<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ADVANCED POWER TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3784 93-0875072
(State or other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
</TABLE>
405 S.W. COLUMBIA STREET, BEND, OREGON 97702
(541) 382-8028
(Address of Principal Executive Offices, including Zip Code)
PATRICK P. H. SIRETA
405 S.W. COLUMBIA STREET, BEND, OREGON 97702
(541) 382-8028
(Name, Address and Telephone Number, Including Area Code, of Agent for Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
DAVID C. BACA RICHARD A. BOEHMER
GUSTAVO J. CRUZ, JR. SHANNON M. MASON
Davis Wright Tremaine LLP O'Melveny & Myers LLP
1300 S.W. Fifth Avenue, Suite 2300 400 South Hope Street
Portland, Oregon 97204-5682 Los Angeles, California 90071
(503) 241-2300 (213) 430-6000
</TABLE>
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE FEE
<S> <C> <C>
Common Stock............................................ $69,000,000 $18,216
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 2, 2000
THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THE PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SHARES
[LOGO]
COMMON STOCK
----------------------------------------------------------------------
Advanced Power Technology, Inc. is offering shares of common
stock. The selling stockholders are offering shares of common stock.
This is our initial public offering. We estimate that the initial public
offering price will be between $ and $ per share.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "APTI."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR FACTORS THAT INVESTORS SHOULD
CONSIDER BEFORE INVESTING IN SHARES OF OUR COMMON STOCK.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to APT........................... $ $
Proceeds to selling stockholders............................ $ $
</TABLE>
We and one of the selling stockholders have granted the underwriters an
option to purchase up to additional shares of common stock for a period of
30 days.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares on or about July , 2000.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
STEPHENS INC.
NEEDHAM & COMPANY, INC.
FIRST SECURITY VAN KASPER
The date of this prospectus is , 2000
<PAGE>
INSIDE FRONT COVER
[Photographs of end-user equipment in which company products are used, with
captions describing each application and naming certain users. Photographs of
end-user equipment in the communications and internet infrastructure,
semiconductor capital equipment, industrial, medical, and military and aerospace
industries will be included.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Special Note Regarding Forward-Looking Statements........... 15
Use of Proceeds............................................. 15
Capitalization.............................................. 17
Dividend Policy............................................. 18
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 33
Management.................................................. 42
Certain Relationships and Related Transactions.............. 45
Principal and Selling Stockholders.......................... 46
Description of Capital Stock................................ 47
Shares Eligible for Future Sale............................. 49
Underwriting................................................ 51
Legal Matters............................................... 52
Experts..................................................... 52
Additional Information...................................... 52
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE
IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER OF
THIS PROSPECTUS.
AS USED IN THIS PROSPECTUS, REFERENCES TO "WE," "OUR," "US," "APT" AND "THE
COMPANY" ALL REFER TO ADVANCED POWER TECHNOLOGY, INC., AND ITS CONSOLIDATED
SUBSIDIARY, AND NOT TO THE UNDERWRITERS OR TO THE SELLING STOCKHOLDERS.
UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE INFORMATION
DISCUSSED UNDER "RISK FACTORS." THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION
FROM THIS PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU.
ADVANCED POWER TECHNOLOGY, INC.
We are a leading designer, manufacturer and marketer of high-performance
power semiconductors. Power semiconductors manage and regulate power by
converting electricity into a form required by electrical and electronic
products. Our power semiconductors increase system efficiency, permit the design
of more compact end products and improve features and functionality. We are
primarily focused on the high power, high frequency segment of the power
semiconductor market. High power refers to the ability to handle voltages and
currents above one kilowatt, and high frequency refers to the ability to switch
on and off at speeds above 100 kilohertz.
We sell our products to over 750 customers primarily in North America and
Europe, and increasingly in Asia, through a network of independent sales
representatives and distributors. The principal end-user markets for our
products are communications and internet infrastructure, semiconductor capital
equipment, industrial, medical, and military and aerospace. Our largest volume
original equipment manufacturer, or OEM, customers include Advanced Energy
Industries, Power-One and Siemens. Our leading distributor is Richardson
Electronics. Our products are typically critical to the performance of our
customers' products. We therefore work very closely with our customers in the
design phase of their products to ensure we can meet their performance
requirements. Once our products are designed into end products, they tend to be
used through the lifecycle of these end products. We have secured recent design
wins with industry leaders such as Ericsson and IBM.
We have recently experienced increased demand for our products. Net revenues
increased from $5.9 million for the first three months of 1999 to $9.6 million
for the first three months of 2000, a growth rate of 63.4%. Our gross margin has
improved from 31.2% for the first three months of 1999 to 35.4% for the first
three months of 2000.
The demand for high power, high frequency semiconductors is expanding as a
result of the rapid proliferation of sophisticated electronics and the
increasing need for higher power and more precisely regulated power quality in
electronic equipment. The primary markets we serve are characterized by rapid
technological development and increasing complexity. The following are the key
trends in our primary markets:
- Convergence of voice, video and data transmission and proliferation of
wireless systems;
- Growing demand for semiconductor capital equipment; and
- Emergence of new applications for high power, high frequency
semiconductors.
Our products, which are based on our proprietary technology, offer
performance advantages directly addressing the needs arising from these market
trends. We believe our products operate more efficiently and at higher
frequencies than competing products. Our goal is to be a world leader in
providing leading-edge semiconductor solutions for high power, high frequency
applications. To accomplish this goal, our strategy is to:
- Maintain our technological leadership within the high power, high
frequency market;
- Build on our relationships with customers in expanding markets;
- Expand our product offering for radio frequency, or RF, applications;
4
<PAGE>
- Leverage our external and internal manufacturing capabilities; and
- Pursue external growth opportunities.
We were founded in 1984 and incorporated in Delaware in 1992. Our executive
offices are located at 405 SW Columbia Street, Bend, Oregon 97702, and our
telephone number is (541) 382-8028. Our website is at www.advancedpower.com. The
information found on our website is not a part of this prospectus.
THE OFFERING
The following information assumes that the underwriters do not exercise the
option that we and one of the selling stockholders granted to them to purchase
additional shares in the offering.
<TABLE>
<S> <C>
Common stock offered by us................... shares
Common stock offered by selling
stockholders............................... shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. To repay debt, to fund capital improvements
and for general corporate purposes, including
research and development and possible
acquisitions.
Proposed Nasdaq National Market symbol....... APTI
</TABLE>
The number of shares outstanding after the offering includes shares of
common stock we expect to be issued upon exercise of warrants held by Advanced
Energy Industries. See "Principal and Selling Stockholders." As of May 31, 2000,
the number of shares of common stock to be outstanding after the offering does
not include 953,197 shares of common stock issuable upon exercise of stock
options issued under our 1995 Stock Option Plan at a weighted average exercise
price of $1.46 per share, 152,858 shares of common stock issuable upon exercise
of outstanding warrants at a weighted average exercise price of $1.40 per share
and 546,283 shares of common stock reserved for issuance under our 1995 Stock
Option Plan.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
When you read this summary consolidated financial data, it is important that
you read along with it the section titled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and related notes included elsewhere in this prospectus. Historical
results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA (1):
Revenues, net.................................. $25,732 $24,851 $27,461 $5,852 $9,561
Gross profit................................... 8,452 6,412 9,461 1,828 3,383
Income (loss) from operations.................. 18 (1,625) 1,256 (50) 851
Net income (loss).............................. (994) (1,656) (175) (412) 244
Net income (loss) per share (2):
Basic........................................ $ (0.20) $ (0.33) $ (0.04) $(0.08) $ 0.05
Diluted...................................... $ (0.20) $ (0.33) $ (0.04) $(0.08) $ 0.04
Shares used in per share calculations (2):
Basic........................................ 5,000 5,000 5,000 5,000 5,000
Diluted...................................... 5,000 5,000 5,000 5,000 6,456
OTHER CONSOLIDATED FINANCIAL DATA:
Gross margin................................... 32.8% 25.8% 34.5% 31.2% 35.4%
EBITDA (3)..................................... $ 2,233 $ 611 $ 3,075 $ 496 $1,270
EBITDA margin (4).............................. 8.7% 2.5% 11.2% 8.5% 13.3%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 177 177
Working capital......................................... (906) (906)
Total assets............................................ 15,871 15,871
Total debt.............................................. 11,208 11,208 320
Total stockholders' equity (deficit).................... (2,137)
</TABLE>
------------------------
(1) In September 1995, our six senior officers purchased a controlling 51%
interest in APT, of which approximately $3.3 million was funded with a note
payable to Hamilton Sundstrand, the seller. In January 1998, these same
officers purchased the remaining interest in APT, of which $3.0 million was
funded with a note payable to APT. In accordance with purchase accounting
and push down accounting rules, we were required to establish a new cost
basis for our assets and liabilities based on these purchase transactions.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Effects of Push Down Accounting."
(2) Please see Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
per share data.
(3) EBITDA means earnings before income taxes, interest expense, interest
income, depreciation, amortization and compensation charges for stock plans.
Although EBITDA is a widely accepted financial concept, it should not be
considered as an alternative to operating income or to cash
6
<PAGE>
flows from operating activities and should not be construed as an indication
of our operating performance or as a measure of liquidity.
(4) EBITDA margin is EBITDA as a percentage of net revenues.
(5) Gives effect to the purchase of shares of common stock pursuant to the
exercise of warrants held by Advanced Energy Industries at a weighted
average exercise price of $2.73 per share. These warrants will expire on
completion of this offering, and we expect them to be exercised immediately
before expiration.
(6) Gives effect to the sale of shares of the common stock offered by us
and the selling stockholders at an assumed initial public offering price of
$ per share and the use of the estimated net proceeds therefrom.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A SIGNIFICANT DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING SHARES OF OUR COMMON STOCK.
THE SEMICONDUCTOR INDUSTRY IS VERY CYCLICAL, AND AN INDUSTRY DOWNTURN WOULD HARM
OUR BUSINESS.
The semiconductor industry is characterized by:
- rapid technological change;
- cyclical market patterns;
- significant price erosion;
- periods of over-capacity and production shortages;
- variations in manufacturing costs and yields; and
- significant expenditures for capital equipment and product development.
The semiconductor industry has from time to time experienced depressed
business conditions. In the past, business conditions in this industry have
rapidly changed from periods of strong demand to periods of weak demand. Any
future downturn in the industry could harm our business and cause our operating
results to suffer. We cannot assure you that we will not experience substantial
period-to-period fluctuations in operating results due to general semiconductor
industry conditions or other factors.
WE HAVE HISTORICALLY EXPERIENCED FLUCTUATIONS IN OUR OPERATING RESULTS AND
EXPECT THESE FLUCTUATIONS TO CONTINUE, WHICH MAY CAUSE OUR COMMON STOCK PRICE TO
DECLINE.
Our quarterly and annual operating results are affected by a wide variety of
factors that could materially and adversely affect our net sales, gross margins
and operating results. These factors include:
- the volume and timing of orders received;
- market acceptance of our products and the products of our customers;
- competitive pricing pressures;
- our ability to expand manufacturing output to meet increasing demand;
- the timing and extent of our research and development expenses;
- failure to anticipate changing customer product requirements;
- fluctuations in manufacturing yields;
- disruption in the supply of wafers or assembly services;
- the ability of customers to make payments to us;
- increases in material costs;
- certain production and other risks associated with using independent
manufacturers; and
- potential changes in accounting policies.
Historically in the semiconductor industry, average selling prices of
products have decreased over time. If we are unable to introduce new proprietary
products with higher margins or reduce manufacturing costs to offset anticipated
decreases in the prices of our existing products, then our
8
<PAGE>
operating results will be harmed. Our business is characterized by short-term
orders and shipment schedules, and customer orders typically can be canceled or
rescheduled without penalty to the customer. Because most of our backlog is
cancelable without penalty, we typically plan our production and inventory
levels based on internal forecasts of customer demand, which is highly
unpredictable and can fluctuate substantially. In addition, because of fixed
costs in the semiconductor industry, we are limited in our ability to reduce
costs quickly in response to any revenue shortfalls. As a result of the
foregoing or other factors, we may experience material adverse fluctuations in
our future operating results on a quarterly or annual basis. We cannot assure
you that we will be profitable on a quarterly or annual basis in future periods.
IF WE CANNOT INTRODUCE NEW PRODUCTS ON A TIMELY BASIS, OUR FINANCIAL RESULTS MAY
SUFFER.
The markets for our products are characterized by rapid technological change
and frequent new product introductions. Our success depends upon our ability to
develop improved power semiconductors for new and existing markets, to introduce
these products in a timely manner, and to have these products gain market
acceptance. The development of new power semiconductors is highly complex and
from time to time we have experienced delays in developing and introducing new
products. Successful product development and introduction depends on a number of
factors, including:
- proper new product definition;
- timely completion of design and testing of new products;
- achievement of acceptable manufacturing yields; and
- market acceptance of our products and the products of our customers.
We cannot assure you we will be able to meet these challenges or adjust to
changing market conditions as quickly and cost-effectively as necessary to
compete successfully. Due to the complexity and variety of power semiconductors,
the limited number of qualified development engineers and the limited
effectiveness of computer-aided design systems in the design of such circuits,
we cannot assure you that we will be able to successfully develop and introduce
new products on a timely basis. We cannot assure you that any products
introduced by us will be adopted by existing or potential customers, or that any
products initially accepted by our customers will become industry standard
products. Our failure to develop and introduce new products successfully could
significantly harm our business and cause our operating results to suffer.
Our results of operations are also dependent on our ability to optimize the
mix between sales of relatively higher margin but lower volume products and
relatively higher volume but lower margin products. In order to improve our
margins, sales of higher margin products must in the future represent a greater
percentage of our net sales, requiring us to develop, introduce and market new
proprietary products. We cannot assure you that we will be successful in
developing new proprietary products with the features and functionality that
customers in our key markets will demand.
DISRUPTION, TERMINATION OR REDUCTION IN THE FUNCTIONS PERFORMED BY OUR KEY
SUBCONTRACTORS COULD HARM OUR BUSINESS.
We depend on third party subcontractors in Europe and Asia for
manufacturing, assembly and packaging of many of our products. We have entered
into a wafer foundry agreement with Infineon Technologies, an outside foundry
located in Europe. We also rely on an agreement with Team Pacific, a
subcontractor in the Philippines, for assembly and packaging of most of our
products. Disruption or termination of either of these arrangements could harm
our business and operating results. Political instability, labor disputes or
natural disasters could disrupt the operations of our subcontractors. If any of
our subcontractors experience financial, operational, production or quality
assurance difficulties resulting in a reduction or interruption in supply to us,
our operating results would suffer until
9
<PAGE>
alternate subcontractors, if any, become available. Infineon Technologies may
not be able to maintain the technological capability to meet our future needs.
In addition, our subcontractors also manufacture and package products for our
competitors, and there is a risk that our subcontractors could allocate less of
their production capacity and resources to our needs.
IF WE ARE UNABLE TO RESPOND TO TECHNOLOGICAL ADVANCES IN SEMICONDUCTOR
MANUFACTURING, OUR BUSINESS WILL BE HARMED.
Semiconductor design and process methodologies are subject to rapid
technological change, requiring large expenditures for research and development
in order to improve product performance and increase manufacturing yields. We
cannot assure you that our current process technology will not become obsolete.
If we are unable to develop or obtain access to advanced silicon wafer
processing technologies as they become needed, our future operating results will
suffer.
IF WE CANNOT ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR FINANCIAL
RESULTS MAY SUFFER.
Our success depends on our ability to obtain or maintain protection of
certain proprietary technologies used in our principal products. We rely on a
combination of patents, trademarks, trade secret laws and contractual provisions
to protect our proprietary rights. Our competitors may, however, misappropriate
our technology or independently develop technologies that are as good as or
better than ours. We currently hold 17 U.S. patents, eight foreign patents and
have six patents pending on semiconductor devices and methods. The first patent
on our core technology expires on March 21, 2006. We cannot assure you that any
patent owned by us will not be invalidated, circumvented or challenged.
Moreover, the process of seeking patent protection can be long and expensive,
and we cannot assure you that our current patents are or any new patents that
may be issued will be of sufficient scope or strength to provide any meaningful
protection or any competitive advantage to us. We may also become subject to or
initiate interference proceedings in the U.S. Patent and Trademark office, which
can demand significant financial and management resources and could harm our
financial results.
In addition, we have licensed a portion of our intellectual property rights
to European and Japanese entities and have entered into a joint venture and
pending licensing and technology transfer agreement in China. Intellectual
property law and practice differs in foreign jurisdictions, and it may prove
difficult for us to protect our rights in certain foreign countries. We cannot
assure you that our licensing and other arrangements with foreign entities will
not result in infringements on our proprietary rights. If we are unable to
protect our intellectual property rights, either in the U.S. or abroad, we could
face increased competition in the market for our products and technologies,
which could negatively affect our sales and ability to expand our business.
WE MAY BECOME INVOLVED IN COSTLY AND LENGTHY PATENT INFRINGEMENT OR INTELLECTUAL
PROPERTY LITIGATION, WHICH COULD HARM OUR BUSINESS.
The semiconductor industry in general is characterized by frequent
litigation regarding patent and other intellectual property rights. Protecting
our proprietary rights may require us to defend claims of intellectual property
infringement by our competitors. If any such infringements arise or are claimed
in the future, we may be exposed to substantial liability for damages and may
need to obtain licenses from the patent owners, discontinue or change our
processes or products or expend significant resources to develop or acquire
non-infringing technologies. We cannot be certain that licenses would be
available under reasonable terms or that we could successfully develop or
acquire non-infringing technologies. Moreover, such efforts would likely be
time-consuming and divert management attention and resources. Our future
involvement in patent infringement or intellectual property litigation could
harm our operating results and financial condition.
10
<PAGE>
STRONG COMPETITION IN THE POWER SEMICONDUCTOR MARKET MAY REDUCE THE DEMAND FOR
OUR PRODUCTS OR THE PRICES OF OUR PRODUCTS, WHICH COULD REDUCE OUR REVENUES AND
HARM OUR BUSINESS.
The power semiconductor industry is highly competitive and subject to rapid
technological change. Significant competitive factors in the power semiconductor
market include:
- product features and performance;
- product quality;
- product reliability;
- technical knowledge;
- breadth of product line;
- competitive pricing; and
- customer service and support.
Because the market for power semiconductors is diverse and highly
fragmented, we encounter different competitors in our various product markets.
Our principal competitors in one or more of our product areas include
International Rectifier, IXYS and ST Microelectronics. Many of our competitors
have substantially greater technical, financial and marketing resources and
greater name recognition than we do. We expect intensified competition from
existing power semiconductor suppliers and the possible entry of new
competitors. Increased competition could harm our business. We cannot assure you
that we will be able to compete successfully in the future or that competitive
pressures will not harm our financial condition or our operating results.
Competitive pressures could reduce market acceptance of our products and result
in price reductions and increases in expenses that could harm our business and
our financial condition.
OUR FINANCIAL RESULTS WOULD BE HARMED IF WE WERE TO LOSE ONE OF OUR MAJOR
CUSTOMERS OR KEY DISTRIBUTORS.
Several of our major customers account for a significant portion of our net
sales each year. During 1999, our top five customers accounted for 39.5% of our
net sales, and one customer, Advanced Energy Industries accounted for 14.6% of
our net sales. If we lost Advanced Energy Industries or one of our other major
customers, or if one of them reduced or canceled significant orders, our net
income and operating results could be harmed. Richardson Electronics serves as a
significant distributor of our products. If this relationship were discontinued,
or if Richardson Electronics should fail to provide adequate service to our
customers, we could lose sales and our operating results would suffer.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, WE MAY LOSE BUSINESS AND EXPERIENCE
REDUCED PROFITABILITY.
We have recently experienced rapid revenue growth, and we anticipate
continued growth if demand increases in the markets for our products. To manage
this growth successfully, we will need to manage increased production
requirements, attract, retain and train new employees and management, improve
our operational and administrative systems, and manage multiple relationships
with customers and suppliers. We may be unable to accomplish any of these
requirements, and our failure to do so would harm our operating results.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE THE OWNERSHIP INTEREST OF OUR
STOCKHOLDERS AND CAUSE US TO INCUR DEBT AND ASSUME CONTINGENT LIABILITIES.
From time to time, we may review acquisition prospects or joint ventures
that would complement our current product offering, enhance our design
capability or that may otherwise offer growth opportunities. We have no current
agreements or formal negotiations underway with respect to any
11
<PAGE>
acquisitions. However, we may acquire businesses, products or technologies in
the future. In the event of future acquisitions, we could:
- use a significant portion of our available cash, including the cash
proceeds from this offering;
- issue equity securities that would dilute current stockholders' percentage
ownership;
- incur substantial debt; or
- assume contingent liabilities.
Such actions by us could harm our operating results and/or the price of our
common stock. Acquisitions also entail numerous risks, including:
- difficulties in the assimilation of acquired operations, technologies or
products;
- unanticipated costs associated with the acquisition or joint venture;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with customers; and
- potential loss of key employees of acquired organizations.
