss) before provision for income taxes........... (3,828) 1,518 10,953 3,231 (12,762)
Provision (benefit) for income taxes ..................... 282 (213) 1,828 959 188
------- ------- ------- ------- --------
Net income (loss)......................................... $(4,110) $ 1,731 $ 9,125 $ 2,272 $(12,950)
======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-28
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
(Note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(U.S. dollars, in thousands)
<TABLE>
<CAPTION>
Loans Accumulated
Common Stock Receivable Other Retained Total
Subscribed ------------- Additional from Comprehen- Earnings Stockholders'
Capital Shares Amount Capital Stockholders sive Income (Deficit) Equity
---------- ------ ------ ---------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Temic:
Balance at December 31,
1996.................. $3,936 -- $ -- $ 6,560 $ -- $ (195) $ 1,863 $12,164
Capital contribution... -- -- -- 1,464 -- -- -- 1,464
Net loss............... -- -- -- -- -- -- (4,110) (4,110)
Unrealized foreign
currency loss......... -- -- -- -- -- (1,370) -- (1,370)
-------
Total comprehensive
income................ -- -- -- -- -- -- -- (5,480)
------ --- ---- ------- ------- ------- -------- -------
Balance at September
30, 1997.............. $3,936 -- $ -- $ 8,024 $ -- $(1,565) $ (2,247) $ 8,148
====== === ==== ======= ======= ======= ======== =======
--------------------------------------------------------------------------------------------------------------
Temic:
Acquisition of common
stock by management
shareholders.......... $3,400 -- $ -- $ -- $ -- $ -- $ (2,511) $ 889
Net income............. -- -- -- -- -- -- 1,731 1,731
Unrealized foreign
currency loss......... -- -- -- -- -- (48) -- (48)
-------
Total comprehensive
income................ -- -- -- -- -- -- -- 1,683
------ --- ---- ------- ------- ------- -------- -------
Balance at December 31,
1997.................. 3,400 -- -- -- -- (48) (780) 2,572
Net income............. -- -- -- -- -- -- 9,125 9,125
Unrealized foreign
currency gain (net of
income taxes of
$237)................. -- -- -- -- -- 285 -- 285
-------
Total comprehensive
income................ -- -- -- -- -- -- 9,410
-------
Dividends paid......... -- -- -- -- -- -- (1,241) (1,241)
------ --- ---- ------- ------- ------- -------- -------
Balance at December 31,
1998.................. 3,400 -- -- -- -- 237 7,104 10,741
Capital contribution... -- -- -- 4,314 -- -- -- 4,314
Net income............. -- -- -- -- -- -- 2,272 2,272
Unrealized foreign
currency loss (net of
income tax benefit of
$795)................. -- -- -- -- -- (795) -- (795)
-------
Total comprehensive
income................ -- -- -- -- -- -- -- 1,477
------ --- ---- ------- ------- ------- -------- -------
Balance at December 22,
1999.................. $3,400 -- $ -- $ 4,314 $ -- $ (558) $ 9,376 $16,532
====== === ==== ======= ======= ======= ======== =======
--------------------------------------------------------------------------------------------------------------
HMTF Acquisition:
Issuance of common
stock for cash and
loans receivable from
stockholders.......... $ -- 158 $ 16 $62,943 $(1,012) $ -- $ -- $61,947
Net loss............... -- -- -- -- -- -- (12,950) (12,950)
------ --- ---- ------- ------- ------- -------- -------
Balance at December 31,
1999.................. $ -- 158 $ 16 $62,943 $(1,012) $ -- $(12,950) $48,997
====== === ==== ======= ======= ======= ======== =======
</TABLE>
See accompanying notes.
F-29
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
(Note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars, in thousands)
<TABLE>
<CAPTION>
HMTF
Temic Acquisition
---------------------------------------------------- ------------
Period Period
Nine Months Three Months January 1, December 23,
Ended Ended Year Ended 1999 Through 1999 Through
September 30, December 31, December 31, December 22, December 31,
1997 1997 1998 1999 1999
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss)...... $(4,110) $1,731 $ 9,125 $ 2,272 $(12,950)
Adjustments to
reconcile net income
(loss) to net cash
used in operating
activities, net of
effects of
acquisitions of Temic:
Depreciation........... 1,033 33 999 1,671 31
Amortization of
intangible assets,
goodwill and excess of
fair value over cost
of net assets
acquired.............. -- (207) (827) (533) 210
Acquired in-process
research and
development........... -- -- -- -- 12,692
Foreign currency
exchange (gains)
losses, net........... (935) 1,168 885 (1,245) (1)
Deferred income taxes.. -- -- 761 (129) 453
Changes in operating
assets and
liabilities:
Accounts receivable... 8,965 (255) 1,282 122 (1,058)
Inventories........... 1,695 1,791 (2,576) (1,828) 719
Other assets.......... 3,526 (451) 207 (904) (38)
Accounts payable and
accrued liabilities.. (587) 3,592 2 (642) 188
Employee bonuses...... -- -- -- 4,290 --
Accrued retirement
costs................ (7) 8 207 (127) --
------- ------ ------- ------- --------
Net cash provided by
(used in) operating
activities.......... 9,580 7,410 10,065 2,947 246
Investing Activities
Acquisition of Temic by
HMTF Acquisition, net
of cash acquired...... -- -- -- -- (58,057)
Net cash acquired in
acquisition of Temic
by management
shareholders ......... -- 530 -- -- --
Purchase of property
and equipment......... (1,935) (240) (3,793) (4,510) --
Loans receivable....... -- -- -- (190) (200)
Intangible assets...... -- -- -- (928) --
Sale of property and
equipment............. 26 6 166 221 --
------- ------ ------- ------- --------
Net cash provided by
(used in) investing
activities.......... (1,909) 296 (3,627) (5,407) (58,257)
Financing Activities
Additions to notes
payable............... -- -- 1,000 -- --
Payments of notes
payable............... (7,431) (334) (7,724) (1,115) --
Dividends.............. -- -- (1,241) -- --
Capital contributions.. 1,464 889 -- 4,314 61,947
------- ------ ------- ------- --------
Net cash provided by
(used in) financing
activities.......... (5,967) 555 (7,965) 3,199 61,947
Effect of foreign
currency exchange rate
changes on cash........ (434) (658) (374) 52 --
------- ------ ------- ------- --------
Net increase (decrease)
in cash and cash
equivalents............ 1,270 7,603 (1,901) 791 3,936
Cash and cash
equivalents at
beginning of period.... 149 -- 7,603 5,702 --
------- ------ ------- ------- --------
Cash and cash
equivalents at end of
period................. $ 1,419 $7,603 $ 5,702 $ 6,493 $ 3,936
======= ====== ======= ======= ========
Supplemental cash flow
information:
Interest paid in cash.. $ -- $ -- $ 288 $ 20 $ --
Income taxes paid in
cash.................. -- -- 90 494 --
</TABLE>
See accompanying notes.