We cannot assure you that we will be able to integrate successfully any
businesses, products, technologies or personnel that we might acquire in the
future, and our failure to do so could harm our business and operating results.
OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH OPERATIONS IN FOREIGN
COUNTRIES.
In 1999, approximately 43% of our revenues were from sales to customers
located outside of the U.S. We are vulnerable to risks associated with doing
business in foreign countries, including tariffs, quotas, taxes and other market
barriers, political and economic instability, currency fluctuations and
difficulties in staffing and management of overseas operations. In addition, we
have supply agreements, assembly agreements, and other relationships with
foreign companies that are subject to similar risks.
FAILURE TO ATTRACT AND RETAIN KEY TECHNICAL AND MANAGEMENT PERSONNEL COULD HARM
OUR OPERATING RESULTS.
Our success depends upon the continued service of our executive officers and
other key management and technical personnel, particularly our development
engineers, and on our ability to continue to attract, retain and motivate
qualified personnel, particularly experienced development engineers, systems
applications engineers and sales managers. There is intense competition for the
services of development engineers in our industry. The loss of the services of
one or more of our development engineers, executive officers or other key
personnel or our inability to recruit replacements for such personnel or to
otherwise attract, retain and motivate qualified personnel could harm our
business. We do not currently carry life insurance payable to APT with respect
to any of our management employees.
OUR PRODUCTS ARE COMPLEX AND COULD CONTAIN DEFECTS, WHICH COULD REDUCE SALES OF
THOSE PRODUCTS OR RESULT IN CLAIMS AGAINST US.
We develop complex and evolving products. Despite testing by us and our
customers, defects or other performance problems may be found in existing or new
products. This could result in delay in recognition or loss of revenues, loss of
market share or failure to achieve market acceptance. These defects may also
cause us to incur significant warranty, support and repair costs, divert the
attention of our engineering personnel from our product development efforts and
harm our relationships with our customers. Any defects or other problems with
our products could result in financial or other damages
12
<PAGE>
to our customers who could seek damages from us for their losses. Even an
unsuccessful product liability claim would likely be time-consuming and costly
to defend.
INTERRUPTIONS IN WAFER PRODUCTION MAY HARM OUR OPERATING RESULTS.
Any prolonged inability to utilize our Bend, Oregon foundry or the Infineon
Technologies foundry as a result of fire, natural disaster or otherwise would
harm our financial condition and cause our operating results to suffer. If we
are not able to obtain additional foundry capacity as required, our
relationships with our customers would be harmed and our sales would likely be
reduced. We may not be able to make arrangements for additional foundry capacity
in a timely fashion or at all, and such arrangements, if any, may not be on
terms favorable to us. Moreover, if we are able to secure additional foundry
capacity, we may be obligated to utilize all of that capacity or incur
penalties. These penalties may be expensive and could harm our operating
results.
WE DEPEND ON THE AVAILABILITY OF CERTAIN RAW MATERIALS TO MANUFACTURE OUR
PRODUCTS, AND A DISRUPTION IN SUPPLY COULD HARM OUR OPERATING RESULTS.
We rely on certain raw materials to manufacture our products, including
silicon, various chemicals, gases and compounds. We obtain some of these raw
materials through limited sources of supply, and in the event of a shortage, we
may be forced to locate alternative sources and be forced to pay higher prices
for the same raw materials. A severe shortage or an increase in the price of
these raw materials may harm our gross margins and our ability to deliver our
products on a timely basis, if at all.
OUR MANUFACTURING OPERATIONS INVOLVE HAZARDOUS SUBSTANCES, AND THE COSTS OF
COMPLYING WITH APPLICABLE ENVIRONMENTAL LAWS COULD HARM OUR FINANCIAL RESULTS.
Our manufacturing operations are subject to various federal, state, local
and foreign environmental laws and regulations relating to the management,
disposal and remediation of hazardous substances and the emission and discharge
of pollutants into the air, water and soil. In the conduct of our manufacturing
operations, we have handled and do handle materials that are considered
hazardous, toxic or volatile under federal, state and local laws. The risk of
accidental release of such materials cannot be completely eliminated, and if
such an accidental release occurs, we could be held financially responsible for
clean-up costs and other consequences of the release. In addition, if
environmental laws become more stringent over time, or existing laws are more
stringently enforced, we could incur greater compliance costs and be subject to
increased risks and penalties for violations. We could be held liable for
significant damages for violating environmental laws and could lose certain
licenses or permits, which could harm our financial results.
AN ACCIDENT AT OUR MANUFACTURING FACILITY COULD CAUSE SERIOUS DAMAGE FOR WHICH
WE COULD BE RESPONSIBLE.
Our manufacturing operations involve high voltage equipment, explosive gases
and hazardous chemicals. An accident at our manufacturing facility could result
in serious personal injury or property damage for which we could be held
financially responsible. Any financial obligation in excess of available
insurance could harm our financial results.
OUR CHARTER CONTAINS PROVISIONS THAT MAY HINDER OR PREVENT A CHANGE IN THE
CONTROL OF OUR COMPANY.
The authorization of undesignated preferred stock makes it possible for our
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
APT. These and other provisions in our charter may defer hostile takeovers or
delay changes in control or management, which could reduce our stock price.
Also, there are provisions of Delaware law that may have similar effects. See
"Description of Capital Stock."
13
<PAGE>
CERTAIN MEMBERS OF MANAGEMENT, AS A GROUP, WILL OWN A CONTROLLING INTEREST IN
OUR COMMON STOCK AFTER THIS OFFERING.
Certain members of our senior management will beneficially own approximately
% of our outstanding shares of common stock following the completion of this
offering, and % if the underwriters' over-allotment option is exercised in
full. As a result, these members of management will exercise significant control
over all matters requiring stockholder approval. The concentrated holdings of
management may result in a delay of, or serve as a deterrent to, possible
changes in control of APT, which may reduce the market price of our common
stock. See "Management" and "Principal and Selling Stockholders."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS OF
THIS OFFERING AND MAY FAIL TO USE SUCH FUNDS EFFECTIVELY.
We will repay approximately $7.6 million in debt, plus accrued interest,
from the net proceeds of this offering, and the remainder of the net proceeds
will be utilized for general corporate purposes, including research and
development and possible acquisitions. Consequently, our management will have
significant flexibility in applying the net proceeds of this offering.
Management's allocation of the proceeds of this offering may not benefit the
business, and could harm our financial results.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR STOCK, AND ANY MARKET THAT DEVELOPS MAY
BE VOLATILE.
Prior to this offering, there has been no active public market for our
common stock. We have applied to have our common stock approved for quotation on
the Nasdaq National Market. We cannot assure you that an active trading market
for our common stock will develop or be sustained after this offering. The
initial public offering price was determined through negotiations between us and
the underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The market price of
our common stock could be subject to significant fluctuations in response to
variations in actual and anticipated operating results, changes in earnings
estimates by analysts, lack of liquidity, our failure to achieve growth plans
and other events or factors. The market for securities of semiconductor
manufacturers has been highly volatile in recent years, often as a result of
factors unrelated to their operations.
FUTURE SALES OF OUR COMMON STOCK MAY LOWER OUR STOCK PRICE.
If our existing stockholders sell a large number of shares of our common
stock following this offering, the market price of our common stock could
decline significantly. In addition, the perception in the public market that our
existing stockholders might sell shares of common stock could depress the market
price of our common stock, regardless of the actual plans of our existing
stockholders. Immediately after this offering, approximately shares of our
common stock will be outstanding, or if the underwriters'
over-allotment option is exercised in full. Of these shares, all of the shares
included in this offering will be available for immediate resale in the public
market, except those held by our "affiliates." Of the remaining shares
outstanding, are subject to lock-up agreements restricting the sale
of such shares for 180 days from the date of this prospectus. However, the
underwriters may waive this restriction and allow the stockholders to sell their
shares at any time.
PURCHASERS IN THIS OFFERING WILL IMMEDIATELY EXPERIENCE SUBSTANTIAL DILUTION IN
NET TANGIBLE BOOK VALUE.
Purchasers of shares in this offering will experience immediate dilution in
the net tangible book value of their shares. Based on an assumed initial public
offering price of $ per share, dilution per share in this offering will be
$ per share (or % of the price). See "Dilution."
14
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements which, to the extent that they do not
recite historical fact, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The words "believe," "expect," "estimate,"
"may," "will," "could," "plan" or "continue" and similar expressions are
intended to identify forward-looking statements. Such forward-looking
information involves important risks and uncertainties that could materially
alter results in the future from those expressed in any forward-looking
statements made by, or on behalf of, us. These risks and uncertainties include,
but are not limited to those listed in this prospectus.
We caution you that such forward-looking statements are only predictions and
that actual events or results may differ materially. In evaluating such
statements, you should specifically consider the various factors which could
cause actual events or results to differ materially from those indicated by such
forward-looking statements, including the factors that we discuss in the section
entitled "Risk Factors."
USE OF PROCEEDS
We estimate that our net proceeds (after we pay the underwriters and our
expenses) from the sale of the shares that we are selling will be
$ million ($ million if the underwriters exercise their option to
acquire additional shares), based upon an assumed initial public offering price
of $ per share. We expect to use a portion of the net proceeds from sales
of our common stock to repay approximately $7.6 million in debt, plus accrued
interest, owed to financial institutions.
At March 31, 2000, the outstanding debt that will be repaid with the
proceeds from this offering consists of:
- $3.8 million outstanding under our two lines of credit, which expire in
May 2001 and bear interest at prime plus 1.0% or 1.25% based on the ratio
of debt to equity (10.25% at March 31, 2000);
- $2.5 million of subordinated debt outstanding under our secured credit
agreement, which matures on September 30, 2000 and bears interest at prime
plus 1.5% (10.5% at March 31, 2000);
- $500,000 outstanding under a term loan, which matures in March 2003 and
bears interest at 10.6%;
- $357,000 outstanding under our European subsidiary's line of credit, which
bears interest at Euribor plus 2% per annum (5.7% at March 31, 2000), plus
commissions;
- $253,000 outstanding under a term loan, which matures in December 2003 and
bears interest at 10.6%;
- $125,000 outstanding under a term loan, which matures in January 2001 and
bears interest at prime plus 1.75% (10.75% at March 31, 2000); and
- $64,000 outstanding under a loan to our European subsidiary with no stated
interest rate and due currently.
We incurred approximately $3.1 million of this debt to fund the purchase of
APT by our six senior officers. This debt includes $3.0 million initially loaned
to our six senior officers in connection with the purchase of the remaining APT
stock in 1998, and $100,000 loaned to those officers to pay interest on the note
payable to Hamilton Sundstrand in connection with their initial purchase of APT
stock in 1995.
We expect to use the remaining net proceeds for general corporate purposes,
which may include research and development and acquisitions. We have no current
commitments or agreements with
15
<PAGE>
respect to any specific acquisition. Until we use the net proceeds as described
above, we intend to invest the net proceeds in short-term government securities
or other investment grade obligations.
In addition to the net proceeds accruing directly to us, we will receive
approximately $ million from the sale of common stock by our six senior
officers. The six senior officers estimate that they will receive approximately
$ million in net proceeds, of which approximately $ million will be
used to pay taxes resulting from the sale of their shares, $ million will
be used to pay debt and interest owed to us, $ million will be used to pay
debt and interest owed to Hamilton Sundstrand and approximately $
will be used to repay personal debt. The debt to be repaid by these stockholders
was incurred to fund management's purchase of APT. The net proceeds to Advanced
Energy Industries as a selling stockholder will be an amount sufficient to pay
the estimated taxes to be incurred as a result of the exercise of its warrants.
See "Certain Relationships and Related Transactions."
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis;
- on a pro forma basis giving effect to the net exercise of the warrants
held by Advanced Energy Industries; and
- on a pro forma as adjusted basis giving effect to our sale of the common
stock in this offering at an assumed initial public offering price of
$ per share and the application of the net proceeds as described
under "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 177 $ 177 $
======== ======== ========
Debt:
Lines of credit........................................... $ 4,126 $ 4,126 $ --
Current portion of long-term debt......................... 2,940 2,940 --
Long-term debt, less current portion...................... 3,822 3,822 --
Capital lease obligations................................. 320 320 320
-------- -------- --------
Total debt.............................................. 11,208 11,208 320
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, undesignated, $.001 par value; no shares
authorized, actual; 1,000,000 shares authorized, pro
forma and pro forma as adjusted; no shares issued or
outstanding, actual, pro forma and pro forma as
adjusted................................................ -- -- --
Common stock, $.01 par value per share; 5,110,371
authorized, actual; 19,000,000 shares authorized, pro
forma and pro forma as adjusted; 5,000,520 shares issued
and outstanding actual; shares issued and
outstanding pro forma, and shares issued and
outstanding pro forma as adjusted....................... 50
Additional paid-in capital................................ 16,176
Deferred stock compensation............................... (538) (538) (538)
Accumulated other comprehensive income.................... 69 69 69
Accumulated deficit....................................... (17,894) (17,894) (17,894)
-------- -------- --------
Total stockholders' equity (deficit).................... (2,137)
-------- -------- --------
Total capitalization.................................. $ 9,071
======== ======== ========
</TABLE>
The table above reflects the following:
- Pro forma and pro forma as adjusted preferred stock and common stock
includes shares authorized on May 31, 2000.
- Excludes 953,197 shares of common stock issuable upon the exercise of
options outstanding on March 31, 2000, at a weighted average exercise
price of $1.46 per share; 546,283 additional shares of common stock
reserved for future issuance under our 1995 Stock Option Plan as amended
through May 31, 2000; and 152,858 shares of common stock issuable upon the
exercise of warrants, other than those held by Advanced Energy Industries,
at a weighted average exercise price of $1.40 per share.
17
<PAGE>
- Pro forma as adjusted includes repayment (out of proceeds of sales of
common stock by our six senior officers as selling stockholders) of
$3.3 million in debt plus accrued interest owed by those officers to
Hamilton Sundstrand that is accounted for as debt of APT; and the
repayment by those officers of $3.1 million of debt plus accrued interest
owed to APT. The repayment of the debt to APT will be reflected as an
increase to additional paid-in capital on our consolidated balance sheet.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock, and we
do not anticipate doing so in the foreseeable future. We currently intend to
retain future earnings, if any, to operate and expand our business. Our loan
covenants require us to obtain the bank's consent prior to the payment of any
cash dividends.
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
2000 was a deficit of $ million, or $ per share, after giving effect to
the exercise of the warrants held by Advanced Energy Industries. Pro forma net
tangible book value per share before the offering has been determined by
dividing net tangible book value (total book value of tangible assets less total
liabilities) by the number of shares of common stock outstanding at March 31,
2000, after giving effect to the exercise of the warrants held by Advanced
Energy Industries. After giving effect to the sale of our common stock in this
offering at an assumed initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us, our adjusted pro forma net tangible book value
as of March 31, 2000 would have been $ million, or $ per share. This
represents an increase in pro forma net tangible book value per share of $
to existing stockholders and dilution in pro forma net tangible book value per
share of $ to new investors who purchase shares in the offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................. $
Pro forma net tangible book value per share as of
March 31, 2000...................................... $
Increase in pro forma net tangible book value per
share attributable to new investors.................
--------
Adjusted pro forma net tangible book value per share....
--------
Dilution per share to new investors..................... $
========
</TABLE>
The following table sets forth, on the adjusted pro forma basis described
above, as of March 31, 2000, the difference between the number of shares of
common stock purchased, the total consideration paid, and the average price per
share paid by the existing stockholders and by investors purchasing shares in
this offering, before deducting estimated underwriting discounts and commissions
and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... % $ % $
New investors...................
------- ----- -------- -----
Total......................... % %
======= ===== ======== =====
</TABLE>
18
<PAGE>
The discussion and tables above exclude the following:
- 953,197 shares of common stock issuable upon the exercise of options
outstanding at March 31, 2000, at a weighted average exercise price of
$1.46 per share under our 1995 Stock Option Plan;
- 546,283 additional shares of common stock reserved for future issuance
under our 1995 Stock Option Plan as amended through May 31, 2000; and
- 152,858 shares of common stock issuable upon the exercise of other
warrants at a weighted average exercise price of $1.40 per share.
To the extent that any options or warrants are exercised in addition to those
held by Advanced Energy Industries, the new investors will experience additional
dilution.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
In the tables below, we provide you with selected consolidated financial
data. We have prepared this data using financial statements for the fiscal years
ended December 31, 1995, 1996, 1997, 1998 and 1999, and the three-month periods
ended March 31, 1999 and 2000. The consolidated statement of operations data for
the years ended December 31, 1997, 1998 and 1999 and the consolidated balance
sheet data as of December 31, 1998 and 1999 are derived from our consolidated
financial statements included elsewhere in this prospectus, which have been
audited by KPMG LLP, independent auditors. The consolidated balance sheet data
for December 31, 1995, 1996 and 1997 and consolidated statement of operations
data for the years ended December 31, 1995 and 1996 are derived from
consolidated financial statements audited by KPMG LLP not included in this
prospectus. The consolidated statement of operations data for the three-month
periods ended March 31, 1999 and 2000 and the balance sheet data as of March 31,
2000 have not been audited. We have prepared this unaudited financial data on
substantially the same basis as the audited consolidated financial statements
and included all adjustments, consisting only of normal recurring adjustments,
that we consider necessary for a fair presentation of the financial position and
results of operations for the period. When you read this selected consolidated
financial data, it is important that you read along with it the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes included
elsewhere in this prospectus. Historical results are not necessarily indicative
of future results.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA (1):
Revenues, net.................. $26,287 $26,948 $25,732 $24,851 $27,461 $5,852 $9,561
Cost of goods sold............. 19,211 17,919 17,280 18,439 18,000 4,024 6,178
------- ------- ------- ------- ------- ------ ------
Gross profit................... 7,076 9,029 8,452 6,412 9,461 1,828 3,383
Operating expenses:
Research and development..... 772 943 1,021 926 883 200 243
Selling, general and
administrative............. 7,615 7,376 7,413 7,111 7,322 1,678 2,289
------- ------- ------- ------- ------- ------ ------
Total operating expenses... 8,387 8,319 8,434 8,037 8,205 1,878 2,532
------- ------- ------- ------- ------- ------ ------
Income (loss) from
operations................... (1,311) 710 18 (1,625) 1,256 (50) 851
Other income (expense):
Interest expense............. (786) (1,094) (1,010) (1,208) (1,308) (336) (271)
Other, net................... 327 7 95 58 77 24 12
------- ------- ------- ------- ------- ------ ------
Income (loss) before income
taxes........................ (1,770) (377) (897) (2,775) 25 (362) 592
Income tax expense (benefit)... (184) 411 97 (1,119) 200 50 348
------- ------- ------- ------- ------- ------ ------
Net income (loss).............. $(1,586) $ (788) $ (994) $(1,656) $ (175) $ (412) $ 244
======= ======= ======= ======= ======= ====== ======
Net income (loss) per share
(2):
Basic........................ $ (0.32) $ (0.16) $ (0.20) $ (0.33) $ (0.04) $(0.08) $ 0.05
Diluted...................... $ (0.32) $ (0.16) $ (0.20) $ (0.33) $ (0.04) $(0.08) $ 0.04
Shares used in per share
calculations (2):
Basic........................ 5,000 5,000 5,000 5,000 5,000 5,000 5,000
Diluted...................... 5,000 5,000 5,000 5,000 5,000 5,000 6,456
OTHER CONSOLIDATED FINANCIAL
DATA:
Gross margin................... 26.9% 33.5% 32.8% 25.8% 34.5% 31.2% 35.4%
EBITDA (3)..................... $ 1,438 $ 3,420 $ 2,233 $ 611 $ 3,075 $ 496 $1,270
EBITDA margin (4).............. 5.5% 12.7% 8.7% 2.5% 11.2% 8.5% 13.3%
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (1):
Cash and cash equivalents........... $ 348 $ 445 $ 301 $ 56 $ 316 $ 177
Working capital..................... 1,726 2,214 2,104 515 (1,023) (906)
Total assets........................ 18,660 16,342 14,941 14,200 13,859 15,871
Long-term obligations, less current
portion........................... 7,267 5,367 5,253 6,148 3,525 4,001
Total debt.......................... 12,680 10,230 9,312 11,796 11,338 11,208
Total stockholders' equity
(deficit)......................... 2,558 1,780 814 (2,451) (2,475) (2,137)
</TABLE>
------------------------
(1) In September 1995, our six senior officers purchased a controlling 51%
interest in APT, of which approximately $3.3 million was funded with a note
payable to Hamilton Sundstrand, the seller. In January 1998, these same
officers purchased the remaining interest in APT, of which approximately
$3.0 million was funded with a note payable to APT. In accordance with
purchase accounting and push down accounting rules, we were required to
establish a new cost basis for our assets and liabilities based on these
purchase transactions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Effects of Push Down
Accounting."
(2) Please see Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
per share data.
(3) EBITDA means earnings before income taxes, interest expense, interest
income, depreciation, amortization and compensation charges for stock plans.
Although EBITDA is a widely accepted financial concept, it should not be
considered as an alternative to operating income or to cash flows from
operating activities and should not be construed as an indication of our
operating performance or as a measure of liquidity.
(4) EBITDA margin is EBITDA as a percentage of net revenues.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES AND THE OTHER FINANCIAL
INFORMATION INCLUDED IN THIS PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION,
THE FOLLOWING DISCUSSION AND OTHER PARTS OF THIS PROSPECTUS CONTAIN
FORWARD-LOOKING INFORMATION THAT INVOLVES RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY FORWARD-LOOKING
INFORMATION DUE TO FACTORS DISCUSSED UNDER "RISK FACTORS," "BUSINESS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading designer, manufacturer and marketer of high-performance
power semiconductors. Power semiconductors manage and regulate power by
converting electricity into a form required by electrical and electronic
products. Our power semiconductors increase system efficiency, permit the design
of more compact end products and improve features and functionality. We are
primarily focused on the high power, high frequency segment of the power
semiconductor market. High power refers to the ability to handle voltages and
currents above one kilowatt, and high frequency refers to the ability to switch
on and off at speeds above 100 kilohertz. We sell our products to over 750
customers primarily in North America and Europe, and increasingly in Asia,
through a network of independent sales representatives and distributors.
We were founded in 1984 to develop a new technology for the manufacture of a
specific type of power semiconductor, the metal oxide semiconductor field effect
transistor, or MOSFET. In 1989, we completed development of our proprietary and
patented technology, Power MOS IV-TM-, and introduced our first high power
MOSFET device to the market. In 1989, we entered into a contract with Hamilton
Sundstrand for the development and production of high power, insulated gate
bipolar transistors, a derivative of our core MOSFET technology, for use in
Hamilton Sundstrand's electric power generating systems for aircraft. Hamilton
Sundstrand first invested in APT in 1989 and purchased all of the remainder of
our outstanding stock in 1992. In 1993, Hamilton Sundstrand acquired Power
Compact S.A. in France, which we later renamed APT Europe. APT Europe designs
and manufactures application specific power modules, which combine power
semiconductors such as MOSFETs with other power management components. In 1995,
our six senior officers purchased a controlling interest in APT from Hamilton
Sundstrand, and APT Europe became a wholly owned subsidiary of APT. They
completed the purchase of the remaining interest held by Hamilton Sundstrand in
January 1998, in part using funds borrowed from APT.
The semiconductor industry is very cyclical and has from time to time
experienced depressed business conditions. The semiconductor industry also has
historically experienced a decrease in average selling prices of products over
time. During 1996 through 1998, the semiconductor industry experienced worldwide
overcapacity, which caused prices to erode and was accompanied by a slowdown in
the demand for semiconductors and in turn, semiconductor capital equipment.
Markets for semiconductors and semiconductor capital equipment have improved;
however, we cannot assure you that these conditions will continue.
We are increasing our use of external manufacturing capabilities to maximize
our efficiency and flexibility and expand our capacity while reducing our costs.
We have established a long-term agreement with an outside foundry, Infineon
Technologies, to reduce capital spending and manufacturing overhead expenses,
gain access to additional process technologies, and to allocate our internal
manufacturing facilities to produce more specialized, limited production run
products. The resulting supply of processed silicon wafers from Infineon
Technologies, which we began to receive in the fourth quarter of 1999, has
increased our gross profit margin because of the lower costs associated with
these wafers.
22
<PAGE>
Historically, a significant portion of our revenues has been derived from
sales outside of the United States. In 1999, approximately 43% of our total
revenues were derived from sales in foreign markets. We expect to continue our
strong international presence by leveraging established sales channels and the
growth in demand for our products brought about by international trends, such as
the development of wireless infrastructure in Asia. We recently entered into a
joint venture agreement in China, which includes a pending license and
technology transfer agreement for our Power MOS V-TM- and Power MOS VI-TM-
technology, in exchange for cash payments totaling $1.5 million over two years
and a 25% share in the equity ownership of the joint venture. Our interest in
the joint venture will be recorded in our consolidated balance sheet at a
nominal amount. Our share of initial cumulative losses from the joint venture
will be accumulated, but will not be included in our consolidated results of
operations. Our share of any future income from the joint venture will be
recorded on our financial statements when it exceeds our share of cumulative
losses from the joint venture. We believe that this arrangement, along with
other agreements, will enhance our access to key markets in Asia and Europe.
EFFECTS OF PUSH DOWN ACCOUNTING
In September 1995, our six senior officers purchased a controlling 51%
interest in APT for approximately $3.6 million, of which approximately
$3.3 million was funded with a note payable to Hamilton Sundstrand, the seller,
and the balance was funded from the personal assets of these officers. In
January 1998, these same officers purchased the remaining interest in APT for
approximately $2.5 million. We loaned our six senior officers $3.0 million, an
amount sufficient to purchase the remaining 49% interest and to pay interest on
the note owed to Hamilton Sundstrand. In addition, we loaned $100,000 to our six
senior officers in 1999 to pay interest on the Hamilton Sundstrand note. In
accordance with purchase accounting and push down accounting rules, we were
required to establish a new cost basis for our assets and liabilities based on
these purchase transactions and to reflect that basis in our consolidated
financial statements. The effects of applying push down accounting to our
consolidated financial statements were as follows:
- The $3.3 million note payable to Hamilton Sundstrand related to the 1995
purchase was recorded as long-term debt on our consolidated balance sheet
and the corresponding interest is included in interest expense in our
consolidated statements of operations. The $3.1 million in notes payable
to APT and accrued interest related to the 1998 purchase is not recorded
as a liability on our consolidated balance sheet, but is reflected as a
reduction to stockholders' equity.
- In the January 1998 purchase, inventories were increased by $799,000 to
their proportionate fair value. The inventory increase was amortized over
three months, the period during which the inventories were presumed sold.
The adjustment had the effect of decreasing our gross margin in 1998.
Our six senior officers intend to use a portion of their proceeds from the
sale of shares in this offering to repay the $3.3 million note payable and
accrued interest to Hamilton Sundstrand, which will eliminate our interest
expense related to this debt after the repayment, and to repay the $3.1 million
notes payable and accrued interest to APT, which will increase our stockholders'
equity.
23
<PAGE>
The following table presents selected consolidated statement of operations
data, shown on a pro forma basis, without the effects of push down accounting as
described above:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross profit........................................ $8,452 $7,211 $9,461 $1,828 $3,383
Selling, general and administrative expense......... 7,137 6,753 6,959 1,588 2,193
Income (loss) from operations....................... 294 (468) 1,619 40 948
Interest expense, net............................... (686) (714) (825) (188) (144)
Income tax expense (benefit)........................ 107 (801) 208 (65) 321
Net income (loss)................................... (379) (289) 686 (53) 497
EBITDA.............................................. 2,233 611 3,075 496 1,270
</TABLE>
The following table presents selected consolidated statement of operations
data indicated as a percentage of net revenue, shown on a pro forma basis,
without the effects of push down accounting as described above:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gross profit............................... 32.8% 29.0% 34.5% 31.2% 35.4%
Selling, general and administrative
expense.................................. 27.7 27.2 25.3 27.1 22.9
Income (loss) from operations.............. 1.1 (1.9) 5.9 0.7 9.9
Interest expense, net...................... (2.7) (2.9) (3.0) (3.2) (1.5)
Income tax expense (benefit)............... 0.4 (3.2) 0.8 (1.1) 3.4
Net income (loss).......................... (1.5) (1.2) 2.5 (0.9) 5.2
EBITDA..................................... 8.7 2.5 11.2 8.5 13.3
</TABLE>
We accounted for the purchase of APT by our six senior officers using the
purchase method of accounting, which requires that the purchase price be
allocated to the net assets acquired based on the relative fair value of assets
acquired. Any amount of the purchase price in excess of the fair value of the
net assets acquired is classified as goodwill. We recorded approximately
$1.4 million of goodwill related to the 1995 purchase transaction, and $245,000
related to the 1998 purchase transaction. Goodwill amortization is included in
selling, general and administrative expense in our consolidated statements of
operations, and is being amortized over a five-year life. We expect to record
approximately $99,000 of goodwill amortization in the second quarter of 2000 and
approximately $67,000 in the third quarter of 2000. As of September 30, 2000,
goodwill associated with the purchase transactions will be fully amortized.
24
<PAGE>
RESULTS OF OPERATIONS
The following table presents our consolidated statement of operations data
for the periods indicated as a percentage of net revenue:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues, net..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 67.2 74.2 65.5 68.8 64.6
----- ----- ----- ----- -----
Gross profit...................................... 32.8 25.8 34.5 31.2 35.4
Operating expenses:
Research and development........................ 4.0 3.7 3.2 3.4 2.6
Selling, general and administrative............. 28.8 28.6 26.7 28.7 23.9
----- ----- ----- ----- -----
Total operating expenses...................... 32.8 32.3 29.9 32.1 26.5
----- ----- ----- ----- -----
Income (loss) from operations..................... -- (6.5) 4.6 (0.9) 8.9
Other income (expense):
Interest expense................................ (3.9) (4.9) (4.8) (5.7) (2.8)
Other, net...................................... 0.4 0.2 0.3 0.4 0.1
----- ----- ----- ----- -----
Income (loss) before income taxes................. (3.5) (11.2) 0.1 (6.2) 6.2
Income tax expense (benefit)...................... 0.4 (4.5) 0.7 0.8 3.6
----- ----- ----- ----- -----
Net income (loss)................................. (3.9)% (6.7)% (0.6)% (7.0)% 2.6%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
REVENUES. Our net revenues were $9.6 million in the first three months of
2000, an increase of 63.4% from net revenues of $5.9 million in the first three
months of 1999. The increase in net revenues was primarily a result of higher
levels of demand from our customers as the semiconductor industry continued to
recover from the downturn it experienced from 1996 through 1998. Sales of our
products increased in the semiconductor capital equipment market as a result of
an increase in the building of wafer fabrication facilities and in the
telecommunications markets as a result of increasing demand for communications
infrastructure, including in China, India and Korea.
GROSS PROFIT. Our gross profit margin was 35.4% in the first quarter of
2000 compared to 31.2% in the first quarter of 1999. The increase in gross
profit margin resulted primarily from lower costs associated with the supply of
processed silicon wafers from Infineon Technologies, which we began to purchase
in the fourth quarter of 1999, higher capacity utilization in our Bend, Oregon
manufacturing facility, a negotiated reduction in the cost of silicon from our
key supplier and a more favorable product mix.
RESEARCH AND DEVELOPMENT EXPENSE. Our research and development expenses
were $243,000 in the first quarter of 2000, an increase of 21.5% from research
and development expenses of $200,000 in the first quarter of 1999. In the first
quarter of 1999, salaries were lower due to salary reductions implemented in
1998 in response to the semiconductor market slowdown, which were subsequently
eliminated in mid-1999. As a percent of net revenues, research and development
expense decreased to 2.6% in the first quarter of 2000 from 3.4% in the first
quarter of 1999, primarily due to the increase in net revenues. We anticipate
that our research and development expenses will increase in absolute dollars in
future periods as we focus on the growing opportunities for RF power
semiconductors and as we continue to enhance our core technology and the
products associated with it.
25
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Our selling, general and
administrative expenses were $2.3 million in the first quarter of 2000, an
increase of 36.4% from selling, general and administrative expenses of
$1.7 million in the first quarter of 1999. The increase in selling, general and
administrative expenses primarily resulted from increased commissions on higher
revenues, bonuses accrued based on the operating results of the first quarter of
2000, the elimination of the salary decreases which were in effect in the first
quarter of 1999 and increased depreciation on computer systems. Selling, general
and administrative expenses include amortization of goodwill of $95,000 in the
first quarter of 2000 and $90,000 in the first quarter of 1999 related to the
purchase of APT by our six senior officers. See "Effects of Push Down
Accounting" above. As a percent of net revenues, selling, general and
administrative expense decreased to 23.9% in the first quarter of 2000 from
28.7% in the first quarter of 1999, primarily due to the increase in net
revenues. We believe that our general and administrative expenses will increase
in absolute dollars in future periods as a result of the expenses associated
with being a public company, including annual and other public reporting costs,
directors' and officers' liability insurance, investor relations programs and
professional service fees.
STOCK COMPENSATION EXPENSE. Stock compensation expense includes costs
relating to stock-based employee compensation arrangements, and is based on the
difference between the fair market value of our common stock on the date of
grant of options and the exercise price of options to purchase that stock. Stock
compensation expense is recognized over the vesting periods of the related
options, typically five years. Stock compensation expense of $69,000 was
recorded in the first quarter of 2000. Of this amount, $23,000 was recorded in
cost of goods sold, $8,000 was recorded in research and development expense and
$38,000 was recorded in selling, general and administrative expense. We expect
to record an additional $69,000 in the second quarter of 2000 related to stock
grants. The actual amount will depend on the number of additional options
granted in the second quarter of 2000, if any, and their respective exercise
prices.
INCOME (LOSS) FROM OPERATIONS. As a result of the items discussed above,
income from operations was $851,000 in the first quarter of 2000, compared to a
loss from operations of $50,000 in the first quarter of 1999. As a percent of
net revenues, income (loss) from operations increased to 8.9% in the first
quarter of 2000 from (0.9)% in the first quarter of 1999.
INTEREST EXPENSE. Interest expense decreased to $271,000 in the first
quarter of 2000 from $336,000 in the first quarter of 1999, primarily as a
result of the buyout of certain equipment under capital lease, which we were
able to finance with long-term debt at a lower interest rate. Interest expense
includes interest expense of $75,000 in the first quarter of 2000 and $75,000 in
the first quarter of 1999 related to the $3.3 million note payable to Hamilton
Sundstrand for the purchase of APT by our six senior officers. See "Effects of
Push Down Accounting" above. In April 2000, we issued a warrant to Advanced
Energy Industries to purchase 60,000 shares of our common stock at an exercise
price of $3.00 per share, in return for a renewal of their loan guaranty. The
fair value of the warrants issued was $450,000. Of this amount, $225,000 will be
included in interest expense in our consolidated statement of operations in each
of the second and third quarters of 2000.
INCOME TAXES. Absent the impact of push down accounting, our effective tax
rate would have been approximately 39% in the first quarter of 2000. However,
our effective tax rate was approximately 59% in the first quarter of 2000 due to
the impact of push down accounting. Due to the effects of push down accounting,
the $3.3 million note payable to Hamilton Sundstrand resulted in an increase in
the effective tax rate because the interest on that note was not deductible for
tax purposes by APT. In addition, interest income was recognized for tax
purposes on the $3.1 million notes payable from our six senior officers, but no
interest income was recorded on those notes on our consolidated financial
statements. See "Effects of Push Down Accounting" above.
26
<PAGE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Our net revenues were $27.5 million in 1999, an increase of 10.5%
from net revenues of $24.9 million in 1998. During 1998, the semiconductor
industry continued to experience worldwide overcapacity, which caused prices to
erode and was accompanied by a slowdown in the demand for semiconductors and in
turn, semiconductor capital equipment. During 1999, market conditions began to
improve, and we experienced an increase in sales in 1999, primarily in the
semiconductor capital equipment and telecommunications markets.
GROSS PROFIT. Our gross profit margin was 34.5% in 1999 compared to 25.8%
in 1998. In 1998, gross profit was decreased by $799,000, relating to the
inventory effect of the application of push down accounting. Without this
effect, our gross profit margin in 1998 would have been 29.0%. See "Effects of
Push Down Accounting" above. The increase in gross profit margin in 1999 was
primarily attributable to higher capacity utilization in our Bend, Oregon and
Bordeaux, France manufacturing facilities as a result of improvement in the
semiconductor market from the slowdown that impacted us throughout 1998, a
negotiated reduction in the cost of silicon from our key supplier and a more
favorable product mix. In the fourth quarter of 1999, we also began to purchase
processed silicon wafers from Infineon Technologies at a lower cost to us.
RESEARCH AND DEVELOPMENT EXPENSE. Our research and development expenses
were $883,000 in 1999, a decrease of 4.6% from research and development expenses
of $926,000 in 1998. As a percent of net revenues, research and development
expense decreased to 3.2% in 1999 from 3.7% in 1998. The decrease in research
and development expense was primarily attributable to decreases in the cost of
masks and other product design costs, a decrease in outside service and
maintenance costs in 1999, and the continuation of the salary reductions
implemented in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Our selling, general and
administrative expenses were $7.3 million in 1999, an increase of 3.0% from
selling, general and administrative expenses of $7.1 million in 1998. The
increase in selling, general and administrative expenses primarily resulted from
increased commissions on higher revenues. Selling, general and administrative
expenses include amortization of goodwill of $363,000 in 1999 and $358,000 in
1998 related to the purchase of APT by our six senior officers. See "Effects of
Push Down Accounting" above. As a percent of net revenues, selling, general and
administrative expenses decreased to 26.7% in 1999 from 28.6% in 1998, primarily
as a result of the increase in net revenues.
INCOME (LOSS) FROM OPERATIONS. As a result of the items discussed above,
income from operations was $1.3 million in 1999, compared to a loss from
operations of $1.6 million in 1998. As a percent of net revenues, income (loss)
from operations increased to 4.6% in 1999 from (6.5)% in 1998.
INTEREST EXPENSE. Interest expense increased to $1.3 million in 1999 from
$1.2 million in 1998. Interest expense increased as a result of imputed interest
related to the issuance of and adjustment to warrants in 1999 to purchase our
common stock. Interest expense includes interest expense of $298,000 in 1999 and
$324,000 in 1998 related to the $3.3 million note payable to Hamilton Sundstrand
for the purchase of APT by our six senior officers. See "Effects of Push Down
Accounting" above.
INCOME TAXES. Our effective tax rate was approximately 800% in 1999,
compared to a tax benefit of approximately 40% in 1998. The 1999 effective tax
rate was increased by permanent differences such as goodwill amortization and
expired net operating loss carryforwards, offset in part by the release of a
deferred net operating loss. In addition, the impact of push down accounting,
primarily the nondeductibility of interest expense and the recognition of
interest income as described above, resulted in an increase in our effective tax
rate. See "Effects of Push Down Accounting". The 1998 effective tax rate was
also a result of a net loss in the period and the write-off of the tax basis of
our European subsidiary, APT Europe. However, the reduction to the effective tax
rate was offset by increases for
27
<PAGE>
permanent differences such as goodwill amortization, expired net operating loss
carryforwards and the differences in the treatment of the interest income and
interest expense.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Our net revenues were $24.9 million in 1998, a decrease of 3.4%
from net revenues of $25.7 million in 1997. In 1998, the semiconductor industry
continued to experience worldwide overcapacity, worsened by business recessions
in various Asian economies, which caused prices to erode and was accompanied by
a slowdown in the demand for semiconductors and in turn, semiconductor capital
equipment. As a result, our net revenues decreased in 1998 due to lower product
sales, primarily in the semiconductor capital equipment and the
telecommunications markets. However, these decreases were partially offset by
increases in product sales in the medical and industrial markets.
GROSS PROFIT. Our gross profit margin was 25.8% in 1998 compared to 32.8%
in 1997. In 1998, gross profit was decreased by $799,000, relating to the
inventory effect of the application of push down accounting. Without this
effect, our gross profit margin in 1998 would have been 29.0%. See "Effects of
Push Down Accounting" above. The decrease in gross profit margin was caused by a
reduction in production volume in our Bend, Oregon manufacturing facility due to
lower demand resulting from the downturn in the semiconductor market, as
described above, which continued to impact us throughout 1998.
RESEARCH AND DEVELOPMENT EXPENSE. Our research and development expenses
were $926,000 in 1998, a decrease of 9.3% from research and development expenses
of $1.0 million in 1997. As a percent of net revenues, research and development
expense decreased to 3.7% in 1998 from 4.0% in 1997. The decrease in research
and development expense was primarily attributable to a salary reduction
implemented in response to the semiconductor market slowdown and a decrease in
the cost of masks and other product design costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Our selling, general and
administrative expenses were $7.1 million in 1998, a decrease of 4.1% from
selling, general and administrative expenses of $7.4 million in 1997. The
decrease in selling, general and administrative expense primarily resulted from
lower commissions on reduced revenues, a salary reduction implemented in
response to the semiconductor market slowdown and a work force reduction at our
European subsidiary, APT Europe, due to poor market conditions. Selling, general
and administrative expenses include amortization of goodwill of $358,000 in 1998
and $276,000 in 1997 related to the purchase of APT by our six senior officers.
See "Effects of Push Down Accounting" above. As a percent of net revenues,
selling, general and administrative expense remained relatively flat at 28.6% in
1998 compared to 28.8% in 1997.
INCOME (LOSS) FROM OPERATIONS. As a result of the items discussed above,
loss from operations was $1.6 million in 1998, compared to income from
operations of $18,000 in 1997. As a percent of net revenues, income (loss) from
operations decreased to (6.5)% in 1998 from 0% in 1997.
INTEREST EXPENSE. Interest expense increased to $1.2 million in 1998 from
$1.0 million in 1997, primarily as a result of additional debt we incurred in
order to finance the loan to our six senior officers in January 1998 as part of
the final buyout of APT. See "Certain Relationships and Related Transactions."