F-30
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation
General
The accompanying financial statements are presented in accordance with
accounting principles generally accepted in the United States (U.S.) and in
U.S. dollars.
Acquisition of Temic
HMTF Acquisition (Bermuda) Ltd. (HMTF Acquisition) was incorporated under the
laws of Bermuda by HMTF Europe Fund Cayman L.P. (HMTF Europe Fund) as sole
shareholder on November 12, 1999 for the purpose of serving as the ultimate
parent company in the acquisition of Temic Telefunken Hochfrequenztechnik GmbH
(Temic). Temic is a leading provider of RF system solutions, providing high
performance RF tuners and transceivers to the broadband communications markets.
In December 1999, HMTF Europe Fund and members of management of Temic
contributed approximately $62.9 million to HMTF Acquisition in exchange for
158,058 shares of the Company's common stock. Effective December 22, 1999, HMTF
Acquisition acquired Temic through its wholly owned subsidiary, HMTF Erste
Beteiligungs GmbH. In connection with the transaction, Temic loaned two
employees $1.0 million to purchase shares of common stock of HMTF Acquisition.
The results of operations of Temic are included in results of operations of
HMTF Acquisition from the date of acquisition.
The components of the aggregate cost of the acquisition were as follows (in
thousands):
<TABLE>
<S> <C>
Cash transaction consideration................................... $60,064
Transaction costs................................................ 4,938
-------
Total acquisition cost........................................... $65,002
=======
</TABLE>
The cost of the acquisition has been allocated to the assets and liabilities
acquired and to acquired in-process research and development, with the
remainder recorded as excess cost over net assets acquired, based on estimates
of fair values as follows (in thousands):
<TABLE>
<S> <C>
Working capital................................................ $14,450
Property and equipment......................................... 6,149
Intangible assets.............................................. 8,037
Goodwill....................................................... 30,248
Acquired in-process research and development costs charged to
expense....................................................... 12,692
Deferred income taxes.......................................... (4,020)
Other assets and liabilities, net.............................. (2,554)
-------
$65,002
=======
</TABLE>
The estimates of the fair values of intangible assets and acquired in-process
research and development were determined based on information furnished by
management of Temic. The Company is in the process of evaluating the other
assets and liabilities, principally inventories and property and equipment,
that HMTF Acquisition acquired. The final allocation of the purchase price,
which is expected to be completed in the third quarter of 2000, will be based
on the complete evaluation of the assets and liabilities of Temic. Although
management does not expect the final valuation of the assets and liabilities
acquired to result in values that are significantly different from the
estimates included in the table above, there can be no assurance that such
differences will not occur.
F-31
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Amounts allocated to acquired in-process and development were expensed at the
date of acquisition because the purchased research and development had no
alternative future uses, and had not reached technological feasibility based on
the status of design and development activities that required further
refinement and testing. The acquired in-process research and development
projects were assessed, analyzed and valued using the exclusion approach
articulated by the Securities and Exchange Commission. The estimates used in
valuing the research and development were based upon assumptions regarding
future events and circumstances management believes to be reasonable, but that
are inherently uncertain and unpredictable. The relative stage of completion
and projected operating cash flows of the underlying in-process projects
acquired were the most significant and uncertain assumptions utilized in the
valuation analysis of the acquired in-process research and development. Such
uncertainties could give rise to unforeseen budget overruns and revenue
shortfalls in the event that the Company is unable to successfully complete and
commercialize the projects.
The acquired in-process technology relates to the development of new tuners
and modules for cable modem, set-top box, multimedia and automotive
applications, focusing on increased functionality, cost effectiveness and size
reduction, while maintaining a low level of power consumption. The estimated
percentage completion of the development projects as of the acquisition date
was approximately 70%, 50%, 70% and 60% for projects in the cable modem, set-
top box, multi-media and automotive product groups, respectively. The estimated
cost of completion of the development projects as of the acquisition date was
approximately $375,000, $50,000, $375,000 and $2,050,000 for projects in the
cable modem, set-top box, multimedia and automotive product groups,
respectively. The estimated date of completion of the development projects as
of the acquisition date was May 2000, August 2000, June 2000 and December 2002
for projects in the cable modem, set-top box, multimedia and automotive product
groups, respectively.
The value of the acquired in-process research and development was determined
by discounting the estimated projected net cash flows related to the applicable
products for the next ten years, including costs to complete the development of
the technology and the future revenues to be earned upon release of the
products. The rate utilized to discount the net cash flows to present value of
22% was based on the weighted average cost adjusted for the risks associated
with the estimated growth, profitability, developmental and market risks of the
acquired development projects. Projected net cash flows from such products are
based on estimates of revenues and operating profits related to such products.