Interest expense includes interest expense of $324,000 in each of 1998 and 1997
related to the $3.3 million note payable to Hamilton Sundstrand for the purchase
of APT by our six senior officers. See "Effects of Push Down Accounting" above.
INCOME TAXES. We had a tax benefit of approximately 40% in 1998, compared
to an effective tax rate of approximately 11% in 1997. The 1998 tax benefit was
a result of a net loss in the period and the write-off of our tax basis of our
European subsidiary, APT Europe, in 1998. However, the reduction to the
effective tax rate was offset by increases for permanent differences including
goodwill
28
<PAGE>
amortization and expired net operating loss carryforwards. In addition, the
impact of push down accounting, primarily the nondeductibility of interest
expense and the recognition of interest income, as described above, resulted in
an increase in our effective tax rate. See "Effects of Push Down Accounting"
above. The 1997 effective tax rate was a result of the non-deductible loss
generated by APT Europe. This loss carryforward has a full valuation allowance
offsetting the corresponding deferred asset. In addition, the rate was increased
due to differences in the treatment of the interest income and interest expense
and the non-deductibility of goodwill amortization.
QUARTERLY RESULTS OF OPERATIONS
The following table shows, for the periods indicated, selected data from our
consolidated statements of operations. This selected data has been derived from
our unaudited consolidated financial statements, and, in our opinion, includes
all adjustments, consisting only of normal recurring adjustments, that are
necessary for a fair presentation of the results of operations for these
periods.
This unaudited selected quarterly financial data should be read in
conjunction with the consolidated financial statements and notes included
elsewhere in this prospectus. Our operating results in any quarter are not
necessarily indicative of the results that may be expected for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues, net........................... $6,642 $6,159 $ 5,375 $5,852 $6,586 $7,250 $7,773 $9,561
Gross profit............................ 2,101 1,843 923 1,828 2,346 2,365 2,922 3,383
Income (loss) from operations........... (67) 74 (1,159) (50) 263 460 583 851
Net income (loss)....................... (67) 81 (1,045) (412) (55) 118 174 244
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 2000, we generated approximately $1.0 million from
operating activities, primarily from net income of $244,000, depreciation and
amortization of $345,000 and an increase in accounts payable and accrued
expenses of $2.4 million, offset by increases in accounts receivable of
$1.1 million and inventories of $436,000. Accounts payable and accrued expenses
increased as a result of increased purchases of processed wafers and packages
during the first quarter of 2000 from two of our primary materials suppliers due
to the increasing level of sales. Accounts receivable and inventories increased
as a result of increased sales in the first quarter of 2000 as compared to the
fourth quarter of 1999.
In the first quarter of 2000, we used approximately $1.0 million in
investing activities, which primarily consisted of $875,000 for the purchase of
certain equipment, which had been under capital leases. At March 31, 2000, we
had capital expenditure commitments of approximately $420,000.
29
<PAGE>
In the first quarter of 2000, we used approximately $130,000 in financing
activities, which primarily consisted of repayment on lines of credit of
$769,000, offset by issuance of $775,000 of long-term debt to finance the
purchase of equipment, largely comprised of the buyout of the capital leases
referred to above.
In 1999, we generated approximately $1.7 million from operating activities,
primarily from depreciation and amortization of $1.8 million and a decrease in
prepaid expenses and other assets of $735,000, offset by an increase in accounts
receivable of $994,000. The decrease in prepaid expense and other assets was
attributable to the receipt in 1999 of an income tax refund, which was included
in prepaid expenses and other assets at the end of 1998. Accounts receivable
increased as a result of increased sales in 1999 as compared to 1998 and, in
particular, increased sales in the fourth quarter of 1999 as compared to the
fourth quarter of 1998.
In 1999, we used approximately $594,000 in investing activities, which
primarily consisted of the purchase and implementation of a new enterprise
resource planning system and upgrades to our MIS systems of approximately
$350,000 and the purchase of manufacturing equipment of approximately $249,000.
In 1999, we used approximately $789,000 in financing activities, which
primarily consisted of payments on capital lease obligations of $885,000 and
principal payment on long-term debt of $274,000, offset by borrowings on lines
of credit of $528,000.
In 1998, we generated approximately $359,000 from operating activities,
primarily from depreciation and amortization of $2.3 million and an increase in
accounts payable and accrued expenses of $630,000, offset by an increase in
deferred taxes of $771,000 and an increase in inventories of $321,000. The
increase in accounts payable and accrued expenses was attributable to the timing
of payments in late 1998. The increase in inventories was primarily attributable
to the slow down in the semiconductor industry that continued in 1998, which
resulted in lower sales and an increase in our finished goods inventories. The
increase in deferred taxes was due to the write-off of the tax basis of our
European subsidiary, APT Europe.
In 1998, we used approximately $614,000 in investing activities, primarily
consisting of the purchase of manufacturing equipment for approximately
$821,000, offset by the sale and lease back of $207,000 of equipment.
In 1998, we used approximately $7,000 in financing activities. We borrowed
$1.6 million under our lines of credit and increased our long-term debt by
$1.9 million. We paid $2.5 million in connection with the 1998 purchase
transaction by our six senior officers. "See Certain Relationships and Related
Transactions." Additionally, we made payments on capital lease obligations of
$933,000.
We have two lines of credit with a bank for up to a total of $6.0 million to
provide funds for our continuing operations and financing of the management
buyout in January 1998. The outstanding balance under the lines of credit at
March 31, 2000 was $3.8 million. The lines of credit expire in May 2001, and
bear interest at prime plus 1.0% or 1.25% based on the ratio of debt to equity
(10.25% at March 31, 2000). The lines of credit are secured by accounts
receivable and inventories, and a $1.0 million personal guarantee by our six
senior officers, which we expect to be cancelled at the time of this offering.
We have a loan from a bank, which is subordinate to amounts outstanding
under the two lines of credit described above, under which $2.5 million is
outstanding at March 31, 2000. This loan bears interest at prime plus 1.5% per
annum (10.5% at March 31, 2000), with monthly principal and interest payments.
The loan matures on September 30, 2000, is collateralized by substantially all
of our assets and is guaranteed by one of our major customers.
30
<PAGE>
APT Europe has a line of credit with a financing institution, which provides
borrowings based on a percentage of outstanding export accounts receivable,
bears interest at Euribor plus 2.0% per annum (5.7% at March 31, 2000), plus
commissions, and is collateralized by APT Europe's accounts receivable. Amounts
outstanding under this line of credit were $357,000 at March 31, 2000. The line
of credit is payable upon three months notice by either party.
We have two term loans outstanding at March 31, 2000. One of the term loans
has $500,000 outstanding at March 31, 2000, bears interest at 10.6% per annum,
with monthly principal and interest payments, and expires in March 2003. The
other term loan has $253,000 outstanding at March 31, 2000, bears interest at
10.6% per annum, with monthly principal and interest payments, and expires in
December 2003. Proceeds from these term loans were used to purchase equipment
and the loans are collateralized by the equipment.
We intend to use a portion of the net proceeds from this offering to repay
in full the amounts outstanding under our lines of credit of approximately
$4.1 million, the $2.5 million outstanding under a bank loan, and approximately
$942,000 of other outstanding long-term debt. We may make further borrowings in
the future under such lines of credit, if available. In addition, certain
selling stockholders will use a portion of the net proceeds from sale of their
stock in this offering to pay the $3.3 million note owed to Hamilton Sundstrand
that is reflected in our consolidated financial statements.
Borrowings under our lines of credit and term loans are subject to certain
financial covenants, including minimum tangible net worth, maximum debt to
tangible net worth, minimum debt service ratio and quick ratio. We were in
compliance with all covenants as of March 31, 2000, except for the covenant
which specifies maximum debt to tangible net worth, which was subsequently
waived.
We believe that the net proceeds from this offering, together with our
existing cash and cash equivalents, expected cash flow from operations and other
existing financing sources will be sufficient to support our operating cash and
debt service requirements for at least the next 18 months. We expect from time
to time to evaluate potential acquisitions and equity investments complementary
to our market strategy. To the extent we pursue such transactions, we could
require additional equity or debt financing to fund such activities or our
working capital requirements in the event of an industry downturn or an
unexpected adverse change in our business operations. To the extent we require
additional capital, we cannot assure you that we will be able to obtain such
financing on terms favorable to us, or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities", or SFAS No. 133. SFAS No. 133 establishes
methods for derivative financial instruments and hedging activities related to
those instruments, as well as other hedging activities. Because we do not
currently hold any derivative instruments and do not currently engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a material
impact on our financial position or results of operations. In June 1999, the
FASB issued Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB No. 133." SFAS No. 137 defers the effective date of SFAS
No. 133 for one year. SFAS No. 133, as amended, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB 101, and amended it in March 2000 to defer the effective date. We are
required to adopt the provisions of SAB 101 in our second quarter of 2000. We
are currently reviewing the provisions of SAB 101. Based on our revenue
recognition policy, we expect that the adoption of SAB 101 will not have a
material impact on our financial position or results of operations.
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In March 2000, the FASB issued FASB Interpretation No. 44, or FIN 44, which
provides interpretive guidance on several implementation issues related to
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees." We are required to adopt the provisions of FIN 44 in our third
quarter of 2000. We are currently reviewing the provisions of FIN 44. Based on
the activity under our stock option plan, we expect that the adoption of FIN 44
will not have a material impact on or financial position or results of
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not use derivative financial instruments in our investment portfolio.
Due to the short duration and conservative nature of our cash equivalents, we do
not expect any material loss with respect to our investment portfolio.
Certain of our sales, cost of manufacturing and marketing are transacted in
local currencies. As a result, our international results of operations are
subject to foreign exchange rate fluctuations. We do not currently hedge against
foreign currency rate fluctuations. Gains and losses from such fluctuations have
not been material to our consolidated results of operations. We believe a 10.0%
change in local currencies against the U.S. dollar as of March 31, 2000 would
have an immaterial effect on our pretax income over the next fiscal year.
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BUSINESS
We are a leading designer, manufacturer and marketer of high-performance
power semiconductors. Power semiconductors manage and regulate power by
converting electricity into a form required by electrical and electronic
products. Our power semiconductors increase system efficiency, permit the design
of more compact end products and improve features and functionality. We are
primarily focused on the high power, high frequency segment of the power
semiconductor market. High power refers to the ability to handle voltages and
currents above one kilowatt, and high frequency refers to the ability to switch
on and off at speeds above 100 kilohertz.
Our products can be broadly categorized into two product types:
- DISCRETE POWER SEMICONDUCTORS. Discrete power semiconductors are single
components used in general power management applications and consist of
power transistors and diodes. These products include metal oxide silicon
field effect transistors, or MOSFETs, insulated gate bipolar transistors,
or IGBTs, and fast recovery epitaxial diodes, or FREDs.
- APPLICATION SPECIFIC POWER MODULES. Application specific power modules, or
ASPMs, combine power semiconductors with other power management components
in modules that improve efficiency, provide a cost-effective solution and
enable customers to introduce new products more quickly. We produce most
of the power semiconductors used in our ASPMs.
We sell our products to over 750 customers through a network of independent
sales representatives and distributors, managed by our sales staff. We sell our
products primarily in North America and Europe, and increasingly in Asia. The
principal end-user markets for our products are communications and internet
infrastructure, semiconductor capital equipment, industrial, medical, and
military and aerospace. Our largest volume OEM customers include Advanced Energy
Industries, Power-One and Siemens. Our leading distributor is Richardson
Electronics. Power semiconductors are typically critical to the performance of
our customers' products, and we therefore work closely with a number of our
large OEM customers in the design phase of their products to ensure that we can
meet their performance requirements. Once our products have been designed into
end products, they tend to be used through the lifecycle of these end products.
INDUSTRY AND MARKET OVERVIEW
We believe there are two significant factors driving the general demand for
high performance power semiconductors:
- Rapid proliferation of sophisticated electronics; and
- Increasing need for higher power and more precisely regulated power
quality in electronic equipment.
Power semiconductors are used in virtually every electronic device to
convert and control the electrical current that powers the device. As a result,
the power semiconductor market is a large and steadily growing segment of the
semiconductor industry. The proliferation of consumer electronic devices,
wireless communication, and mobile computing is driving demand for new
generations of power semiconductors that are smaller, lighter and more
efficient. At the same time, new medical and industrial applications are
creating demand for more powerful and reliable power semiconductors.
Power semiconductors address the growing demand for energy efficiency and
are used to provide the precisely regulated power required by sophisticated
electronic products and equipment. The more sophisticated the end product, the
greater its need for specially formatted, finely regulated power. Within the end
product, power semiconductors are most commonly used to convert AC power (from
the power source such as a wall socket) into a more useable DC power and to
alter DC power to
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different voltage levels. Higher power, higher frequency power semiconductors
make many end products more efficient and permit them to be smaller and lighter.
Older generations of solid state power switching devices have been used for
the past 40 years. Bipolar transistors, which can handle large voltages and
currents, are slow to switch on and off, and require complex external drive
circuitry to handle the switching function. Power MOSFETs, which are controlled
by electrical voltage rather than by current, were introduced approximately
20 years ago. Because they are voltage controlled, power MOSFETs provide for
greater speed and reduced complexity of drive circuitry. Power MOSFETs were
originally very limited in the ranges of voltage and current that they could
handle. Our power MOSFETs were developed to increase the power that could be
handled by the device, while maintaining its advantage in speed of switching
over bipolar transistors.
The demand for power semiconductors is expanding as a result of the
proliferation of new technologies that require electricity and the increasing
use of electrical processes and automation in industry to increase productivity.
Sophisticated electronics are increasing their share of total electrical
consumption, with the Information Technology Industry Council reporting that
computers represented 13% of U.S. electrical consumption in 1998 versus only 6%
in 1994. The increasing complexity and power requirements of electronic
products, and the rapid increase in electronic features in communications
equipment, consumer electronics and industrial processes all require more
efficient power management.
MARKET SIZE AND TRENDS
Statistics published by the Semiconductor Industry Association project that
the worldwide market for all power semiconductors will grow at a 15% compound
annual growth rate from $11.2 billion in 1999 to $17.0 billion in 2002. The
Semiconductor Industry Association also projects that the worldwide market for
power MOSFETs and IGBTs will grow at a 17% compound annual growth rate from
$3.1 billion in 1999 to $5.1 billion in 2002. We believe that our current
products address approximately one-fourth of the market for power MOSFETs and
IGBTs. We believe that the market our products address is capturing a larger
share of the overall market for power MOSFETs and IGBTs as applications for high
power, high frequency semiconductors increase.
The primary markets we serve are characterized by rapid technological
development and increasing complexity. In addition to more overall power, we
believe these markets will require more reliable and precisely regulated forms
of power. The following key trends are driving the demand for high power, high
frequency semiconductors in our primary markets:
- CONVERGENCE OF VOICE, VIDEO AND DATA TRANSMISSION AND PROLIFERATION OF
WIRELESS SYSTEMS. As voice, video and data converge into one digital
stream, the power demands of traditional and emerging transmission systems
are changing. Service providers and equipment manufacturers are looking to
modify and supplement existing infrastructures to address these new
demands. Power semiconductors with higher power levels and faster
switching speeds give providers and manufacturers much more flexibility in
addressing these demands, in particular in building base stations for
wireless applications and servers for internet infrastructure.
- GROWING DEMAND FOR SEMICONDUCTOR CAPITAL EQUIPMENT. According to the
Semiconductor Industry Association, the worldwide semiconductor market is
forecasted to grow substantially from $148 billion in 1999 to
$212 billion in 2001, representing a compound annual growth rate of 20%.
Sales for semiconductor capital equipment to produce these semiconductor
devices is expected to grow even faster, from $24 billion in 1999 to
$38 billion in 2001, a compound annual growth rate of 25%. As
semiconductor capital equipment becomes more sophisticated in areas such
as thin film deposition and plasma etching, there is an increasing need
for high power, high frequency semiconductors.
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- EMERGENCE OF NEW APPLICATIONS FOR HIGH POWER, HIGH FREQUENCY
SEMICONDUCTORS. Continuing demands for higher power, higher voltages and
higher frequencies are expanding the range of applications for which
sophisticated power semiconductor products are suitable. For example, the
use of RF power semiconductors presents opportunities to enter new
markets. The same power delivery systems used for plasma generation in
semiconductor processing equipment are now finding new applications in the
industrial market (such as flat panel displays, optical and glass coatings
and tool-hard coatings) and the data storage market (such as data
recording heads as well as hard and compact disc technologies). In
addition, RF MOSFETs are now being used in magnetic resonance imaging
equipment in place of vacuum tubes, enhancing the performance of those
systems significantly.
Our products, which are based on our proprietary technology, offer
performance advantages that directly address the needs arising from these market
trends. We believe that our products operate more efficiently and at higher
frequencies than competing products.
STRATEGY
Our goal is to be a world leader in providing technologically advanced
semiconductor solutions for high power, high frequency applications. To
accomplish this goal, we plan to:
MAINTAIN OUR TECHNOLOGICAL LEADERSHIP WITHIN THE HIGH POWER, HIGH FREQUENCY
MARKET. Our current products are at the leading edge of the high power, high
frequency semiconductor industry. We will continue to leverage our strong
intellectual property position in developing power semiconductor solutions based
on our patented design and process architecture. We currently are developing
succeeding generations of our core products, as well as other, more application
specific products. Each of these generations is tailored to meet what we believe
will be the future market demands by further reducing conduction and switching
losses, and enhancing speed and performance.
BUILD ON OUR RELATIONSHIPS WITH CUSTOMERS IN EXPANDING MARKETS. We work
with industry leaders to understand their power application needs and develop
unique product solutions that offer a combination of increased speed, efficiency
and power density. We have had significant recent design wins, in which our
products are specified as the component of choice in newly developed products.
Since early 1999, we have been awarded 70 design wins, including eight different
telecommunications programs for Ericsson and two programs for Power-One. Our
products are being used by a number of the top manufacturers in the
communications and internet infrastructure, semiconductor capital equipment,
medical and industrial laser industries. We believe our technical assistance to
market leaders encourages the use of our devices in their products and results
in the adoption of our devices by other manufacturers in the industry.
EXPAND OUR PRODUCT OFFERING FOR RF APPLICATIONS. We expect to continue to
leverage the technological and competitive advantages of our products in the
growing market for RF applications. The markets for these applications are
rapidly expanding, and we believe there are few competitive products that match
the capabilities of our RF products. Examples of products that are using
increasing quantities of our RF semiconductors include plasma generation
equipment for semiconductor manufacturing and other thin film applications,
carbon dioxide lasers and magnetic resonance imaging systems.
LEVERAGE OUR EXTERNAL AND INTERNAL MANUFACTURING CAPABILITIES. We are
increasing our use of external manufacturing resources in order to maximize our
efficiency and flexibility and expand our capacity and capabilities, while
substantially reducing costs. Our five year foundry agreement with Infineon
Technologies allows us to reduce capital spending and manufacturing overhead
expenses and gain access to additional process technologies, and also allows our
internal manufacturing facilities to produce more specialized, limited
production run products. We are also expanding the role of our
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assembly subcontractors to further reduce manufacturing costs and production
cycle time. Our in-house manufacturing capabilities enable us to retain certain
proprietary aspects of our process technology, bring new products to market more
quickly and foster close collaboration between our design and process engineers
in the development of new products.
PURSUE EXTERNAL GROWTH OPPORTUNITIES. We are committed to pursuing
opportunities to expand our business through joint ventures, strategic
alliances, licensing agreements and strategic acquisitions in the U.S. and
internationally. We intend to expand new product development activities, enhance
our technological capabilities, and improve our industry expertise and customer
base through these arrangements. Examples of this strategy include our new joint
venture and pending licensing and technology transfer agreement in China, which
we expect will strengthen our position in the Asia market, and our alliance with
Microsemi, which we expect will enable us to serve the implantable medical
device market.
PRODUCTS
Our products combine innovative proprietary and patented semiconductor
technology, designs, processes and packaging solutions that are optimized for
our customers' applications. They can be broadly categorized into two product
types:
- DISCRETE POWER SEMICONDUCTORS. Discrete power semiconductors are single
components used in general power management applications and consist of
power transistors and diodes. These products include MOSFETs, IGBTs and
FREDs.
A power MOSFET is a switch controlled by voltage at its gate. Power MOSFETs
are used in combination with passive components to vary the amperage and
frequency of electricity by switching on and off at very high speeds. Based
on our original core technology, our MOSFET products include Power MOS
IV-TM- introduced in 1989, Power MOS V-TM- introduced in 1997 and Power MOS
VI-TM- introduced in 1999. Each succeeding generation offers performance
improvements over the preceding generation. Our products also include RF
MOSFETs for applications with frequencies higher than 13 megahertz.
Our IGBTs and FREDs are derivative products of our core technology. IGBTs
are also switches and serve many of the same functions as power MOSFETS.
IGBTs can operate at higher currents and voltages but have a much slower
switching speed than that of power MOSFETS. FREDs are very fast rectifiers
that limit spikes in voltage across the power switch in order to reduce
power dissipation and electromagnetic interference. FREDs are typically
used in conjunction with MOSFETs and IGBTs.
Our RF MOSFETs, IGBTs and FREDs are often used as part of the same power
conversion or support systems that use our power MOSFETs. These derivative
technologies and products share many of the same markets and customers with
our core products, and we expect them to contribute to our growth.
Our discrete power semiconductors are packaged either in plastic or
hermetically in metal. Our higher volume products are plastic packaged,
where the product is encapsulated in a plastic mold compound. We also offer
a line of hermetic products where the product is encapsulated in a metallic
and hermetic package. Hermetic products are typically used in high
reliability applications, serving the military and aerospace markets,
although there is a trend in these markets toward using plastic products
that are more cost effective. Some of our plastic products have been
successfully used in aerospace applications.
- APPLICATION SPECIFIC POWER MODULES. ASPMs combine power semiconductors
with other power management components in modules that improve efficiency,
provide a cost-effective solution and enable customers to introduce new
products more quickly. We produce most of the power
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semiconductors used in our ASPMs. Our ASPMs cover a wide range of
integration and complexity, from relatively simple functions integrating
less than ten components to fully integrated functions integrating more
than 500 components in a single power module. Many of our ASPM customers
also buy our discrete products.
RESEARCH AND DEVELOPMENT
Our research and development efforts focus on improving our core technology
and the products associated with it. Over the past several years we introduced
new and significantly improved versions of our core switching MOSFET
technology--Power MOS V-TM- in 1997, and next generation Power MOS VI-TM-, with
further performance enhancements in 1999 and 2000. Succeeding generations of
switching power MOSFET technologies for further product performance enhancements
are currently in development.
Our research and development engineers work closely with our product
engineers and technicians to improve our products and our core technology. We
focus on internal improvements in our technology (such as reducing feature size)
to improve the efficiency and speed of our products, and on incorporating
outside technological advances to ensure that our products remain highly
competitive. We also spend significant engineering time modifying our core
products in order to address specific customers or market needs. Our discrete
semiconductor research and development activities take place at our Bend, Oregon
facility. ASPM research and development activity takes place at our Bordeaux,
France facility. We incurred expenses of $1.0 million, $926,000 and $883,000, in
fiscal years 1997, 1998 and 1999, respectively, for research and development.
Historically, capital constraints have required us to focus our research and
development activity almost exclusively on enhancing and protecting our core
technology. We expect to increase our research and development investments in
the future to accelerate the development of our core technology and to further
expand into fast growing areas such as power semiconductors for RF applications.
CUSTOMERS
We sell our products to approximately 750 customers through a network of
independent sales representatives and distributors, managed by our sales staff.
In 1999, approximately 57% of our revenues were from sales to customers in the
United States, 35% to customers in Europe, 7% to customers in Asia and 1% to
customers in the rest of the world.
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We maintain a diversified customer base in the markets we serve. Outlined in
the table below are our end markets, as well as representative end applications,
OEM customers and end-users.
<TABLE>
<CAPTION>
MARKETS APPLICATIONS OEM CUSTOMERS END-USERS
<S> <C> <C> <C>
Communications and Servers and Mass Acme Electric EMC
Internet Storage Alcatel Ericsson
Infrastructure Telecom Rectifiers and Alpha Technologies Hewlett-Packard
AC to DC Converters Ascom Energy Systems IBM
for Ericsson Energy India Telecom
- Fiber Optic Systems Motorola
Repeaters ITI Nextel
- Cellular Base Power-One Nokia
Stations With Com Sun Microsystems
- Routers / Hubs Williams
- Telecom Switches Communications
Semiconductor Capital Plasma Generation for Advanced Energy Applied Materials
Equipment - Thin Film Deposition Industries Eaton
- Dry Etching Emerson / ENI Lam Research
Power Supplies Novellus
Industrial Welding Barco
Lasers Branson Ultrasonic
Induction Heating Fronius
Projection Systems Intecolor
Ultrasonic Cleaning Migatronic
Transistor Devices
Medical Magnetic Resonance Analogic GE Medical
Imaging Colorado MEDtech Phillips Medical
X-Ray Microsemi Picker International
Radio Therapy MTS Systems Siemens Medical
Defibrillators Siemens Medical
Military and Aerospace Electronic Counter Northrop Corporation
Measures Raytheon
Missiles Tecro
Radar / Sonar
Solar Panel Power
Distribution
</TABLE>
We sell our products both to OEMs and through distributors. In 1999,
approximately 80% of our net sales were to OEMs, and 20% were to distributors.
In 1999, sales to our five largest customers accounted for 39.5% of our sales.
Advanced Energy Industries accounted for 15.6% of our net sales in 1997, 7.8% of
our net sales in 1998, and 14.6% in 1999. No other customer account exceeded 10%
of our net sales during these periods. We provide to our customers a 12-month
repair or replacement warranty for defective products.
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SALES, MARKETING AND DISTRIBUTION
Our internal sales organization consists of three regional sales managers
who work under the supervision of the vice president of sales. There is one
sales manager for each of Europe and Asia, and North America is covered jointly
by both a sales manager and our vice president of sales. Each regional sales
manager directs the sales efforts of the independent manufacturers'
representatives and independent distributors in his or her region. We currently
have 36 independent manufacturers' representatives, whose primary focus is
developing and servicing major OEM accounts.
We use independent distributors to develop and service our smaller volume
accounts worldwide. We have three regional and two national distributors in
North America, and 23 single country distributors who cover western Europe and
Asia. In 1998, we entered into a strategic agreement with Richardson
Electronics, a worldwide distributor, under which they stock significant
quantities of our most popular products. This arrangement has significantly
enhanced our ability to meet the needs of our smaller volume customers and
permitted increased sales to large manufacturing customers by freeing up sales
and support resources. Distributors can return up to 5% of the dollar value of
products purchased during the prior six months upon 30 days notice. We closely
monitor inventory levels at our key distributors on a monthly basis.
Technical support for the sales force is provided by our application
engineering, product engineering and product marketing organizations. We employ
six engineers in these organizations, as well as support staff. Customer service
for all of our accounts is handled by our customer service organizations in
Bend, Oregon and Bordeaux, France. Our website gives our customers access to
information about us and our products, enables them to request product samples,
quotations or technical assistance and provides links to our local sales
channels worldwide.
MANUFACTURING AND FACILITIES
Our discrete power semiconductors are manufactured in our Bend, Oregon
facilities, and, beginning in the fourth quarter of 1999, by Infineon
Technologies at its facility in Austria under our wafer foundry agreement. We
use subcontractors in the Philippines and Taiwan to package and test our plastic
packaged discrete products. We manufacture and assemble all of our discrete
hermetic packages in Bend. ASPMs are manufactured at our facility in Bordeaux,
France, as well as at our subcontractor's facility in the Philippines.
We lease a 41,000 square foot building in Bend where we perform our
semiconductor manufacturing, shipping and warehousing, as well as our
engineering and research and development. We manufacture four-inch wafers in
this facility. We lease an 18,000 square foot building in Bend that houses all
of our administrative functions, as well as some testing and shipping. We lease
a 10,000 square foot facility in Bordeaux that houses our ASPM production,
shipping and warehousing, as well as the administrative and development staff
for our European operations.
Our current manufacturing strategy is to expand our use of external
subcontractors for the manufacture and assembly of our most popular, highest
volume products. We selected Infineon Technologies as our foundry partner for
its ability to process more cost effective six-inch wafers in its
state-of-the-art manufacturing facility. This should permit us to reduce our
manufacturing costs on higher volume products while expanding the use of our
internal manufacturing facilities for increased research and development and for
the production of more specialized, lower volume products. Our Bend
manufacturing facility is currently operating at or near capacity, and we are
increasing production at Infineon Technologies faster than we initially
anticipated in order to meet increasing customer demand. We expect our agreement
with Infineon Technologies to nearly triple our production capacity, and to
substantially reduce our cost per wafer as the volume of wafers purchased
increases. This agreement with Infineon Technologies extends through 2004.
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Our packaging subcontractors currently test a portion of the products that
they assemble. Most of the discrete power semiconductors are returned to our
Bend facility for further testing prior to shipment to customers. We plan to
move more of the testing operations to our subcontractor's facility in the
Philippines, which will permit direct shipment from that facility to our
customers. We expect this to reduce our manufacturing costs and production cycle
times.
Our ASPM manufacturing techniques utilize a wide variety of processes and
equipment, which allow us to design and produce products of varying complexity
for a number of different applications. Our ASPM manufacturing strategy includes
moving the assembly and testing of certain niche products to our Bend facility,
and the assembly and testing of certain high volume products to our
subcontractor in the Philippines. We intend to continue manufacturing low to
medium volume and medium to high complexity ASPMs at our facility in Bordeaux.
Our manufacturing processes emphasize quality and reliability, and involve
testing at various stages of the manufacturing process. We test 100% of our
products. Our Bend facility is certified to IS0-9001 standards and to U.S.
military specifications.
COMPETITION
We encounter varying degrees of competition for our products, depending on
the nature of the product and the particular market served. Generally, the power
semiconductor industry is highly competitive and subject to price erosion, and
many of our competitors are larger companies with greater financial resources.
There are a number of companies that manufacture products that compete directly
with our products. Our principal competitors include International Rectifier,
IXYS and ST Microelectronics.
We believe that the primary elements of competition in our markets are
product features and performance, quality, reliability, technical knowledge,
breadth of product line, competitive pricing and customer service and support.
We believe that our proprietary design makes our products more efficient and
allows them to operate at higher frequencies than those of our competitors,
allowing us to compete effectively in our markets.
INTELLECTUAL PROPERTY MATTERS
We have received 17 U.S. patents and eight foreign patents and have
applications pending for an additional one U.S. and five foreign patents on
different aspects of our core technology. We rely on these patents, trade secret
and other intellectual property laws, as well as confidentiality and
intellectual property assignment agreements with our employees in Bend, Oregon
to protect our proprietary rights. We regard certain of our processes,
information and knowledge that we have developed and use to design and
manufacture our products as proprietary. We have also registered trademarks for
Power MOS IV-TM-, Power MOS V-TM- and Power MOS VI-TM-.
We have licensed portions of our intellectual property for commercialization
in certain foreign markets. In 1990, we entered into two non-exclusive,
non-transferable licenses and technology transfer agreements for the manufacture
of our products in Japan. In 1991, we entered into a similar arrangement with a
manufacturer in the United Kingdom for sales in Europe only. Each of these
agreements resulted in one-time payments to us and entitle us to certain
royalties over the life of the licenses. To date, on going royalties from these
licensing arrangements have not been material. We recently entered into a joint
venture agreement in China, which includes a license and technology transfer
agreement for our Power MOS V-TM- and Power MOS VI-TM- technology, in exchange
for cash payments totalling $1.5 million over two years and a 25% share in the
equity ownership of the joint venture. We believe that these arrangements will
enhance our access to key markets in Asia and Europe.
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EMPLOYEES
At March 31, 2000, we had 204 employees. Of these, 172 were at our
facilities in Bend, Oregon, 31 were at our facility in Bordeaux, France, and one
was located in Boston, Massachusetts. Our continued success depends heavily on
our ability to attract and retain qualified personnel. We consider our relations
with our employees to be good. None of our employees are represented by a union.
ENVIRONMENTAL REGULATION
While we believe we have the environmental permits necessary to conduct our
business and that our operations conform to present environmental regulations,
increased public attention has been focused on the environmental impact of
semiconductor operations. In the conduct of our manufacturing operations, we
have handled and do handle materials that are considered hazardous, toxic or
volatile under federal, state and local laws; therefore, we are subject to
regulations related to the use, storage, discharge and disposal of materials.
The risk of accidental release of such materials cannot be completely
eliminated, and if such a release occurs, we could be held financially
responsible for the clean up or other consequences of the release. Along with
the rest of the semiconductor industry, we are subject to variable
interpretations and governmental priorities concerning environmental laws and
regulations. Environmental statutes have been interpreted to provide for joint
and several liability and strict liability regardless of actual fault. We may be
required to incur costs to comply with current or future environmental laws or
regulations, and our operations, business or financial condition could be
adversely affected by such requirements.
LEGAL PROCEEDINGS
From time to time in our industry, participants become involved in
litigation over intellectual property rights and other matters. We are not
currently involved in any litigation, and have not received any unresolved
claims or threats of claims. However, we are from time to time a party to
litigation or claims that arise out of the ordinary conduct of our business,
including those relating to commercial transactions, contracts and environmental
matters.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages as of June 1, 2000 and
positions of our directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ------------------------------------------
<S> <C> <C>
Patrick P.H. Sireta....................... 55 President, Chief Executive Officer, and
Chairman of the Board of Directors
Russell J. Crecraft....................... 39 Vice President, Manufacturing Operations
Greg M. Haugen............................ 44 Vice President, Finance and
Administration; Chief Financial Officer;
Secretary
John I. Hess.............................. 50 Vice President, Marketing and Discrete
Product Operations
Thomas A. Loder........................... 46 Vice President, Sales
Dah Wen Tsang............................. 53 Vice President, Engineering and Research
and Development
James E. Petersen......................... 60 Director
Douglas S. Schatz......................... 54 Director
</TABLE>
PATRICK P.H. SIRETA. Mr. Sireta joined APT as its President and Chief
Executive Officer in 1985, and was named Chairman of the Board in 1995. Before
joining APT, Mr. Sireta held several positions with Texas Instruments, including
Financial Director, Texas Instruments France; General Manager, Texas Instruments
Portugal; General Manager, Texas Instruments France; and Vice President and
General Manager, CMOS Division, Texas. He was General Manager of Video Color, a
joint venture of RCA and Thomson, from 1979 to 1981. He holds a Master's Degree
in Engineering from Ecole Centrale de Paris and a Ph.D. in Statistics from Paris
University.
RUSSELL J. CRECRAFT. Mr. Crecraft was appointed Vice President,
Manufacturing Operations in 1995. He joined APT in 1986, and held several
supervisory positions in product management and assembly/ test operations. Prior
to joining APT, he worked with Texas Instruments where he held product
engineering and management positions. Mr. Crecraft has a BSEE in Electrical
Engineering from Texas A&M University.
GREG M. HAUGEN. Mr. Haugen was appointed Vice President, Finance and
Administration, Chief Financial Officer and Secretary in 1995. Mr. Haugen joined
APT in 1985. Prior to joining APT, he worked for the accounting firm of KPMG LLP
and was on the corporate accounting staff of Evans Products Company. Mr. Haugen
graduated with a BS Degree from Lewis and Clark College and has passed the CPA
examination.
JOHN I. HESS. Mr. Hess was appointed Vice President, Marketing and Discrete
Product Operations in 1999. Mr. Hess, who joined APT in 1985, held several prior
positions in APT, including Vice President, Sales and Marketing; Vice President,
Discrete Power Products; and Vice President, Manufacturing Operations. Prior to
joining APT, Mr. Hess was Director of Wafer Fabrication and Test Operations at
Seeq Technology. He also held engineering, project management, and manufacturing
assignments with Siliconix and Signetics. Mr. Hess has a BSE in Chemical
Engineering from Arizona State University.
THOMAS A. LODER. Mr. Loder was appointed Vice President, Sales in 1999.
Mr. Loder joined APT in 1988 as Regional Sales Manager for the southern U.S.,
and subsequently served as Worldwide Sales
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Manager, and Vice President, Discrete Power Products. Prior to joining APT,
Mr. Loder was Area Sales Manager for Unitrode Corporation, Regional Sales
Manager for Silicon General and ION Associates, Product Sales Manager for
Elmwood Sensors, and Branch Manager for Newark Electronics. Mr. Loder has a BA
in Biology from Brown University.
DAH WEN TSANG. Dr. Tsang was appointed Vice President, Engineering and
Research and Development in 1987. Previously, he was Director of Research at
Theta-J, and worked in Hewlett-Packard's power MOSFET program. Dr. Tsang's
papers have been published by technical journals, including the Journal of
Applied Physics and IEEE Transactions. Dr. Tsang has BES and MS Degrees from
Brigham Young University, and a Ph.D. from the University of California at
Berkeley.
JAMES E. PETERSEN. Mr. Petersen was elected as a Director in 1995. He also
serves as outside general counsel to APT. Mr. Petersen is a partner with the
firm of Karnopp, Petersen, Noteboom, Hansen, Arnett & Sayeg, LLP, of Bend,
Oregon. Mr. Petersen received his BA Degree and Juris Doctor from the University
of Oregon. Mr. Petersen also serves as a Director of Cascade Bancorp, a bank
holding company.
DOUGLAS S. SCHATZ. Mr. Schatz was elected as a Director in 1995. He is the
Chief Executive Officer, a director and Chairman of the Board of Advanced Energy
Industries. Mr. Schatz founded Advanced Energy Industries in 1981.
BOARD OF DIRECTORS
We currently have authorized up to seven directors. Each director holds
office until his or her annual term expires or until his or her successor is
duly elected and qualified. We have agreed to add two independent directors
within 90 days of this offering.
Our board of directors has an audit committee and a compensation committee.
These committees currently consist of Mr. Petersen who will be joined by two new
independent directors. The audit committee reviews our internal accounting
procedures and consults with and reviews the services provided by our
independent accountants. The compensation committee reviews the compensation and
benefits of our employees and directors and makes recommendations to our board
of directors. No member of our compensation committee has served as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
compensation committee. We do not currently have a nominating committee.
Directors do not receive any cash compensation, however, they are reimbursed
for expenses incurred in attending any board or committee meeting. Our
non-employee directors are eligible to participate in our 1995 Stock Option
Plan. Each non-employee director will be eligible to receive a grant of an
option to purchase shares of common stock. Currently, the shares subject to each
of these options will vest and become fully exercisable over five years, in
equal annual installments beginning one year after the date of grant and
continuing for the length of the director's term.
EXECUTIVE COMPENSATION
The following table describes the compensation we paid to our chief
executive officer and our four other most highly compensated executive officers
during fiscal year 1999.
43
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION(2)
--------------------------- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Patrick P.H. Sireta, Chairman, President and
CEO............................................. 1999 183,113 17,482 490
Russell J. Crecraft, VP, Manufacturing
Operations...................................... 1999 101,205 5,608 56
John I. Hess, VP, Marketing and Discrete Product
Operations...................................... 1999 120,799 6,538 366
Thomas A. Loder, VP, Sales........................ 1999 106,563 5,776 187
Dah Wen Tsang, VP, Engineering, Research &
Development..................................... 1999 122,805 6,629 378
</TABLE>
------------------------
(1) Accrued during fiscal year 1999 and paid in January 2000.
(2) Term life insurance premiums paid by APT for the executive's benefit.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
We have entered into employment agreements with each of the named officers.
Each officer can be dismissed without cause, with severance pay equal to one
month's salary. These agreements obligate each officer other than John Hess and
Thomas Loder to not compete with us for a period of 18 months after termination.
We have an annual cash bonus plan in which our key managers, including the named
officers, participate. Bonuses are paid quarterly based on our financial
performance.
1995 STOCK OPTION PLAN
Our stockholders and our board of directors have approved and adopted an
employee stock option plan effective December 31, 1995, under which optionees
may acquire rights to purchase shares of our common stock. The plan is
administered by our board of directors, and the principal purpose of this plan
is to provide incentives to attract, retain and motivate employees whose
contributions are important to our success. A total of 1,500,000 shares are
reserved for issuance under the plan. The price at which options may be
exercised under the plan has been determined by our board of directors, and the
board of directors acted in good faith to establish an exercise price that is
equal to or greater than the fair market value of the underlying shares on the
date of issuance. After this offering, exercise prices will be set in compliance
with the rules and policies of any stock exchange upon which our common shares
are listed. Options issued under the plan are subject to vesting schedules and
other terms and conditions set by the board of directors. Options may be granted
at any time to any of our employees, contractors, consultants or independent
directors, but no person other than an employee of APT or a related entity may
receive a grant of incentive stock options. Each option granted under the plan
expires on the tenth anniversary of the date of grant unless the agreement
granting the option specifies an earlier termination date.
The number of common shares we may issue under the plan can be increased
with the approval of a majority of our stockholders.
As of May 31, 2000, there were outstanding options to purchase 953,197
shares of common stock, of which 416,783 were vested, and of which 412,810 were
held by officers and directors. The average exercise price of those options is
$1.46 per share, and the outstanding options expire between December 31, 2005
and March 30, 2010.
44
<PAGE>
OPTION GRANTS IN 1999
There were no stock option grants to our chief executive officer or our four
other most highly compensated officers during the fiscal year ended
December 31, 1999.