Management expects that the purchased research and development generally will
be successfully developed into commercially viable products. However, there can
be no assurance that commercial viability or timely release of these products
will be achieved.
F-32
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The following unaudited pro forma information presents the results of
operations of HMTF Acquisition as if the acquisition of Temic had occurred as
of January 1, 1998. The pro forma information has been prepared by combining
the results of operations of HMTF Acquisition and Temic with adjustments to
eliminate the 1999 charge for acquired in-process research and development
costs and to record additional amortization expense and the impact on the
provision for income taxes resulting from the application of purchase
accounting. The pro forma information does not purport to be indicative of what
would have occurred had the acquisition occurred as of that date, or of results
of operations that may occur in the future (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------
1998 1999
------- -------
<S> <C> <C>
Revenue................................................. $50,961 $46,236
Income (loss) from operations........................... $ 1,059 $(3,907)
Net income (loss)....................................... $ 313 $(1,883)
</TABLE>
Financial Statements of Temic Prior to the Date of Acquisition by HMTF
Acquisition
Temic was organized under the laws of Germany on October 1, 1996 as a wholly
owned subsidiary of Temic Telefunken microelectronics GmbH (TTM) to operate its
RF systems solutions business. TTM, was a wholly owned subsidiary of
DaimlerChrysler. On September 30, 1997, Temic was acquired by certain members
of management (Management Shareholders) of Temic for approximately $889,000.
The cost of the acquisition was allocated to the fair value of assets and
liabilities acquired. The excess of the fair value of the net assets acquired
over the cost of the acquisition was first recorded as a reduction of
noncurrent assets with the remainder recorded as a deferred credit which was
amortized over a period of five years.
The statements of operations, cash flows and stockholders equity of Temic for
the nine months ended September 30, 1997 have been prepared using the
historical basis of accounting of the assets and liabilities to TTM. The
balance sheet of Temic as of December 31, 1998 and the related statements of
operations, cash flows and stockholders equity for the three months ended
December 31, 1997, the year ended December 31, 1998 and the period January 1,
1999 through December 22, 1999 (the date Temic was acquired by HMTF
Acquisition) have been prepared using the basis of the assets and liabilities
to the Management Shareholders.
Footnote Information
Certain amounts presented in the notes to the consolidated financial
statements for the years ended December 31, 1999 and 1997 include information
for the full fiscal year for ease of comparison and because such amounts are
not impacted by the changes in accounting basis resulting from the acquisition
transactions described above.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements of the HMTF Acquisition and Temic
include the accounts of their respective majority-owned subsidiaries during the
periods presented. All intercompany accounts have been eliminated.
F-33
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of bank deposits and money market funds.
Highly liquid investments with original maturities of three months or less are
considered to be cash equivalents.
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual cost determined on a first-in, first-out basis, or estimated realizable
value.
Property and Equipment
Property and equipment are recorded at cost and depreciated using straight-
line or accelerated methods over the estimated useful lives of the assets. Each
of HMTF Acquisition and Temic capitalizes costs associated with software
developed or obtained for internal use when both the preliminary project stage
is completed and management has authorized further funding for the project
which it deems probable will be completed and used to perform the function
intended. Capitalization of such costs ceases no later than the point at which
the project is substantially complete and ready for its intended use.
Intangible Assets and Goodwill
Intangible assets, which consist primarily of the customer base, patents and
other intangible assets acquired in the acquisition of Temic, are being
amortized on the straight-line basis over one to five years.
Goodwill resulting from the acquisition of Temic is being amortized over a
period of five years.
The carrying value of goodwill and other intangible assets will be reviewed
if the facts and circumstances suggest that they may be permanently impaired.
If a comparison of the undiscounted cash flow method to the carrying value of
goodwill and other intangible assets indicates that these assets will not be
recoverable, the assets will be reduced to its estimated recoverable value.
Estimated recoverable value is determined by applying the discounted cash flow
method.
Revenue Recognition
Revenues are recognized when product has shipped and title to the product has
been transferred to the customer. Title to the product may transfer to the
customer when shipped or when received by the customer based on the specific
customer agreement. Provision is made currently for estimated returns.
Research and Development Costs
Research and development costs, consisting of the costs of designing,
developing, and testing new or significantly enhanced products, are expensed as
incurred.
Income Taxes
Income taxes are computed using the asset and liability method of accounting.
Under the asset and liability method, a deferred tax asset or liability is
recognized for estimated future tax effects attributable to temporary
differences and carryforwards. The measurement of deferred income tax
F-34
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
assets is adjusted by a valuation allowance, if necessary, to recognize future
tax benefit only to the extent, based on available evidence, it is more likely
than not such benefit will be realized.
Warranty Costs
HMTF Acquisition and Temic provide a minimum of a one-year warranty on all
products and record a related provision for estimated warranty costs at the
date of sale.
Foreign Currency Translation
The accompanying financial statements have been prepared using the Deutsch
Mark (DM) as the functional currency. Foreign currency exchange gains and
losses resulting from the translation of financial statements denominated in DM
of HMTF Acquisition and Temic into U.S. dollars are included as a component of
stockholders' equity. Foreign currency exchange gains and losses resulting from
the remeasurement of financial statements not denominated in DM of HMTF
Acquisition and Temic outside of Germany into DM are recognized currently in
the statement of operations as a component of foreign currency gains and
losses.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which, as
amended, is required to be adopted by HMTF Acquisition on January 1, 2001. HMTF
Acquisition does not currently use derivatives, however, as such instruments
may be used in the future, it is uncertain what, if any, impact the adoption of
Statement 133 will have on the earnings or the financial position of HMTF
Acquisition in the future.
Concentrations of Credit Risk
Financial instruments that potentially subject HMTF Acquisition and Temic to
concentrations of credit risk consist primarily of trade accounts receivable.