AGGREGATE OPTION EXERCISES IN 1999
None of the named executive officers exercised options during the fiscal
year ended December 31, 1999. The following table sets forth information
concerning exercisable and unexercisable stock options held by the executive
officers named in the summary compensation table at December 31, 1999. The value
of unexercised in-the-money options is based on an assumed initial offering
price of $ per share minus the actual exercise prices.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Patrick P.H. Sireta............................ 133,305 88,870 $ $
Russell J. Crecraft............................ 11,967 10,478
John I. Hess................................... 23,700 16,800
Thomas A. Loder................................ 18,021 14,514
Dah Wen Tsang.................................. 43,343 33,062
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1995, our six senior officers, acting through Tremoliere, LLC, purchased
a controlling 51% interest in APT from Hamilton Sundstrand for approximately
$3.6 million, of which approximately $3.3 million was funded with a note payable
to Hamilton Sundstrand and the balance was funded from the personal assets of
the purchasers. In 1998, the same group purchased the remainder of APT for
approximately $2.5 million. Tremoliere, LLC borrowed $3.0 million from APT, an
amount sufficient to purchase the remaining 49% interest in the Company and to
pay interest on the note owed to Hamilton Sundstrand. In 1999, Tremoliere, LLC
borrowed an additional $100,000 from APT to pay interest on the note owed to
Hamilton Sundstrand. Our six senior officers as selling stockholders intend to
use a portion of their net proceeds from this offering to pay an estimated
$ million in taxes incurred as a result of the sale of the shares, and to repay
approximately $4.1 million owed to Hamilton Sundstrand and $3.6 million owed to
APT.
In 1999, sales to Advanced Energy Industries were $4.0 million, and
accounted for 14.6% of our net sales. Advanced Energy Industries guaranteed a
$1.0 million bank loan to us in 1995, and increased that guaranty to
$2.5 million in 1998. That guaranty is still outstanding, however, it will be
terminated in connection with this offering. We have issued warrants to purchase
560,000 shares of our common stock at a weighted average exercise price of $2.73
per share to Advanced Energy Industries. These warrants will expire on
completion of this offering, and we expect them to be exercised immediately
before expiration. Douglas Schatz, who is the Chief Executive Officer, Chairman
of the Board and a substantial shareholder of Advanced Energy Industries, serves
as a director of APT.
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of May 31, 2000 with respect to:
- each person or group of affiliated persons known by us to own beneficially
more than 5% of the outstanding shares of common stock;
- each of our directors;
- each of our executive officers; and
- all directors and executive officers as a group.
Except as otherwise indicated in the footnotes to the table, each
stockholder has sole voting and investment power with respect to the shares
beneficially owned by such stockholder. 5,000,000 of the 5,000,520 outstanding
shares are currently held by Tremoliere, LLC. Upon the closing of this offering,
Tremoliere will be dissolved and the shares distributed to its members. The
following table assumes that distribution has been completed:
<TABLE>
<CAPTION>
OWNERSHIP OF COMMON OWNERSHIP OF COMMON
STOCK PRIOR TO THE OFFERING STOCK AFTER THE OFFERING
------------------------------ NUMBER OF -------------------------
NUMBER OF PERCENTAGE SHARES OFFERED NUMBER OF PERCENTAGE
SHARES OWNERSHIP HEREBY SHARES OWNERSHIP
----------------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Patrick P.H. Sireta (1)............... 2,905,015 56.1% %
Douglas S. Schatz (2)................. 560,000 10.1
Dah Wen Tsang (3)..................... 513,169 10.1
John I. Hess (4)...................... 486,345 9.7
Thomas A. Loder (5)................... 479,073 9.5
Russell J. Crecraft (6)............... 471,001 9.4
Greg M. Haugen (7).................... 463,545 9.3
James E. Petersen (8)................. 1,000 --
Advanced Energy Industries (9)........ 560,000 10.1
All directors and executive officers
as a group (8 persons) (10)......... 5,879,148 100.0
</TABLE>
------------------------
(1) Includes 177,740 shares issuable upon exercise of options which are
exercisable within 60 days of May 31, 2000, of which 55,544 have been
assigned to Mrs. Elizabeth Sellers. Mr. Sireta disclaims beneficial
ownership of those shares assigned to Mrs. Sellers, his ex-wife. Mr. Sireta
owns his shares through Sireta, LLC.
(2) Comprised of 560,000 shares beneficially owned by Advanced Energy
Industries. Mr. Schatz is the Chief Executive Officer and Chairman of the
Board of Advanced Energy Industries and may be deemed to share voting or
investment control with respect to those shares. Mr. Schatz disclaims
beneficial ownership of such shares.
(3) Includes 58,624 shares issuable upon exercise of options which are
exercisable within 60 days of May 31, 2000.
(4) Includes 31,800 shares issuable upon exercise of options which are
exercisable within 60 days of May 31, 2000.
(5) Includes 24,528 shares issuable upon exercise of options which are
exercisable within 60 days of May 31, 2000.
(6) Includes 16,456 shares issuable upon exercise of options which are
exercisable within 60 days of May 31, 2000.
46
<PAGE>
(7) Includes 9,000 shares issuable upon exercise of options which are
exercisable within 60 days of May 31, 2000.
(8) Comprised of 1,000 shares issuable upon exercise of options which are
exercisable within 60 days of May 31, 2000.
(9) Comprised of 560,000 shares issuable upon exercise of warrants which expire
at closing of this offering. Advanced Energy Industries intends to exercise
its warrants utilizing the "net exercise" provision, thereby receiving
approximately shares at closing of this offering, at a weighted
average exercise price of $2.73 per share and an assumed initial public
offering price of $ per share. Advanced Energy Industries intends to sell
approximately shares in this offering to satisfy its estimated
tax liability, and has granted the underwriters an option to purchase an
additional shares, exercisable within 30 days of the offering.
The remaining shares will remain subject to a "lock-up" agreement for
180 days. The address for Advanced Energy Industries is 1625 Sharp Point
Drive, Fort Collins, Colorado 80525.
(10) Includes 319,148 shares issuable upon exercise of options which are
exercisable within 60 days of May 31, 2000, and 560,000 shares issuable upon
exercise of warrants. See notes 1 through 8 above.
DESCRIPTION OF CAPITAL STOCK
The following description summarizes the most important terms of our capital
stock. Because it is only a summary, it does not contain all of the information
that may be important to you. For a complete description, you should refer to
our Certificate of Incorporation, as amended, and our Bylaws, as amended.
COMMON STOCK
Each holder of our common stock is entitled to receive notice of and to
attend any meeting of our stockholders, and is entitled to one vote per share
held at such time on all matters to be voted on by our stockholders. Each holder
of our common stock is entitled to receive dividends if they are declared by our
board of directors, and will participate equally in any distribution of assets
upon our liquidation, dissolution or winding up period. There are no cumulative,
subscription or pre-emptive rights to subscribe for any additional securities
which we may issue. There are also no redemption provisions, conversion
provisions or sinking fund provisions applicable to our common stock.
PREFERRED STOCK
Our board of directors, pursuant to the Certificate of Incorporation as
amended, is authorized to issue the preferred stock in one or more series and to
fix the voting rights, liquidation preferences, dividend rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences of the preferred stock. The board of
directors, without stockholder approval, can therefore, issue preferred stock
with voting, conversion and other rights that could adversely affect the voting
power and other rights of, and amounts payable with respect to, the common
stock. This may be deemed to have a potential anti-takeover effect because the
issuance of preferred stock in accordance with such provision may delay, defer
or prevent a change of control regarding us and could adversely affect the price
of our common stock.
REGISTRATION RIGHTS
We granted registration rights with respect to shares of our common stock
that are issuable upon the exercise of warrants. Certain of these shares are
being registered for sale in this offering. We estimate that 152,858 shares of
common stock issuable under these warrants will continue to have
47
<PAGE>
registration rights following this offering. All of these shares are subject to
a lock-up agreement as described in "Underwriting."
POSSIBLE ANTI-TAKEOVER EFFECT ON CERTAIN CHARTER PROVISIONS
Our Certificate of Incorporation and Bylaws require that stockholders give
advance notice to us of any business to be brought by stockholders at any
stockholders' meeting. This provision may have the effect of delaying changes in
control or management of APT, deterring hostile takeovers or deferring or
preventing a tender offer or takeover attempt that a stockholder might consider
to be in such stockholder's best interest, including those attempts that might
result in a premium over the market price for the shares held by the
stockholders.
CERTAIN PROVISIONS OF DELAWARE LAW
We are a Delaware corporation and are subject to Section 203 of the Delaware
General Corporations Law, or DGCL. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined therein) with a Delaware corporation for three years
following the date such person became an interested stockholder, unless
(a) before such person became an interested stockholder, the board of directors
of the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (b) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation and shares held by certain employee stock ownership plans) or
(c) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
Our Certificate of Incorporation provides that to the fullest extent
permitted by the DGCL, our directors will not be liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director.
Under the DGCL, liability of a director may not be limited (a) for any breach of
the director's duty of loyalty to us or our stockholders, (b) for acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (c) in respect of certain unlawful dividend payments or stock
redemptions or repurchases and (d) for any transaction from which the director
derives an improper personal benefit. The effect of the provisions of our
Certificate of Incorporation is to eliminate the rights of APT and its
stockholders (through stockholders' derivative suits on behalf of APT) to
recover monetary damages against a director for breach of the fiduciary duty of
care as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (a) through
(d) above. This provision does not limit or eliminate the rights of APT or any
stockholder to seek nonmonetary relief, such as an injunction or rescission, in
the event of a breach of a director's duty of care. Our Certificate of
Incorporation and Bylaws provide that APT shall indemnify its directors,
officers, employees and agents against claims, liabilities, damages, expenses,
losses, costs, penalties or amounts paid in settlement incurred by such director
or officer in or arising out of his or her capacity as a director, officer,
employee and/or agent of APT to the extent the person acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interests of
APT. In addition, such director or officer is entitled to an advance of expenses
to the maximum extent authorized or permitted by law.
48
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is American Securities
Transfer & Trust.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the offering, we will have outstanding
shares of common stock (assuming no exercise of the underwriters' over-allotment
option). All of the shares of common stock sold in the offering will be freely
tradable under the Securities Act, unless purchased by "affiliates" of APT as
that term is defined under the Securities Act. Upon the expiration of lock-up
agreements between APT, substantially all of the stockholders and the
underwriters, which will occur 180 days after the date of this prospectus, or
the Effective Date, shares of common stock owned by these
stockholders, or Restricted Shares, will become eligible for sale, subject to
compliance with Rule 144 of the Securities Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Common Stock then outstanding (approximately shares immediately after the
offering) or (ii) the average weekly trading volume of the Company's Common
Stock on Nasdaq during the four calendar weeks immediately preceding the date on
which the notice of sale is filed with the Securities and Exchange Commission.
Substantially all of the Restricted Shares have been held for over one year.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed to
be an affiliate of the Company preceding the sale, and who has beneficially
owned Restricted Shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations and requirements
described above.
APT, and its officers, directors, the holders of outstanding shares,
and the holders of options to acquire of the shares subject to
outstanding options have agreed with the underwriters that until 180 days after
the Effective Date not to directly or indirectly, offer to sell, contract to
sell, sell or otherwise dispose of any common stock or any securities
convertible into or exercisable or exchangeable for common stock without the
prior written consent of Stephens Inc. APT has also agreed not to directly or
indirectly, offer to sell, contract to sell, sell or otherwise dispose of any
common stock or any securities convertible into or exercisable or exchangeable
for common stock for a period of 180 days after the Effective Date, without the
prior written consent of Stephens Inc., subject to certain limited exceptions
including grants of options and issuance of shares of common stock upon exercise
of currently outstanding options under our 1995 Stock Option Plan. The lock-up
agreements may be released at any time as to all or any portion of the shares
subject to such agreements at the sole discretion of Stephens Inc.
Any of our employees, officers or directors or a consultant who holds vested
options as of the Effective Date pursuant to our 1995 Stock Option Plan are
entitled to rely on the resale provisions of Rule 701, which permit
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permit affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing
90 days after the date of completion of this offering. However, we and our
officers, directors and the holders of of the outstanding options have
agreed not to, directly or indirectly, offer to sell, contract to sell, sell or
otherwise dispose of any shares of our common stock or any securities
convertible into or exercisable or exchangeable for common stock for the 180-day
period after the Effective Date without the prior written consent of
Stephens Inc. See "Underwriting" for additional information regarding
limitations on the sale of our common stock.
49
<PAGE>
Not earlier than ninety (90) days after the date of completion of this
offering, we intend to file a registration statement on Form S-8 under the
Securities Act to register shares of common stock reserved for issuance under
our stock option plan, thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the Securities
Act. This registration statement will become effective immediately upon filing.
We are unable to estimate the number of shares that may be sold in the
future by the existing stockholders or the effect, if any, that sales of shares
by such stockholders will have on the market price of our common stock. Sales of
substantial amounts of common stock by such stockholders could adversely affect
the market price our common stock.
50
<PAGE>
UNDERWRITING
The underwriters named below, through their representatives, Stephens Inc.,
Needham & Company, Inc., and First Security Van Kasper, have severally agreed to
purchase from us and the selling stockholders the following respective number of
shares of our common stock:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Stephens Inc................................................
Needham & Company, Inc......................................
First Security Van Kasper...................................
Total.......................................................
</TABLE>
The underwriters propose to offer the shares of our common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus, and to certain dealers at that price less a concession not in excess
of $ per share. The underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
public offering of the shares, the underwriters may change the offering price
and other selling terms. The representatives of the underwriters have advised us
that the underwriters do not intend to confirm any shares to any accounts over
which they exercise discretionary authority.
The underwriting agreement makes the obligations of the underwriters subject
to conditions that we and the selling stockholders must satisfy, such as the
receipt of certificates, opinions and letters from us, the selling stockholders,
our counsel and our independent auditors. The underwriters are committed to
purchase all shares of common stock offered in this prospectus (other than those
covered by the over-allotment options described below) if any of those shares
are purchased.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
OVER-ALLOTMENT OPTION. We and Advanced Energy Industries have granted the
underwriters an option, exercisable within 30 days after the date of this
prospectus, to purchase up to additional shares of our common stock.
To that extent that the underwriters exercise this option, each underwriter is
committed to purchase a number of shares that reflects approximately the same
percentage of total shares that such underwriter purchased in the above table.
We will be obligated to sell shares to the underwriters to the extent the option
is exercised. The underwriters may exercise their option only to cover
over-allotments made in connection with the sale of common stock offered in this
prospectus.
UNDERWRITING DISCOUNTS AND COMMISSIONS. The following table shows the per
share and total underwriting discounts and commissions that we and the selling
stockholders will pay to the underwriters. These amounts are shown assuming both
no exercise and full exercise of the underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
PAID BY SELLING
PAID BY COMPANY STOCKHOLDERS
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share...................................... $ $ $ $
Total.......................................... $ $ $ $
</TABLE>
INDEMNITY. We and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute to payments the underwriters may be required to
make in respect thereof.
51
<PAGE>
LOCK-UP AGREEMENTS. APT, our executive officers and directors, the selling
stockholders and certain option and warrant holders have agreed that they will
not, without the consent of Stephens Inc., directly or indirectly, offer to
sell, contract to sell, sell or otherwise dispose of any shares of our common
stock or any securities convertible into or exercisable or exchangeable for our
common stock during the 180-day period following the effective date of the
registration statement relating to this prospectus. Stephens Inc. has the
discretion, at any time and without notice, to release the sale prohibitions in
part or in whole.
STABILIZATION. The underwriters may over-allot or effect transactions that
stabilize, maintain or otherwise affect the market price of our common stock at
levels above those which might otherwise prevail in the open market. This may be
done by entering stabilizing bids, effecting syndicate covering transactions or
imposing penalty bids. A stabilizing bid means placing a bid or making a
purchase for the purpose of pegging, fixing or maintaining the price of the
common stock. A syndicate covering transaction means placing a bid on behalf of
the underwriting syndicate or making a purchase to reduce a short position
created in connection with the offering. A penalty bid means an arrangement that
permits the underwriters to reclaim a selling concession from a syndicate member
in connection with the offering when shares of common stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
PRICING. Prior to this offering, there was no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation between us, the selling stockholders and the underwriters. Among
other factors to be considered in determining the initial public offering price
are prevailing market and economic conditions, our revenues and earnings, the
state of our business operation, an assessment of our management and
consideration of the above factors in relation to market valuation of companies
in related businesses and other factors deemed relevant. There can be no
assurance, however, that the prices at which the common stock will sell in the
public market after this offering will be equal to or greater than the initial
public offering.
LEGAL MATTERS
Davis Wright Tremaine LLP, Portland, Oregon, will pass upon the validity of
the common stock that we are offering. O'Melveny & Myers LLP, Los Angeles,
California, will pass upon certain legal matters for the underwriters.
EXPERTS
The consolidated financial statements of Advanced Power Technology, Inc. as
of December 31, 1998 and 1999, and for each of the years in the three-year
period ended December 31, 1999, have been included in this prospectus and
elsewhere in the registration statement in reliance upon the report of KPMG LLP,
independent auditors, appearing elsewhere in this prospectus and registration
statement and upon the authority of KPMG LLP as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a registration statement on Form S-1
under the Securities Act with respect to the common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits thereto. Certain items are omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the common stock offered by this
prospectus, reference is made to the registration statement and the exhibits
filed as a part hereof. Statements contained in this prospectus as to the
contents of any
52
<PAGE>
contract or any other such contract or document is filed as an exhibit, to the
copy of such contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such reference
to such exhibit. The registration statement, including exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Seven World Trade Center, 13(th)
Floor, New York, New York 10048, and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission. The Commission maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities and Exchange Act of 1934, as amended,
and will file periodic reports, proxy statements and other information with the
Commission. Upon approval of the common stock for quotation on the Nasdaq
National Market, these reports, proxy statements and other information may also
be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 2006.
We will issue to our stockholders annual reports and unaudited quarterly
reports for the first three quarters of each fiscal year. Annual reports will
include audited financial statements and a report of our independent auditors
with respect to the examination of such financial statements. In addition, we
will issue such other interim reports as we deem appropriate.
53
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Deficit............ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Advanced Power Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Advanced
Power Technology, Inc. and subsidiary as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated 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 of America. 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 amount 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Power Technology, Inc. and subsidiary at December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Portland, Oregon
February 25, 2000
F-2
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 56 $ 316 $ 177
Accounts receivable, net.................................. 3,639 4,447 5,555
Inventories, net.......................................... 5,305 5,153 5,589
Prepaid expenses and other current assets................. 1,293 584 501
Net current deferred tax asset............................ 130 564 564
------- ------- -------
Total current assets.................................... 10,423 11,064 12,386
------- ------- -------
Property and equipment, net................................. 3,074 2,483 3,273
Other assets................................................ 703 312 212
------- ------- -------
Total assets............................................ $14,200 $13,859 $15,871
======= ======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Book overdraft............................................ $ 158 $ -- $ --
Lines of credit........................................... 4,452 4,895 4,126
Accounts payable.......................................... 2,429 2,485 4,124
Accrued expenses.......................................... 1,673 1,789 1,961
Current portion of long-term debt......................... 339 2,737 2,940
Current portion of capital lease obligations.............. 857 181 141
------- ------- -------
Total current liabilities............................... 9,908 12,087 13,292
Long-term debt, less current portion........................ 6,006 3,320 3,822
Capital lease obligations, less current portion............. 142 205 179
Deferred gain on sale leaseback............................. 341 267 260
Net non-current deferred tax liability...................... 254 455 455
------- ------- -------
Total liabilities....................................... 16,651 16,334 18,008
------- ------- -------
Commitments and contingencies
Stockholders' deficit
Common stock, par value $.01, 5,110,371 shares authorized;
5,000,000, 5,000,020 and 5,000,520 (unaudited) shares
issued and outstanding in 1998, 1999 and 2000,
respectively............................................ 50 50 50
Additional paid-in capital................................ 15,436 15,600 16,176
Deferred stock compensation............................... -- (31) (538)
Accumulated other comprehensive income--currency
translation............................................. 26 44 69
Accumulated deficit....................................... (17,963) (18,138) (17,894)
------- ------- -------
Total stockholders' deficit............................. (2,451) (2,475) (2,137)
------- ------- -------
$14,200 $13,859 $15,871
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net................................ $25,732 $24,851 $27,461 $5,852 $9,561
Cost of goods sold........................... 17,280 18,439 18,000 4,024 6,178
------- ------- ------- ------ ------
Gross profit................................. 8,452 6,412 9,461 1,828 3,383
------- ------- ------- ------ ------
Operating expenses:
Research and development................... 1,021 926 883 200 243
Selling, general and administrative........ 7,413 7,111 7,322 1,678 2,289
------- ------- ------- ------ ------
Total operating expenses................. 8,434 8,037 8,205 1,878 2,532
------- ------- ------- ------ ------
Income (loss) from operations................ 18 (1,625) 1,256 (50) 851
------- ------- ------- ------ ------
Other income (expense):
Interest expense........................... (1,010) (1,208) (1,308) (336) (271)
Other, net................................. 95 58 77 24 12
------- ------- ------- ------ ------
(915) (1,150) (1,231) (312) (259)
------- ------- ------- ------ ------
Income (loss) before income taxes............ (897) (2,775) 25 (362) 592
Income tax expense (benefit)................. 97 (1,119) 200 50 348
------- ------- ------- ------ ------
Net income (loss)............................ $ (994) $(1,656) $ (175) $ (412) $ 244
======= ======= ======= ====== ======
Net income (loss) per share:
Basic...................................... $ (0.20) $ (0.33) $ (0.04) $(0.08) $ 0.05
Diluted.................................... (0.20) (0.33) (0.04) (0.08) 0.04
Weighted average number of shares used in the
computation of net income (loss) per share:
Basic...................................... 5,000 5,000 5,000 5,000 5,000
Diluted.................................... 5,000 5,000 5,000 5,000 6,456
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED OTHER COMPREHENSIVE
-------------------- PAID-IN STOCK COMPREHENSIVE INCOME
SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) (LOSS)
--------- -------- ---------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996......... 5,000,000 $ 50 $17,000 $ -- $ 43
Contribution for interest payment
to Sundstrand.................... -- -- 150 -- --
Net loss........................... -- -- -- -- -- $ (994)
Foreign currency translation....... -- -- -- -- (122) (122)
--------
Comprehensive loss................. $ (1,116)
========
--------- ------- ------- ----- --------
Balance, December 31, 1997......... 5,000,000 50 17,150 -- (79)
Application of push-down
accounting....................... -- -- (1,714) -- --
Net loss........................... -- -- -- -- -- $ (1,656)
Foreign currency translation....... -- -- -- -- 105 105
--------
Comprehensive loss................. $ (1,551)
========
--------- ------- ------- ----- --------
Balance, December 31, 1998......... 5,000,000 50 15,436 -- 26
Exercise of stock options.......... 20 -- -- -- --
Issuance of warrants............... -- -- 126 -- --
Net loss........................... -- -- -- -- -- $ (175)
Deferred stock compensation........ -- -- 38 (38) --
Amortization of deferred stock
compensation..................... -- -- -- 7 --
Foreign currency translation....... -- -- -- -- 18 18
--------
Comprehensive income............... $ (157)
========
--------- ------- ------- ----- --------
Balance, December 31, 1999......... 5,000,020 50 15,600 (31) 44
Exercise of stock options
(unaudited)...................... 500 -- -- -- --
Deferred stock compensation
(unaudited)...................... -- -- 576 (576) --
Amortization of deferred stock
compensation (unaudited)......... -- -- -- 69 --
Net income (unaudited)............. -- -- -- -- -- $ 244
Foreign currency translation
(unaudited)...................... -- -- -- -- 25 25
--------
Comprehensive income (unaudited)... $ 269
========
--------- ------- ------- ----- --------
Balance, March 31, 2000
(unaudited)...................... 5,000,520 $ 50 $16,176 $(538) $ 69
========= ======= ======= ===== ========
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------ --------
<S> <C> <C>
Balance, December 31, 1996......... $(15,313) $ 1,780
Contribution for interest payment
to Sundstrand.................... -- 150
Net loss........................... (994) (994)
Foreign currency translation....... -- (122)
Comprehensive loss.................
-------- -------
Balance, December 31, 1997......... (16,307) 814
Application of push-down
accounting....................... -- (1,714)
Net loss........................... (1,656) (1,656)
Foreign currency translation....... -- 105
Comprehensive loss.................
-------- -------
Balance, December 31, 1998......... (17,963) (2,451)
Exercise of stock options.......... -- --
Issuance of warrants............... -- 126
Net loss........................... (175) (175)
Deferred stock compensation........ -- --
Amortization of deferred stock
compensation..................... -- 7
Foreign currency translation....... -- 18
Comprehensive income...............
-------- -------
Balance, December 31, 1999......... (18,138) (2,475)
Exercise of stock options
(unaudited)...................... -- --
Deferred stock compensation
(unaudited)...................... -- --
Amortization of deferred stock
compensation (unaudited)......... -- 69
Net income (unaudited)............. 244 244
Foreign currency translation
(unaudited)...................... -- 25
Comprehensive income (unaudited)...
-------- -------
Balance, March 31, 2000
(unaudited)...................... $(17,894) $(2,137)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------ -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (994) $(1,656) $ (175) $(412) $ 244
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 2,206 2,275 1,809 546 345
Net gain on disposal of property and equipment.......... (2) (7) -- -- --
Deferred taxes.......................................... (297) (771) (233) -- --
Deferred gain on sale--leaseback........................ (86) (97) (74) (24) (7)
Non-cash interest expense............................... -- -- 118 30 --
Amortization of deferred stock compensation............. -- -- 7 -- 69
Changes in operating assets and liabilities:
Accounts receivable................................... (440) 243 (994) 123 (1,108)
Inventories........................................... 688 321 142 (186) (436)
Prepaid expenses and other assets..................... (341) (286) 735 299 (476)
Accounts payable and accrued expenses................. 721 630 319 (247) 2,370
Deferred revenue...................................... 293 (293) -- -- --
------- ------- ------ ----- -------
Net cash provided by operating activities........... 1,748 359 1,654 129 1,001
------- ------- ------ ----- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (801) (821) (599) (22) (1,035)
Proceeds from sale of property and equipment.............. 2 207 5 -- --
------- ------- ------ ----- -------
Net cash used in investing activities............... (799) (614) (594) (22) (1,035)
------- ------- ------ ----- -------
Cash flows from financing activities:
Book overdraft............................................ -- 158 (158) (158) --
Borrowings (payments) on lines of credit, net............. (133) 1,585 528 348 (769)
Payments on capital lease obligations..................... (903) (933) (885) (99) (66)
Proceeds from issuance of long-term debt.................. 172 1,868 -- -- 775
Principal payments on long-term debt...................... (195) (235) (274) (70) (70)
Payment to Sundstrand for APT's common stock.............. -- (2,450) -- -- --
------- ------- ------ ----- -------
Net cash used in financing activities............... (1,059) (7) (789) 21 (130)
------- ------- ------ ----- -------
Effects of exchange rate changes on cash.................... (34) 17 (11) 9 25
------- ------- ------ ----- -------
Net change in cash and cash equivalents............. (144) (245) 260 137 (139)
Cash and cash equivalents at beginning of period............ 445 301 56 56 316
------- ------- ------ ----- -------
Cash and cash equivalents at end of period.................. $ 301 $ 56 $ 316 $ 193 $ 177
======= ======= ====== ===== =======
Supplemental disclosure of noncash investing and financing
activities:
Property and equipment acquired through capital lease
obligations............................................. $ 60 $ 199 $ 271 $ -- $ --
Issuance of warrants in connection with refinancing....... -- -- 126 30 --
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 636 $ 856 $ 915 $ 196 $ 171
Income taxes............................................ 188 348 346 -- 217
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) COMPANY BACKGROUND
Advanced Power Technology, Inc. (APT) is a leading designer, manufacturer
and marketer of high power, high frequency power semiconductors on a national
and international basis.
In 1992, APT was purchased by Hamilton Sundstrand (Sundstrand) (the 1992
purchase). In 1993, Sundstrand purchased all of the outstanding shares of Power
Compact of Merignac, France (the 1993 purchase), whose name was subsequently
changed to Advanced Power Technology Europe S.A. (APT Europe). On September 6,
1995, Tremoliere LLC (Tremoliere), a company owned by APT's management group,
purchased 51% of APT from Sundstrand for $250 in cash and $3,320 in a note
payable to Sundstrand (the 1995 purchase). Just prior to the effective date of
this transaction: 1) APT completed a recapitalization in which the Board of
Directors authorized 5,110,370 shares of common stock and, pursuant to the
recapitalization, the 1,000 shares of $1 par value common stock issued and
outstanding were converted into 5,000,000 shares of $.01 par value common stock,
2) $12,394 of APT's payables to Sundstrand were converted to additional paid in
capital and 3) Sundstrand transferred all of its shares of APT Europe to APT.
Pursuant to the buyout agreement, 51% of APT's outstanding common shares, owned
by Tremoliere, collateralize the $3,320 note payable from Tremoliere to
Sundstrand.
On January 5, 1998, Tremoliere purchased the remaining 49% interest in APT
from Sundstrand for $2,450 in cash. Tremoliere borrowed $3,000 from APT under a
promissory note to purchase the remaining 49% interest in APT and pay interest
accrued on the $3,320 note payable to Sundstrand (the 1998 purchase). The note
from Tremoliere is due on the fourth anniversary of the loan or upon the closing
of APT's initial public offering, whichever occurs first. The loan bears
interest at 6.10% per annum. Tremoliere's basis in APT has been allocated to
APT's financial statements using the push-down method of accounting.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
APT and its wholly-owned subsidiary, APT Europe. All intercompany balances have
been eliminated in the consolidation of financial statements.
(C) CASH EQUIVALENTS
APT considers all highly liquid debt and equity instruments purchased with a
maturity of three months or less to be cash equivalents.
(D) INVENTORIES
Inventories are stated at the lower of standard cost (approximates actual
cost on a first-in, first-out basis) or market (net realizable value).
F-7
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Machinery and equipment under
capital lease are stated at the lower of the present value of the minimum lease
payments at the beginning of the lease term or the fair value of the leased
assets at the inception of the lease.
Depreciation is provided using the straight-line method over estimated
useful lives, five years for equipment, furniture and fixtures. Leased assets
and leasehold improvements are amortized over the shorter of the estimated life
of the asset or the term of the related lease, ranging from three to ten years.
Depreciation begins on assets in process at the time the related assets are
placed in service. Maintenance and repairs are expensed as incurred.
As required by Statement of Financial Accounting Standards (SFAS) No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF, management
reviews long-lived assets and intangible assets for impairment whenever events
or changes in circumstances indicate the carrying amount of the assets may not
be recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which the assets
relate, to the carrying amount including associated intangible assets of the
operation. If the operation is determined to be unable to recover the carrying
amount of its assets, then intangible assets are written down first, followed by
the other long-lived assets of the operation, to fair value. Fair value is
determined based on discounted cash flows or appraised values, depending on the
nature of the assets.
(F) INTANGIBLE ASSETS
Goodwill resulting from the change of control described in note 3 is
amortized on a straight-line basis over a five-year life. Goodwill, net, was
$619 and $256 at December 31 1998 and 1999, and is included in other assets in
the accompanying consolidated balance sheets. Amortization of goodwill was $276,
$358 and $363 for the years ended December 31, 1997, 1998 and 1999,
respectively.
(G) INCOME TAXES
APT accounts for income taxes under the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.
(H) REVENUE RECOGNITION
Standard product revenue is recognized upon shipment of product. APT
recognizes revenue on customer-specific products or services based on the terms
of customer contracts which is generally customer acceptance. In general, APT
provides for a one-year repair or replacement warranty on its products. Upon
shipment, APT also provides for the estimated cost that may be incurred for
product
F-8
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
warranty and sales returns based on historical experience. The reserve for
warranties and sales returns was $91 and $119 as of December 31, 1998 and 1999,
respectively.
Revenue from certain contractual product sales or license arrangements is
deferred and recognized when earned in accordance with the arrangement.
APT uses independent distributors to sell its products. Distributors can
return up to 5% of the dollar value of products purchased during the prior six
months upon a 30 days notice. Sales to distributors are recognized upon
shipment, less an allowance for estimated returns.
(I) RESEARCH AND PRODUCT DEVELOPMENT EXPENSES
Expenditures for research and product development are expensed as incurred.
Engineering and design costs related to revenues on non-recurring engineering
services billed to customers are classified as cost of goods sold.
(J) STOCK-BASED COMPENSATION
SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, defines a fair value
based method of accounting for an employee stock option or similar instrument.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. However, SFAS 123 also allows an entity to
continue to measure compensation cost using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25 (Opinion 25), ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES. Under the intrinsic value based method, compensation cost
is the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount an employee must pay to acquire the
stock. Entities electing to remain with the accounting in Opinion 25 must make
pro forma disclosures of net income (loss) and, if presented, earnings per
share, as if the fair value based method had been applied. APT has elected to
continue to apply the prescribed accounting in Opinion 25.
APT accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS 123 and other applicable accounting literature.
(K) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(L) FOREIGN CURRENCY
The local currency of APT's foreign subsidiary is the functional currency.
Assets and liabilities of APT's foreign operation are translated into U.S.
dollars using exchange rates in effect at the translation date, and revenue and
expenses are translated into U.S. dollars using average exchange rates. The
effects of foreign currency translation adjustments are included as a component
of stockholder's deficit.
F-9
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains or losses occurring on foreign currency transactions during the year have
been included in the consolidated statements of operations as other income
(expense).
(M) ADVERTISING COSTS
The cost of advertising is expensed as incurred. Advertising costs were not
significant during the periods presented.
(N) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term nature of these
instruments. The carrying amount of amounts due under the lines of credit and
long-term obligations approximate fair value since the interest rates
approximate current rates available to APT.
(O) EARNINGS PER SHARE
APT reports earnings per share in accordance with SFAS 128, EARNINGS PER
SHARE, and SEC Staff Accounting Bulletin No. 98 (SAB 98), which requires the
presentation of both basic and diluted earnings per share. Basic earnings per
share is computed using the weighted-average number of common shares outstanding
and diluted earnings per share is computed using the weighted-average number of
common shares outstanding and dilutive potential common shares assumed to be
outstanding during the period using the treasury stock method. The following
weighted-average potential common shares have been excluded from the computation
of diluted net loss per share for the respective periods presented because the
effect would have been anti-dilutive.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Incremental shares issuable under stock
options and warrants.................. -- 24,099 692,365 15,388 --
</TABLE>
Approximately 1,456,000 (unaudited) incremental shares issuable under stock
options and warrants were included in the weighted-average number of shares used
in the computation of diluted net income per share for the three months ended
March 31, 2000.
(P) RISK OF TECHNOLOGICAL CHANGE
The markets in which APT competes or seeks to compete are subject to rapid
technological change, frequent new product introductions, changing customer
requirements for new products and features, and evolving industry standards. The
introduction of new technologies and the emergence of new industry standards
could render APT's products less desirable or obsolete, which could harm its
business.
F-10
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(Q) UNAUDITED QUARTERLY INFORMATION
The financial information included herein as of March 31, 2000 and for the
three-month periods ended March 31, 1999 and 2000 is unaudited. However, such
information reflects all adjustments consisting of normal recurring adjustments,
which are, in the opinion of management, necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
period.
(R) COSTS OF SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
Internal use software development costs are accounted for in accordance with
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. Costs incurred in the preliminary
project stage are expensed as incurred and costs incurred in the application and
development stage, which meet the capitalized criteria, are capitalized and
amortized on a straight-line basis over five years, the estimated useful life of
the asset.
(S) ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of
$110, $62 and $103 (unaudited) at December 31, 1998 and 1999 and March 31, 2000.
The following table presents a rollforward of the allowance for doubtful
accounts for the indicated periods:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31,
1997 1998 1999 2000
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance--beginning of period.................. $ 81 $ 60 $110 $ 62
Provision (reduction)......................... 158 (73) (24) 41
(Charge offs) recoveries...................... (179) 123 (24) --
---- ---- ---- ----
Balance--end of period........................ $ 60 $110 $ 62 $103
==== ==== ==== ====
</TABLE>
(T) CONCENTRATION OF SUPPLIERS
APT relies on one external subcontractor for the manufacture and
substantially all the assembly/packaging of certain products, respectively. The
failure to perform by one of these suppliers could have a material impact on
APT's growth and results of operations.
F-11
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) BALANCE SHEET COMPONENTS
(A) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999 MARCH 31, 2000
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................. $ 901 $ 583 $ 812
Work in progress............................... 3,590 3,954 4,126
Finished goods................................. 1,485 1,410 1,567
------ ------ ------
5,976 5,947 6,505
Valuation reserve.............................. (671) (794) (916)
------ ------ ------
Inventories, net............................. $5,305 $5,153 $5,589
====== ====== ======
</TABLE>
(B) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999 MARCH 31, 2000
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery, furniture and equipment.......... $11,354 $ 11,843 $ 12,684
Leasehold improvements...................... 580 564 553
Assets in process........................... 524 722 884
------- -------- --------
12,458 13,129 14,121
Less accumulated depreciation and
amortization.............................. (9,384) (10,646) (10,848)
------- -------- --------
$ 3,074 $ 2,483 $ 3,273
======= ======== ========
</TABLE>
(C) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999 MARCH 31, 2000
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued interest............................... $ 378 $ 572 $ 647
Payroll, commissions and related liabilities... 383 392 376
Vacation accrual............................... 247 240 277
Warranty and sales returns accrual............. 91 119 210
Other.......................................... 574 466 451
------ ------ ------
$1,673 $1,789 $1,961
====== ====== ======
</TABLE>
F-12
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(3) MANAGEMENT BUYOUT
The Tremoliere purchases have resulted in a change of control and a step up
in the basis of assets and liabilities under the purchase method of accounting
for the percentage acquired at the time. The cost of the acquisition was
allocated on the basis of estimated fair market value of the assets acquired and
liabilities assumed. The purchase price was allocated as follows for each
transaction:
<TABLE>
<CAPTION>
1995 1998
-------- --------
<S> <C> <C>
Total consideration......................................... $3,570 $2,450
Fair value of net tangible assets acquired.................. 2,189 2,205
------ ------
Goodwill.................................................. $1,381 $ 245
====== ======
</TABLE>
(4) LINES OF CREDIT
APT has two lines of credit with a bank for up to a total of $5,000 to
provide funds for the continuing operations of APT and financing of the
management buyout in January 1998 as discussed in note 1. The outstanding
balance on the lines of credit at December 31, 1999 and 1998 was $4,344 and
$3,871, respectively. The lines of credit expire on March 31, 2000, and bear
interest at prime plus 1.0% to 1.25% based on the ratio of debt to equity (9.75%
at December 31, 1999). The lines of credit are secured by accounts receivable
and inventories and a $1,000 personal guarantee by our officers. See note 14.
APT's loan covenants require the consent of the bank prior to the payment of any
cash dividends.
Borrowings under these lines of credit, as well as the $2,500 and $167 notes
payable discussed in note 5, are subject to certain financial covenants for
which APT was in compliance as of December 31, 1999.
APT Europe has a line of credit with a financing institution which provides
borrowings based on a percentage of outstanding export accounts receivable,
bears interest at 5.94% per annum, plus commissions, and is collateralized by
APT Europe's accounts receivable. Amounts outstanding under this line of credit
was $551 and $581 as of December 31, 1999 and 1998, respectively. The line of
credit may be terminated upon three months notice by either party.
F-13
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999 MARCH 31, 2000
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Sundstrand, interest at 9%,
interest and principal due September 6, 2001
or upon completion of an initial public
offering, whichever occurs first, secured by
the stock of APT owned by Tremoliere......... $3,320 $3,320 $3,320
Subordinate loan from bank, subordinate to
amounts outstanding under lines of credit
(see note 4), interest payable monthly at
prime plus 1.5% per annum (9.25% as of
December 31, 1999), principal due September
30, 2000, and collateralized by substantially
all assets of APT............................ 2,500 2,500 2,500
Term loan with bank, monthly principal payments
of $14 plus interest at prime plus 1.75% per
annum (9.5% as of December 31, 1999), final
payment due January 2001, and collateralized
by substantially all assets of APT........... 347 167 125
Other.......................................... 178 70 817
------ ------ ------
Total long-term debt......................... 6,345 6,057 6,762
Less current portion of long-term debt......... 339 2,737 2,940
------ ------ ------
Total long-term debt, less current portion... $6,006 $3,320 $3,822
====== ====== ======
</TABLE>
(6) LEASES
APT leases its facilities and certain office equipment under noncancelable
operating leases, which expire over the next five years. Rental expense was
$486, $560 and $633 for the years ended December 31, 1997, 1998 and 1999,
respectively.
APT is also obligated under capital leases for certain equipment, which
expire over the next four years. The gross amounts of equipment and accumulated
amortization recorded under capital leases were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Equipment................................................. $ 3,864 $ 4,123
Less accumulated amortization............................. (3,017) (3,752)
------- -------
$ 847 $ 371
======= =======
</TABLE>
F-14
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(6) LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and capital leases are
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year ending December 31:
2000..................................................... $204 $ 541
2001..................................................... 98 535
2002..................................................... 84 541
2003..................................................... 59 417
2004..................................................... -- 202
---- ------
Total minimum lease payments........................... 445 $2,236
======
Less amount representing interest.......................... 59
----
Minimum lease payments................................. 386
Less current portion of capital lease obligations.......... 181
----
$205
====
</TABLE>
During 1995, APT sold equipment for $3,000 which has been leased back
through a capital lease which expired on December 31, 1999. The transaction
generated a gain of $225 which was deferred and amortized over the four-year
lease period.
During 1996, APT sold its fabrication facility in Bend, Oregon for $1,550
and leased it back under a fifteen-year operating lease agreement. The
transaction produced a gain of approximately $348 which is being deferred and
amortized over the fifteen-year lease period.
During 1998, APT sold equipment for $200 which has been leased back through
capital leases which expire in 2001. The transaction generated a gain of $14,
which is being deferred and amortized over the three-year lease period.