Products are sold to customers in the broadband communications industry
internationally, principally in Europe and the United States. HMTF Acquisition
and Temic continually evaluate the creditworthiness of their customers'
financial condition and generally do not require collateral. HMTF Acquisition
also maintains credit insurance covering certain receivables. HMTF Acquisition
and Temic have not experienced significant losses on uncollectible accounts.
Risks and Uncertainties
The future results of operations and financial condition of HMTF Acquisition
could be impacted by the following factors, among others: dependence on the
broadband communications industry, lengthy sales cycle, dependence on third
party manufactures and subcontractors, product concentration, dependence on a
few significant customers, competition, dependence on key personnel,
technological change and dependence on new products, international operations,
proprietary rights, and product liability.
F-35
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
3. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Finished goods.............................................. $4,695 $3,750
Work-in-process............................................. 915 1,432
Raw materials............................................... 2,551 4,087
------ ------
$8,161 $9,269
====== ======
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- Estimated
1998 1999 Useful Lives
------ ------ ------------
<S> <C> <C> <C>
Manufacturing equipment........................ $2,097 $3,810 2 to 7 years
Other equipment................................ 3,292 1,051 2 to 6 years
Furniture and fixtures......................... 230 408 4 to 6 years
Computer software.............................. 707 880 3 to 4 years
------ ------
$6,326 $6,149
====== ======
</TABLE>
5. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Accounts payable........................................... $3,493 $4,333
Accrued payroll and benefits............................... 209 273
Accrued warranty obligation................................ 657 387
Accrued income taxes (Note 8).............................. 1,295 925
Deferred income taxes (Note 8)............................. 96 269
Other...................................................... 2,717 2,736
------ ------
$8,467 $8,923
====== ======
</TABLE>
F-36
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
6. Commitments and Contingencies
Temic leases its administrative, sales and marketing and research and
development facility in Germany under an operating lease with a twenty two year
term beginning in December 1999. Certain other facilities and equipment are
also leased under operating leases. Future minimum lease payments required
under operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of December 31, 1999, as follows (in thousands):
<TABLE>
<S> <C>
2000.............................................................. $ 1,467
2001.............................................................. 882
2002.............................................................. 886
2003.............................................................. 891
2004.............................................................. 655
Thereafter........................................................ 5,271
-------
$10,052
=======
</TABLE>
As of December 31, 1999, future minimum payments required under the operating
lease for the facility in Germany include $3.5 million guaranteed by Temic
relating to obligations issued to finance the land and building.
Rent expense for the nine months ended September 30, 1997, the three months
ended December 31, 1997, the year ended December 31, 1998, the period January
1, 1999 through December 22, 1999 and the period December 23, 1999 through
December 31, 1999 was $232,000, $105,000, $616,000, $921,000 and $22,000,
respectively.
Temic is involved in legal proceedings that arise in the ordinary course of
business. In the opinion of management, the outcome of pending legal
proceedings will not have a material adverse affect on the consolidated
financial statements.
7. Note Payable
In August 1998, Temic borrowed $1,000,000 from a bank at an interest rate of
2.56% per annum. All principal and interest due under the note was due and paid
in May 1999.
At December 31, 1999, Temic had credit agreements with two banks which
provide for borrowings of up to $2.9 million under each agreement. One of the
agreements is cancellable upon notification by the bank and the second
agreement expires August 31, 2000. Borrowings under these agreements bear
interest at rates determined from time to time by the banks ( 6.50% and 6.75%,
respectively, at December 31, 1999). At December 31, 1999, no borrowings were
outstanding under these credit agreements.
F-37
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
8. Income Taxes
HMTF Acquisition is not subject to income taxes in Bermuda. All of the income
before provision for taxes on income and the related provision for taxes on
income of HMTF Acquisition relates to operations in jurisdictions other than
Bermuda. Temic is subject to income taxes in Germany. However, Temic has
substantial operations in other jurisdictions. The relationship between income
before provision for taxes on income and the provision for taxes on income
varies from period to period because each jurisdiction in which Temic operates
has its own system of taxation (not only with respect to the nominal rate, but
also with respect to the allowability of deductions, credits and other
benefits) and because the amounts earned in, and subject to tax by, each
jurisdiction changes from period to period. The reconciliation of income taxes
computed at the German statutory rate and the provision for taxes on income is
as follows (in thousands):
<TABLE>
<CAPTION>
Period Period
Nine Months Three Months January 1, December 23,
Ended Ended Year Ended 1999 Through 1999 Through
September 30, December 31, December 31, December 22, December 31,
1997 1997 1998 1999 1999
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Provision (benefit) for
taxes on income (loss)
at the applicable
German statutory
rates.................. $(1,914) $ 759 $ 5,477 $1,616 $(6,381)
Effect of income taxes
other than German
statutory rates........ (139) 90 (369) (492) --
Acquired in-process
research and
development costs for
which no tax benefit
was recognized......... -- -- -- -- 6,346
Utilization of net
operating loss
carryover.............. -- (668) (1,678) (170) --
Unbenefited net
operating losses....... 2,335 -- -- -- --
Adjustment of deferred
tax asset valuation
allowance.............. -- (394) (1,602) -- --
Income not subject to
tax.................... -- -- -- (66) --
Non-deductible goodwill
amortization........... -- -- -- -- 90
Other................... -- -- -- 71 133
------- ----- ------- ------ -------
Provision (benefit) for
income taxes.......... $ 282 $(213) $ 1,828 $ 959 $ 188
======= ===== ======= ====== =======
</TABLE>
The components of the provision for taxes on income are as follows (in
thousands):
<TABLE>
<CAPTION>
Period Period
Nine Months Three Months January 1, December 23,
Ended Ended Year Ended 1999 Through 1999 Through
September 30, December 31, December 31, December 22, December 31,
1997 1997 1998 1999 1999
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current provision
(benefit).............. $282 $(213) $1,237 $226 $ 21
Deferred provision
(benefit).............. -- -- 591 733 167
---- ----- ------ ---- ----
Provision (benefit) for
income taxes.......... $282 $(213) $1,828 $959 $188
==== ===== ====== ==== ====
</TABLE>
F-38
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The significant components of the deferred tax liabilities and assets are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Deferred tax liabilities:
Accrued expenses......................................... $1,089 $ 938
Unrealized foreign currency gains........................ 418 430
Property and equipment................................... 226 359
Identifiable intangible assets........................... -- 4,187
Other.................................................... 4 16
------ ------
Total deferred tax liabilities......................... 1,737 5,930
Deferred tax assets:
Excess of fair value over cost of net assets acquired.... 777 --
Inventory................................................ 80 293
Accrued expenses......................................... 81 123
Net operating loss carryover............................. -- 243
Other, net............................................... 38 --
------ ------
Total deferred tax assets.............................. 976 659
------ ------
Total deferred tax liabilities, net.................... $ 761 $5,271
====== ======
</TABLE>
At December 31, 1999, Temic had net operating loss carryforwards for German
income tax purposes of $486,000 which may be carried forward indefinitely.
The income tax returns of HMTF Acquisition and Temic are subject to review
and examination in the various jurisdictions in which they operate. Management
believes that all income tax issues which have been or may be raised as a
result of such reviews and examinations will be resolved with no material
impact on the financial position or future results of operations of HMTF
Acquisition.
F-39
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
9. Retirement Plans
Temic sponsors defined benefit retirement plans for its employees. The
following tables provide a reconciliation of the changes in the plans' benefit
obligations and fair value of plan assets at December 31, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period.............. $ 739 $1,091
Service cost........................................... 119 181
Interest cost.......................................... 68 101
Actuarial (gains) losses............................... 108 (125)
Benefits paid.......................................... -- (53)
Foreign currency exchange rate changes................. 57 (90)
------ ------
Benefit obligation at end of period.................. $1,091 $1,105
====== ======
Change in plan assets:
Fair value of plan assets at beginning of period....... $ 171 $ 223
Actual return on plan assets........................... 41 41
Company contributions.................................. -- 305
Benefits paid.......................................... -- (53)
Foreign currency exchange rate changes................. 11 (17)
------ ------
Fair value of plan assets at end of period........... $ 223 $ 499
====== ======
Funded status:
Funded status of the plan (underfunded)................ $ (868) $ (606)
Unrecognized net actuarial loss........................ 51 --
------ ------
Aggregate accrued retirement costs................... $ (817) $ (606)
====== ======
</TABLE>
The following table provides the components of net periodic retirement costs
as determined by independent actuaries for the years ended December 31, 1997,
1998 and 1999 (in thousands).
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Service cost............................................ $ 94 $119 $181
Interest cost........................................... 54 68 101
Expected return on plan assets.......................... (20) (27) (46)
---- ---- ----
Net periodic benefit cost............................. $128 $160 $236
==== ==== ====
</TABLE>
Net periodic retirement costs charged to expense were $117,000, $11,000,
$160,000, $230,000 and $6,000 for the nine months ended September 30, 1997, the
three months ended December 31, 1997, the year ended December 31, 1998, the
period January 1, 1999 through December 22, 1999 and the period December 23,
1999 through December 31, 1999.
F-40
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Gains and losses in excess of 10% of the greater of the benefit obligation
and the market value of assets are amortized over the remaining service period
of active participants. Temic's unfunded German retirement benefit plan had an
accumulated benefit obligation of $352,000 and $359,000 at December 31, 1998
and 1999, respectively.
The assumptions used in the measurement of the benefit obligation are shown
in the following table:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Weighted-average assumptions:
Discount rate................................... 6% to 12% 6% to 12% 6% to 12%
Increase in future compensation levels.......... 3% to 11% 3% to 11% 3% to 11%
Expected long-term rate of return on assets..... 12% 12% 12%
</TABLE>
10. Segment Information
HMTF Acquisition and Temic operate in a single business segment, providing RF
system solutions to the broadband communications market. The administrative,
sales and marketing, and research and development facility is located in
Germany and manufacturing facilities are located in the Philippines. Sales are
made to customers internationally, primarily in the United States and Europe.
Revenues by geographical area are summarized below for the years ended December
31 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
North America..................................... $23,435 $18,045 $21,400
Europe............................................ 21,655 22,651 12,795
Asia Pacific...................................... 9,760 7,340 10,010
Other............................................. 1,200 2,925 2,031
------- ------- -------
$56,050 $50,961 $46,236
======= ======= =======
</TABLE>
The locations of property and equipment are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Germany..................................................... $1,870 $2,994
Philippines................................................. 898 3,061
United States............................................... 61 63
------ ------
$2,829 $6,118
====== ======
</TABLE>
Sales to DaimlerChrysler represented approximately 21.8%, 25.0%, and 28.6% of
consolidated revenues during 1997, 1998, and 1999, respectively. Sales to ATI
represented approximately 2.8%, 3.3%, and 14.1% of consolidated revenues during
1997, 1998, and 1999, respectively. Sales to Beko Electronics represented
approximately 12.7% and 11.6% of consolidated revenues during 1997 and 1998,
respectively. The loss of DaimlerChrysler or ATI as customers could have a
material adverse impact on future results of operations.
F-41
<PAGE>
HMTF ACQUISITION (BERMUDA) LTD.
TEMIC TELEFUNKEN HOCHFREQUENZTECHNIK GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
11. Subsequent Event--Acquisition by Microtune, Inc.
On January 10, 2000, HMTF Acquisition combined with by Microtune, Inc.