(7) TAXES
Domestic and foreign pre-tax income (loss) consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Domestic.............................................. $(214) $(2,114) $(43)
Foreign............................................... (683) (661) 68
----- ------- ----
$(897) $(2,775) $ 25
===== ======= ====
</TABLE>
F-15
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(7) TAXES (CONTINUED)
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................ $ 370 $ (348) $ 418
State.............................................. 24 -- 15
----- ------- -----
394 (348) 433
----- ------- -----
Deferred:
Federal............................................ (239) (579) (252)
State.............................................. (58) (192) 19
----- ------- -----
(297) (771) (233)
----- ------- -----
Total............................................ $ 97 $(1,119) $ 200
===== ======= =====
</TABLE>
The actual income tax expense (benefit) differs from the expected tax
benefit computed by applying the U.S. federal corporate income tax rate of 34%
to loss before income taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Expected income tax expense (benefit)............... (34)% (34)% 34%
Difference attributable to foreign subsidiary....... 26 (20) --
Expired net operating loss carryforwards............ 150 11 67
Change in valuation allowance....................... (151) (1) (65)
State income taxes, net of federal.................. 1 (7) 9
Release of deferred net operating loss.............. -- -- (489)
Goodwill amortization............................... 11 4 494
Difference in tax status for pass through entity.... 13 6 654
Other............................................... (5) 1 96
---- --- ----
Actual expense (benefit)............................ 11% (40)% 800%
==== === ====
</TABLE>
F-16
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(7) TAXES (CONTINUED)
The income tax effect of temporary differences and carryforwards which give
rise to significant portions of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 96 $ 87
Reserve for inventory obsolescence...................... 248 291
Accrued vacation pay.................................... 48 53
Reserve for product returns............................. 29 44
Net operating loss carryforwards........................ 2,441 2,293
Depreciation and amortization differences............... 116 325
Credit carryforwards.................................... 84 5
Interest................................................ -- 45
Other................................................... 26 39
------- -------
Total gross deferred tax assets....................... 3,088 3,182
Less valuation allowance.................................. (2,309) (2,293)
------- -------
Deferred tax assets, net of valuation allowance....... 779 889
Deferred tax liability:
Deferred utilization of net operating loss
carryforwards......................................... (903) (780)
------- -------
Net deferred tax asset (liability).................... $ (124) $ 109
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1997 was
$3,442. The net change in the valuation allowance for the years ended
December 31, 1997, 1998 and 1999 were decreases of $1,102, $31 and $16,
respectively.
APT has federal research and experimentation credit carryforwards of $5
which are available to offset future income taxes, if any, through 2014.
As of December 31, 1999, APT had foreign net operating loss carryforwards
for tax purposes available to offset future income of the foreign subsidiary of
approximately (French Francs) FF32,121, or $4,931 based on the exchange rate as
of December 31, 1999; FF21,686 ($3,329), which are available indefinitely and
FF10,435 ($1,601), which expire in 2000 through 2004.
(8) STOCKHOLDERS' DEFICIT
(A) STOCK OPTION PLAN
The 1995 Stock Option Plan (the Plan) provides for the granting of stock
options to employees, directors and consultants up to 1,241,430 shares (see
note 14) of authorized but unissued common stock. Options granted under the Plan
must generally be exercised while the individual is an employee and within ten
years of the date of grant. Options granted typically vest at a rate of 20% per
year for five years.
F-17
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(8) STOCKHOLDERS' DEFICIT (CONTINUED)
APT applies Opinion 25 in accounting for its Plan. Had APT determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS 123, APT's net loss would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported...................................... $ (994) $(1,656) $ (175)
Pro forma........................................ (1,156) (1,826) (350)
Basic and diluted net loss per share:
As reported...................................... (0.20) (0.33) (0.04)
Pro forma........................................ (0.23) (0.37) (0.07)
</TABLE>
The fair value of compensation costs reflected in the above pro forma
amounts were determined using the Black-Scholes option pricing model and the
following weighted average assumptions for grants used in the calculation are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.3% 5.5% 5.5%
Expected dividend yield........................... 0% 0% 0%
Expected life..................................... 7 years 5 years 5 years
Volatility........................................ 100% 100% 100%
</TABLE>
Under the Black-Scholes option pricing model, the weighted average fair
value of options granted during the years ended December 31, 1997, 1998 and 1999
was approximately $1.17, $1.14 and $1.47, respectively.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts and additional awards anticipated in future years.
APT has recorded a deferred stock compensation of $38 through December 31,
1999. This deferred stock compensation is based on the difference between the
deemed fair market value of common stock and the exercise price of the option or
stock on the grant date. Deferred stock compensation is being amortized on an
accelerated basis over the vesting period, generally five years. APT recognized
compensation expense of $7 during the year ended December 31, 1999 related to
these grants. Amortization of the December 31, 1999 balance of deferred stock
compensation for the years ending December 31, 2000, 2001, 2002 and 2003 would
not be significant in the respective periods.
During the three months ended March 31, 2000, APT recorded additional
deferred stock compensation of $576 (unaudited) related to the issuance of
147,150 (unaudited) of stock options.
F-18
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(8) STOCKHOLDERS' DEFICIT (CONTINUED)
Stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1996...... 462,575 $1.47
Granted....................................... 106,550 1.40
Forfeited..................................... (9,600) 1.40
-------
Options outstanding at December 31, 1997...... 559,525 1.46
Granted....................................... 245,650 1.41
Forfeited..................................... (47,100) 1.40
-------
Options outstanding at December 31, 1998...... 758,075 1.41
Granted....................................... 113,277 1.47
Exercised..................................... (20) 1.40
Forfeited..................................... (61,485) 1.42
-------
Options outstanding at December 31, 1999...... 809,847 1.45
Granted (unaudited)........................... 147,150 1.48
Exercised (unaudited)......................... (500) 1.40
Forfeited (unaudited)......................... (3,300) 1.42
-------
Options outstanding at March 31, 2000
(unaudited)................................. 953,197 1.46
=======
</TABLE>
As of December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of options outstanding was $1.40 to $1.54 and
6.6 years, respectively.
As of December 31, 1998 and 1999 and March 31, 2000, the number of options
exercisable were 214,623, 346,842 and 412,053 (unaudited), respectively, with
weighted average exercise prices of $1.41, $1.46 and $1.45, respectively.
(B) WARRANTS
On September 6, 1995, APT issued three warrants to financing companies and a
bank. Two of the warrants permit the holders to purchase 35,715 shares and one
warrant permits the holder to purchase 35,714 shares of APT's common stock, each
at exercise prices of $1.40 per share. Two of the warrants are exercisable
through December 31, 2005; the other warrant is exercisable through
September 6, 2002. In connection with the refinancing of certain debt, the
expiration dates of two warrants were extended to December 31, 2005. The fair
value of $77 was determined using the Black-Scholes methodology using the
refinancing date as the measurement date, a risk-free rate of 5.2%, expected
dividend yield of 0%, 2-year term and expected volatility of 65%.
Also on September 6, 1995, APT issued a warrant to Advanced Energy
Industries, Inc., a customer, in return for their guaranty of a $1,000 loan from
a bank. The warrant allows Advanced Energy Industries, Inc. to purchase 250,000
shares of APT's common stock at an exercise price of $1.40 per share. The
warrant expires upon the first to occur of the following: (i) the closing date
of an initial public offering of shares of stock of APT; (ii) two years after
the date the loan is repaid in full; or (iii) two years after the date the
guaranty expires. Pursuant to the agreement between this customer and APT, the
customer holds a seat on APT's board of directors for as long as the guaranty is
outstanding.
F-19
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(8) STOCKHOLDERS' DEFICIT (CONTINUED)
On September 6, 1996, APT issued a warrant to a bank. The warrant permits
the holder to purchase 35,714 shares of APT's common stock at an exercise price
of $1.40 per share. The warrant is exercisable through September 6, 2003. The
fair value of the warrants issued of $27 was determined by applying the
Black-Scholes methodology using the issuance date as the measurement date, a
risk-free rate of 4.7%, expected dividend yield of 0%, a four-year term and
expected volatility of 65%.
On December 23, 1997, APT issued a warrant to Advanced Energy
Industries, Inc., a customer, in return for their guaranty of a $2,500 loan to a
bank. The warrant allows Advanced Energy Industries, Inc. to purchase 250,000
shares of APT's common stock at an exercise price of $4.00 per share. The
warrant expires on the first to occur of the following: (i) the closing date of
an initial public offering of shares of stock of APT; (ii) two years after the
date the loan is repaid in full; or (iii) two years after the date that the
guaranty expires. The fair value of the warrants issued of $70 was determined by
applying the Black-Scholes methodology using the issuance date as the
measurement date, a risk-free rate of 6%, expected dividend yield of 0%, a
four-year term and expected volatility of 60%. The warrant values represent a
deferred financing cost and are being amortized over the term of the debt
facility of 27 months.
On November 5, 1998, APT issued warrants to two financing companies in
connection with the renegotiations of certain commitments. The warrants permit
the holders to purchase a total of 10,000 shares of APT's common stock at $1.40
per share. These warrants are exercisable through December 31, 2005. The fair
value of the warrants issued of $87 was determined by applying the Black-
Scholes methodology using the issuance date as the measurement date, a risk-free
rate of 5.15%, expected dividend yield of 0%, a seven-year term and expected
volatility of 80%. The warrant values represent a deferred financing cost and
are being amortized over the term of the debt facility of sixteen months.
As of December 31, 1999, warrants to purchase 652,858 shares of common stock
were exercisable at a weighted average exercise price of $2.40 per share.
(9) RETIREMENT BENEFIT PLAN
APT sponsors a defined contribution 401(k) plan (the Plan). Employees in the
United States who are at least eighteen years old and have six months of service
are eligible to participate in the Plan. Participants may defer up to 15% of
eligible compensation. Currently, APT does not provide matching contributions
for the Plan.
(10) SEGMENT INFORMATION
APT operates in one segment and is engaged in the design, development,
manufacture and sale of high power, high frequency power semiconductor products
and related services.
F-20
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(10) SEGMENT INFORMATION (CONTINUED)
(A) GEOGRAPHIC INFORMATION
APT's geographic revenues, operating income (loss) and identifiable assets
are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Geographic revenues:
United States.................................. $13,925 $14,277 $15,685
Germany........................................ 2,836 3,038 3,063
Other.......................................... 8,971 7,536 8,713
------- ------- -------
$25,732 $24,851 $27,461
======= ======= =======
Operating income (loss):
United States.................................. $ 530 $ (757) $ 1,029
France......................................... (512) (868) 227
------- ------- -------
$ 18 $(1,625) $ 1,256
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Identifiable assets:
United States........................................... $12,159 $12,263
France.................................................. 2,041 1,596
------- -------
$14,200 $13,859
======= =======
</TABLE>
(B) SIGNIFICANT CUSTOMER
One customer, Advanced Energy Industries, Inc., accounted for $4,007 of
sales in 1997 and $4,005 in 1999. No other customer represented greater than 10%
of sales during the years ended December 31, 1997, 1998 and 1999.
(11) COMMITMENTS AND CONTINGENCIES
APT is involved in various claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on APT's consolidated
financial position, results of operations or liquidity.
APT has an agreement with its foundry partner in Europe to process six-inch
wafers. This agreement extends through 2004. The agreement contains no minimum
purchase requirements.
APT has entered into employment agreements with certain senior officers.
These agreements contain severance payment clauses equal to one months salary if
they are dismissed without cause.
F-21
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(12) EXTERNAL SUBCONTRACTORS
APT generally commits to purchase products from its external subcontractors
to be delivered within the most recent 90 days covered by forecasts with
cancellation fees. As of December 31, 1999, APT had committed to make purchases
totaling $2,600 from the external subcontractors in the 90 days subsequent to
the fiscal year-end. In addition, in specific instances, APT may agree to assume
liability for limited quantities of specialized components with lead times
beyond their 90-day period.
(13) RELATED PARTY TRANSACTIONS
The Chief Executive Officer of Advanced Energy Industries, Inc. (Advanced
Energy), who is a substantial shareholder of Advanced Energy, serves as a
director of APT. For the years ended December 31, 1997, 1998 and 1999, sales to
Advanced Energy were approximately $4,007, $1,939 and $4,005. Advanced Energy
also guaranteed a $1,000 bank loan to APT in 1995, and subsequently increased to
$2,500 in 1998. The guaranty is still outstanding. APT has issued warrants to
purchase 560,000 shares of APT's common stock at a weighted-average exercise
price of $2.73 per share to Advanced Energy. These warrants will expire on
completion of an initial public offering if not exercised immediately before the
offering.
A director of APT is also a partner at Karnopp, Petersen, Noteboom, Hansen,
Arnett & Sayeg LLP. For the years ended December 31, 1997, 1998 and 1999, APT
paid Karnopp, Petersen, Noteboom, Hansen, Arnett & Sayeg LLP $4, $8 and $6 in
legal fees, respectively.
(14) SUBSEQUENT EVENTS (UNAUDITED)
(A) LINES OF CREDIT
The lines of credit to APT were renewed in March of 2000, and increased from
$5,000 to $6,000. The lines now expire in May 2001.
(B) JOINT VENTURE AGREEMENT
In April of 2000, APT entered into a joint venture agreement in China, which
includes a pending license and technology transfer agreement for certain
technologies, in exchange for a cash payment of $1,500 over two years and a 25%
share in the equity ownership of the joint venture.
(C) AUTHORIZED OPTIONS
In May of 2000, the board of directors increased the number of authorized
stock options under the Plan to 1,500,000.
(D) AUTHORIZED SHARES
In May of 2000, the board of directors approved an increase in the
authorized number of common stock to 19,000,000 stock and 1,000,000 of preferred
stock.
(E) WARRANTS
On April 1, 2000, APT issued a warrant to Advanced Energy in return for the
renewal of their guaranty of a $2,500 loan to a bank. The warrant allows
Advanced Energy to purchase 60,000 shares of
F-22
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(14) SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
APT's common stock at an exercise price of $3.00 per share. The warrant expires
on the first to occur of the following; (i) the closing date of an initial
public offering of shares of stock of APT; (ii) two years after the date of the
loan is repaid in full; or (iii) two years after the date the guaranty expires.
The deemed fair value of the warrants issued of approximately $450 was
determined by applying the Black-Scholes methodology.
F-23
<PAGE>
INSIDE BACK COVER
[Blank]
<PAGE>
[BACK COVER]
[LOGO]
--------------
PROSPECTUS
--------------
STEPHENS INC.
NEEDHAM & COMPANY, INC.
FIRST SECURITY VAN KASPER
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below lists various expenses, other than underwriting discounts
and commissions, we expect to incur in connection with the sale and distribution
of the securities being registered hereby. All the expenses are estimates,
except the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
TYPE AMOUNT
---- -----------
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 18,216.00
NASD Filing Fee............................................. 7,400.00
Nasdaq National Market Listing Fee.......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving expenses............................. *
Transfer agent and registrar fees........................... *
Miscellaneous expenses...................................... *
TOTAL....................................................... $ *
</TABLE>
------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities
Act. Our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws provide for indemnification of our officers, directors,
employees and agents to the extent and under the circumstances permitted under
the Delaware General Corporation Law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
underwriters of us, our directors and officers, and by us of the underwriters,
for some liabilities arising under the Securities Act, and affords some rights
of contributions with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the last three years, and through May 31, 2000, we have issued and
sold the following unregistered securities:
1. Options to purchase 513,427 shares of common stock, issued pursuant to
exemptions from registration provided by Rule 701 and comparable state
exemptions; and
2. Warrants to purchase 320,000 shares, issued pursuant to federal and state
exemptions from registration for private offerings.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF DOCUMENT
--------------------- ----------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
4.1* Form of Common Stock Certificate
5.1* Opinion of Davis Wright Tremaine LLP
10.1 Stock Option Plan dated December 31, 1995, as amended
10.2 Employment Agreement: Patrick P.H. Sireta
10.3 Employment Agreement: Russell J. Crecraft
10.4 Employment Agreement: Greg M. Haugen
10.5* Employment Agreement: John I. Hess
10.6 Employment Agreement: Thomas A. Loder
10.7 Employment Agreement: Dah Wen Tsang
10.8 Lease Agreement between Shevlin No. One and Advanced Power
Technology, Inc. dated as of March 21, 1985, as amended
10.9 Commercial Lease between Glassow Ventures, L.L.C. and
Advanced Power Technology, Inc. dated March 6, 1996, as
amended
10.10+ North America Distributor Agreement between Richardson
Electronics, Ltd. and Advanced Power Technology, Inc. dated
as of April 1, 1997
10.11+ Manufacturing Agreement by and between Siemens AG and
Advanced Power Technology, Inc. dated October 14, 1997
10.12+ Agreement for Wafer Production and Testing by and between
Advanced Power Technology, Inc. and Siemens
Aktiengesellschaft dated February 11, 1998
10.13+ Document of Understanding between Advanced Energy Industries
and Advanced Power Technology, Inc. dated August 14, 1998,
as amended
10.14+ Supply Contract between Wacker Siltronic Corporation and
Advanced Power Technology, Inc. dated December 17, 1998
10.15+ Master Agreement by and between Liaoning Huahai Power
Electronics Co. Ltd., Advanced Power Technology, Inc., and
Advanced Power Technology Europe SA dated as of October 15,
1999
10.16+ Subcontract Agreement between Team Pacific Corporation and
Advanced Power Technology, Inc. dated January 26, 2000
10.17* Leases: Bordeaux, France
21.1 Subsidiaries of Advanced Power Technology, Inc.
23.1 Consent of KPMG LLP
23.2* Consent of Davis Wright Tremaine LLP (included in its
opinion filed as Exhibit 5 to this Registration Statement)
24.1 Powers of Attorney (included on the signature pages)
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF DOCUMENT
--------------------- ----------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these agreements.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be a part of this registration
statement as of the time it was declared effective; and
(b) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(c) It will provide to the underwriters at the closing(s) specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery
to each purchaser.
II-3
<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 Portland, Oregon on June
1, 2000.
<TABLE>
<S> <C> <C>
ADVANCED POWER TECHNOLOGY, INC.
By: /s/ PATRICK P.H. SIRETA
-----------------------------------------
Patrick P.H. Sireta
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick P.H. Sireta and Greg M. Haugen, and each
of them, his true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and any registration statement
relating to the offering covered by this Registration Statement and filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or their substitute or
substitutes may lawfully so or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ PATRICK P.H. SIRETA Officer and Chairman of
------------------------------------------- the Board (principal June 1, 2000
Patrick P.H. Sireta executive officer)
/s/ GREG M. HAUGEN Chief Financial Officer
------------------------------------------- (principal financial and June 1, 2000
Greg M. Haugen accounting officer
------------------------------------------- Director
Douglas S. Schatz
/s/ JAMES E. PETERSEN
------------------------------------------- Director June 1, 2000
James E. Petersen
</TABLE>
II-4
<PAGE>
ADVANCED POWER TECHNOLOGY, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF DOCUMENT
--------------------- ----------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
4.1* Form of Common Stock Certificate
5.1* Opinion of Davis Wright Tremaine LLP
10.1 Stock Option Plan dated December 31, 1995, as amended
10.2 Employment Agreement: Patrick P.H. Sireta
10.3 Employment Agreement: Russell J. Crecraft
10.4 Employment Agreement: Greg M. Haugen
10.5* Employment Agreement: John I. Hess
10.6 Employment Agreement: Thomas A. Loder
10.7 Employment Agreement: Dah Wen Tsang
10.8 Lease Agreement between Shevlin No. One and Advanced Power
Technology, Inc. dated as of March 21, 1985, as amended
10.9 Commercial Lease between Glassow Ventures, L.L.C. and
Advanced Power Technology, Inc. dated March 6, 1996, as
amended
10.10+ North America Distributor Agreement between Richardson
Electronics, Ltd. and Advanced Power Technology, Inc. dated
as of April 1, 1997
10.11+ Manufacturing Agreement by and between Siemens AG and
Advanced Power Technology, Inc. dated October 14, 1997
10.12+ Agreement for Wafer Production and Testing by and between
Advanced Power Technology, Inc. and Siemens
Aktiengesellschaft dated February 11, 1998
10.13+ Document of Understanding between Advanced Energy Industries
and Advanced Power Technology, Inc. dated August 14, 1998,
as amended
10.14+ Supply Contract between Wacker Siltronic Corporation and
Advanced Power Technology, Inc. dated December 17, 1998
10.15+ Master Agreement by and between Liaoning Huahai Power
Electronics Co. Ltd., Advanced Power Technology, Inc., and
Advanced Power Technology Europe SA dated as of October 15,
1999
10.16+ Subcontract Agreement between Team Pacific Corporation and
Advanced Power Technology, Inc. dated January 26, 2000
10.17* Leases: Bordeaux, France
21.1 Subsidiaries of Advanced Power Technology, Inc.
23.1 Consent of KPMG LLP
23.2* Consent of Davis Wright Tremaine LLP (included in its
opinion filed as Exhibit 5 to this Registration Statement)
24.1 Powers of Attorney (included on the signature pages)
27.1 Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these agreements.