(Microtune) in exchange for shares of Microtune's Series E Preferred Stock and
warrants to purchase common stock of Microtune. As a result of this
transaction, HMTF Acquisition became a wholly owned subsidiary of Microtune.
F-42
<PAGE>
Glossary
Bi-directional Communication A connection between two points on a broadband
network where information can flow in either
direction, upstream or downstream, thus
enabling interactivity.
Broadband
A term used to describe digital communications
at a high data transfer rate, typically in
excess of 1.5 million bits (1.5 Megabits) per
second.
DOCSIS DOCSIS (Data Over Cable Service Interface
Specification) is a project conducted by a
Cable Television Laboratories, Inc.
(CableLabs(R)) and defines interface
requirements for cable modems involved in high-
speed data distribution over cable television
networks.
Dual Conversion A tuner architecture that uses two steps to
convert the desired radio frequency channel to
the required output. Dual conversion tuners are
used in applications where higher performance
is required, and especially in receiving
signals from a densely packed spectrum.
Integrated Circuits A semiconductor chip that contains many
components integrated together.
Interference Undesired signals present in the desired
channel signal which, in an analog video
system, manifest themselves as unwanted
patterns or completely inhibits reception in a
digital video system.
Low Noise Amplifier (LNA) A circuit required in all tuners whose
performance plays a large role in determining
the performance of the overall tuner. The LNA
is the first circuit to process a radio
frequency signal, and must amplify it without
adding significant noise and distortion.
NTSC The National Television Systems Committee
defined method used in the United States and
elsewhere for encoding analog color television.
OpenCable OpenCable is a project conducted by Cable
Television Laboratories, Inc. (CableLabs(R))
and its member companies aimed at obtaining a
new generation of set-top boxes that are
interoperable.
PacketCable PacketCable is a project conducted by Cable
Television Laboratories, Inc. (CableLabs(R))
and its member companies aimed at identifying,
qualifying and supporting Internet-based voice
and video products over cable systems.
PAL An acronym meaning "Phase Alternating Line", an
alternative analog color television method used
in Europe (except France) and elsewhere.
G-1
<PAGE>
PC/TV An acronym used to describe a multimedia
computer that can receive and display a
television signal.
PDA A palm-sized electronic device used to assist
people in organizing their activities. It may
combine the function of an address book,
calendar and notepad, and, may provide computer
and networking functions.
Phase Noise A type of noise that is detrimental to the
reception of digitally modulated signals,
especially those used in digital cable
networks.
Reference Platforms Application designs provided to customers to
aid them in rapidly developing their products.
Radio Frequency A frequency in the range within which radio
waves may be transmitted, which in the context
of this prospectus, means the frequencies in
the range of 30 Megahertz (Mhz), or 30 million
cycles per second, to 3000 Mhz.
Radio Frequency Integrated
Circuit
A chip that processes analog signals that are
transmitted at radio frequencies.
Single Conversion A tuner architecture that uses one step to
convert the desired radio frequency channel to
the required output. Single conversion tuners
are used in applications where low cost is
important.
Snow An undesirable effect of random noise in an
analog video display.
Solid State Describes electronic components that are based
on semiconductors.
Spurious Emissions Leakage from the tuner or receiver of its
internal signals into the broadcast medium. In
the context of this document, the broadcast
medium is either the cable network or the
airwaves.
Terrestrial Refers to broadcasts through the airwaves that
are "earthbound", meaning the transmitter and
receiver are both on the earth (as opposed to
satellite broadcast methods).
Varactor A semiconductor component that is used to tune
circuits to operate at specific frequencies.
Traditionally, varactors in tuners have been
discrete components requiring high voltage
power supplies, approximately 30 Volts, rather
than the 3 to 5 Volt supplies in typical
electronic systems.
G-2
<PAGE>
Inside Back Cover Page
A caption across the top of the page, left to right --"MICROTUNE CHIP AND
MODULE TUNERS"
Three pictures of our integrated circuit and module tuners off-center (to the
right) on the page, with the following captions immediately to the left of each
picture -- "RADIO FREQUENCY TUNER MODULE", "MICROMODULE FEATURING THE
MICROTUNER" and "MICROTUNER SINGLE-CHIP SILICON TUNER".
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Note Regarding Forward-Looking Statements................................ 19
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 24
Business................................................................. 31
Management............................................................... 47
Related Party Transactions............................................... 59
Principal Stockholders................................................... 61
Description of Capital Stock ............................................ 63
Shares Eligible for Future Sale.......................................... 67
Underwriting............................................................. 69
Legal Matters............................................................ 71
Experts.................................................................. 71
Where You Can Find More Information...................................... 71
Index to Financial Statements............................................ F-1
Glossary................................................................. G-1
</TABLE>
---------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
4,000,000 Shares
Microtune, Inc.
Common Stock
---------------
[MICROTUNE, INC. LOGO]
---------------
Goldman, Sachs & Co.
Chase H&Q
SG Cowen
Bear, Stearns & Co. Inc.
Representatives of the Underwriters
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 19,182
NASD filing fee.................................................. 7,500
Nasdaq National Market listing fee............................... 150,000
Blue Sky qualification fees and expenses......................... 10,000
Printing and engraving expenses.................................. 250,000
Legal fees and expenses.......................................... 400,000
Accounting fees and expenses..................................... 475,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous expenses........................................... 78,318
----------
Total.......................................................... $1,400,000
==========
</TABLE>
Item 14. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees which would require the Registrant to
indemnify them against certain liabilities which may arise by reason of their
status or service (other than liabilities arising from willful misconduct of a
culpable nature). The Registrant also intends to maintain director and officer
liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreement to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act of 1933.
The Registrant intends to obtain in conjunction with the effectiveness of the
Registration Statement a policy of directors' and officers' liability insurance
that insures the Registrant's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act of 1933, or otherwise.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
During the past three years, we have issued and sold the following
unregistered securities to a limited number of persons as described below (as
adjusted to reflect a 2-for-1 stock split of the common stock effective as of
January 18, 2000). None of these transactions involved any underwriters,
underwriting discounts or commissions, or any public offering, and we believe
that each transaction was exempt from the registration requirements of the
Securities Act of 1933 by virtue of Section 4(2) thereof, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under Rule 701. The recipients
of securities in each transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the
share certificates and instruments issued in those transactions. All recipients
had adequate access, through their relationships with us, to information about
us.
(a) In August 1997, we issued an aggregate of 250,000 shares of Series A
preferred stock at a purchase price of $3.00 per share for an aggregate
purchase price of $750,000 to Intel Corporation. In addition, we issued a
warrant to Intel Corporation in August 1997 to purchase 40,698 shares of Series
A preferred stock at an exercise price of $0.01 per share.
(b) In August 1997, we issued an aggregate of 1,000,000 shares of Series B
preferred stock at $4.00 per share for an aggregate purchase price of
$4,000,000 to 9 shareholders and 6 third-party private investors.
(c) In June and July 1998, we issued an aggregate of 1,450,166 shares of
Series C preferred stock at $6.00 per share for an aggregate purchase price of
$8,700,996 to 12 shareholders and 21 third-party private investors.
(d) In June 1999, we issued an aggregate of 12,500 shares of Series C
preferred stock at $6.00 per share for an aggregate purchase price of $75,000
to Mr. Alejandro Schwartzman.
(e) In October through December 1999, we issued an aggregate of 1,367,418
shares of Series D preferred stock at $12.00 per share for an aggregate
purchase price of $16,409,016 to seven third-party private investors.
(f) In January 2000, we issued an aggregate of 3,318,513 shares of Series E
preferred stock and warrants to purchase 2,212,342 shares of common stock at a
nominal exercise price to HMTF Temic/Microtune Cayman, L.P. and TIN
Vermogensverwaltungsgesellschaft in exchange for all of the outstanding shares
of HMTF Acquisition (Bermuda), Ltd., which securities were valued at, in the
aggregate, approximately $63 million.
(g) In January 2000, we granted three employees options to purchase 330,000
shares of Series E preferred stock at an exercise price of $16.00 per share,
and in April 2000 an option to purchase 110,000 shares of Series E preferred
stock was cancelled.
(h) Between July 1, 1997 and June 30, 2000, we granted options to purchase an
aggregate of 8,523,300 shares of common stock to our employees at per share
exercise prices ranging from $0.025 to $4.95.
(i) Between July 1, 1997 and June 30, 2000, we issued an aggregate of
1,929,861 shares of our common stock to our employees or other service
providers at a range of $0.025 to $0.875 per share upon the exercise of stock
options issued under our 1996 Stock Option Plan, for an aggregate purchase
price of $450,627.
(j) In June 2000, we issued an aggregate of 800,000 shares of Series F
preferred stock at $12.00 per share for an aggregate purchase price of
$9,600,000 to four of our customers.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation as currently in effect
3.2+ Form of Amended and Restated Certificate of Incorporation (to be filed
with the Delaware Secretary of State upon the closing of the offering
covered by this Registration Statement)
3.3+ Bylaws as currently in effect
3.4+ Form of Amended and Restated Bylaws (to be effective upon the closing
of the offering covered by this Registration Statement)
4.1+ Form of Specimen Stock Certificate
4.2 Fifth Amended and Restated Registration Rights Agreement dated
effective as of
June 14, 2000
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding legality of the securities being issued
10.1+ Form of Indemnification Agreement, to be entered into between the
Registrant and each of its directors and officers, to become effective
upon the closing of the offering made under this Registration
Statement
10.2+ 1996 Stock Option Plan
10.3+ 2000 Stock Plan
10.4+ 2000 Director Option Plan
10.5+ 2000 Employee Stock Purchase Plan
10.6+ Employment Agreement between Douglas J. Bartek and the Registrant
dated March 23, 2000
10.7+ Employment Agreement between John P. Norsworthy and the Registrant
dated August 8, 1996
10.8+ Employment Agreement between James Fontaine and the Registrant dated
August 1, 1998
10.9+ Standard Commercial Lease dated May 18, 1998 between Jupiter Parkway
Village, Ltd. and the Registrant, as amended, for the premises located
at 2540 East Plano Parkway, Suite 388, Plano, Texas 75074
10.10+ Commercial Lease Agreement dated March 24, 2000 between Jupiter
Service Center, Ltd. and the Registrant for the premises located at
2201 10th Street, Plano, Texas 75074
10.11+ Property Leasing Contract, as supplemented as of January 1, 2000,
between Sanctor Grundstucks-Vermietungsgesellschaft mbH & Co. and
Temic Telefunken Hochfrequeztechnik GmbH for facility in Ingolstadt,
Germany
10.12+ Contract of Lease dated December 10, 1998 between MX Technology
Corporation and Temic RF-Technologies (Phils.), Inc. for factory space
in the Granville Industrial Complex in Cavite, Philippines
10.13+ Sublease Agreement dated December 10, 1998 between Temic RF-
Technologies (Phils.), Inc. and NSF RF-Technologies Corporation for
factory space in the Granville Industrial Complex in Cavite,
Philippines
10.14+ Securities Purchase Agreement dated January 10, 2000, effective
December 31, 1999, between HMTF Acquisition (Bermuda), Ltd. and the
Registrant
10.15+ Asset Purchase Agreement between Registrant, The Tuner Company and
Thomas Widmer dated January 10, 2000
10.16+ Line of Credit dated March 22, 1999 between Deutsche Bank AG and Temic
Telefunken Hochfrequenztechnik GmbH
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.17+ Line of Credit dated September 9, 1999 between HypoVereinsbank and
Temic Telefunken Hochfrequenztechnik GmbH
10.18** Development and Supply Agreement dated June 14, 2000 between General
Instrument Corporation and the Registrant.
21.1+ List of Subsidiaries and Affiliates of Microtune, Inc.
23.1 Consent of Ernst & Young LLP, independent auditors
23.2+ Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(contained in Exhibit 5.1)
24.1+ Power of Attorney (contained in the signature page to this
Registration Statement)
27.1+ Financial Data Schedule
</TABLE>
--------
* to be filed by amendment
** Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment and the omitted portions have been filed separately
with the Securities and Exchange Commission.
+ previously filed
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in
denominations and registered in names as required by the Underwriters to permit
prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referenced in
Item 14 of this Registration Statement or otherwise, the Registrant has been
advised that in the opinion of the Commission indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of that issue.
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of
1933, 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 of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective;
and
2. For the purpose of determining any liability under the Securities Act
of 1933, 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 the securities at the time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plano, County of Collin,
State of Texas, on the 14th day of July 2000.
MICROTUNE, INC.
/s/ Everett Rogers
By: _________________________________
Everett Rogers
Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Douglas J. Bartek* Chief Executive Officer July 14, 2000
______________________________________ and Chairman (Principal
Douglas J. Bartek Executive Officer)
/s/ Everett Rogers Chief Financial Officer July 14, 2000
______________________________________ (Principal Financial and
Everett Rogers Accounting Officer)
/s/ Harvey B. Cash* Director July 14, 2000
______________________________________
Harvey B. Cash
/s/ Walter S. Ciciora* Director July 14, 2000
______________________________________
Walter S. Ciciora
/s/ James H. Clardy* Director July 14, 2000
______________________________________
James H. Clardy
/s/ Martin Englmeier* Vice Chairman July 14, 2000
______________________________________
Martin Englmeier
/s/ Kenneth G. Langone* Director July 14, 2000
______________________________________
Kenneth G. Langone
/s/ John Norsworthy Director July 14, 2000
______________________________________
John Norsworthy
/s/ Philippe Von Stauffenberg* Director July 14, 2000
______________________________________
Philippe von Stauffenberg
/s/ Lawrence D. Stuart, Jr.* Director July 14, 2000
______________________________________
Lawrence D. Stuart, Jr.
/s/ William P. Tai* Director July 14, 2000
______________________________________
William P. Tai
</TABLE>
/s/ Everett Rogers
*by: ____________________________
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation as currently in effect
3.2+ Form of Amended and Restated Certificate of Incorporation (to be filed
with the Delaware Secretary of State upon the closing of the offering
covered by this Registration Statement)
3.3+ Bylaws as currently in effect
3.4+ Form of Amended and Restated Bylaws (to be effective upon the closing
of the offering covered by this Registration Statement)
4.1+ Form of Specimen Stock Certificate
4.2 Fifth Amended and Restated Registration Rights Agreement dated
effective as of June 16, 2000
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding legality of the securities being issued
10.1+ Form of Indemnification Agreement, to be entered into between the
Registrant and each of its directors and officers, to become effective
upon the closing of the offering made under this Registration
Statement
10.2+ 1996 Stock Option Plan
10.3+ 2000 Stock Plan
10.4+ 2000 Director Option Plan
10.5+ 2000 Employee Stock Purchase Plan
10.6+ Employment Agreement between Douglas J. Bartek and the Registrant
dated March 23, 2000
10.7+ Employment Agreement between John P. Norsworthy and the Registrant
dated August 8, 1996
10.8+ Employment Agreement between James Fontaine and the Registrant dated
August 1, 1998
10.9+ Standard Commercial Lease dated May 18, 1998 between Jupiter Parkway
Village, Ltd. and the Registrant, as amended, for the premises located
at 2540 East Plano Parkway, Suite 388, Plano, Texas 75074
10.10+ Commercial Lease Agreement dated March 24, 2000 between Jupiter
Service Center, Ltd. and the Registrant for the premises located at
2201 10th Street, Plano, Texas 75074
10.11+ Property Leasing Contract, as supplemented as of January 1, 2000,
between Sanctor Grundstucks-Vermietungsgesellschaft mbH & Co. and
Temic Telefunken Hochfrequeztechnik GmbH for facility in Ingolstadt,
Germany
10.12+ Contract of Lease dated December 10, 1998 between MX Technology
Corporation and Temic RF-Technologies (Phils.), Inc. for factory space
in the Granville Industrial Complex in Cavite, Philippines
10.13+ Sublease Agreement dated December 10, 1998 between Temic RF-
Technologies (Phils.), Inc. and NSF RF-Technologies Corporation for
factory space in the Granville Industrial Complex in Cavite,
Philippines
10.14+ Securities Purchase Agreement dated January 10, 2000, effective
December 31, 1999, between HMTF Acquisition (Bermuda), Ltd. and the
Registrant
10.15+ Asset Purchase Agreement between Registrant, The Tuner Company and
Thomas Widmer dated January 10, 2000
10.16+ Line of Credit dated March 22, 1999 between Deutsche Bank AG and Temic
Telefunken Hochfrequenztechnik GmbH
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.17+ Line of Credit dated September 9, 1999 between HypoVereinsbank and
Temic Telefunken Hochfrequenztechnik GmbH
10.18** Development and Supply Agreement dated June 14, 2000 between General
Instrument Corporation and the Registrant.
21.1+ List of Subsidiaries and Affiliates of Microtune, Inc.
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(contained in Exhibit 5.1)
24.1+ Power of Attorney (contained in the signature page to this
Registration Statement)
27.1+ Financial Data Schedule
</TABLE>
--------
* to be filed by amendment
** Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment and the omitted portions have been filed separately
with the Securities and Exchange Commission.
+ previously filed
