<PAGE>
As filed with the Securities and Exchange Commission on July 15, 1999
Registration No. 333-80037
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ALTIGEN COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3661 94-3204299
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
47427 Fremont Boulevard
Fremont, California 94538
(510) 252-9712
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
GILBERT HU
Chief Executive Officer
AltiGen Communications, Inc.
47427 Fremont Boulevard
Fremont, California 94538
(510) 252-9712
Fax (510) 252-9738
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies of Communications to:
<TABLE>
<S> <C>
Eric W. Wright, Esq. Jorge del Calvo, Esq
Carmen Chang, Esq. Stanton Wong, Esq.
David Wang, Esq. Gabriella Lombardi, Esq.
Susan Tien, Esq. Davina Kaile, Esq.
Wilson Sonsini Goodrich & Rosati Pillsbury Madison & Sutro LLP
Professional Corporation 2550 Hanover Street
650 Page Mill Road Palo Alto, California 94304
Palo Alto, California 94304 (650) 233-4500
(650) 493-9300 Fax (650) 233-4545
Fax (650) 493-6811
</TABLE>
---------------
Approximate date of commencement 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on 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 hereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
Subject to Completion, Dated , 1999
The information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
Shares
[LOGO OF ALTIGEN COMMUNICATIONS, INC.]
AltiGen Communications, Inc.
Common Stock
$ per share
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This is an initial public offering of common stock of AltiGen Communications,
Inc.
AltiGen expects that the price to the public in the offering will be between
$ and $ per share.
We have applied to include the common stock on the Nasdaq National Market
under the symbol "ATGN."
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 6.
<TABLE>
<CAPTION>
Per Share Total
--------- ---------
<S> <C> <C>
Price to the public................................ $ $
Underwriting discount..............................
Proceeds to AltiGen................................
</TABLE>
AltiGen has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of additional
shares from AltiGen within 30 days following the date of this prospectus to
cover over-allotments.
- -------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
CIBC World Markets
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
FAC/Equities
The date of this prospectus is , 1999.
<PAGE>
[A chart showing the various types of networks over which users may place and
receive telephone calls and take advantage of other features of our products]
The Telecommunications Solution for the Internet Era
AltiGen's server-based telecommunications system, AltiServ, allows for
seamless integration between packet-switched networks and the traditional
public telephone network.
The AltiServ system provides new services to end users, giving businesses the
choice of placing calls over data networks or traditional phone lines.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 29
Management............................................................... 39
Principal Stockholders................................................... 47
Certain Transactions..................................................... 48
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 58
Experts.................................................................. 58
Where Can You Find More Information...................................... 58
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-------------------------
AltiGen's principal executive offices are located at 47427 Fremont Boulevard,
Fremont, California 94538. Our telephone number is (510) 252-9712.
3
<PAGE>
Prospectus Summary
This summary highlights information contained in other parts of this
prospectus. You should read the entire prospectus carefully.
The Company
AltiGen designs, manufactures and markets computer, or server, based
telecommunications systems that allow businesses to use the Internet and the
traditional telephone network interchangeably and seamlessly to carry voice and
data communications. As the Internet accelerates the convergence of voice and
data communications, an increasing percentage of voice communications is being
carried over the same network as data, creating the need for a next generation
communications system. We believe that businesses, particularly small- to
medium-sized businesses, will begin to use integrated systems that receive,
manipulate and transmit voice communications over the traditional telephone
network, as well as data networks such as the Internet. Our telecommunications
systems provide new services to end users, giving businesses the choice of
placing calls over data networks or traditional phone lines. Historically,
manufacturers have not built this capability into traditional private telephone
switching systems, which are also known as private branch exchanges or PBXs. To
use these new services, businesses have had to add hardware and software to
their traditional PBXs.
As businesses seek capabilities beyond those of traditional PBXs to meet
today's communication needs, they have begun to purchase server-based
telecommunications systems in place of traditional PBXs. These new integrated
computer and telephone systems, which are generally based on free and publicly
available hardware and software standards, allow products from different
companies to be used together to provide basic telephony services such as
placing and receiving calls.
Telecommunications systems that provide these and other services over the
traditional telephone network using a general purpose computer are commonly
known as server-based PBX systems. Systems that provide these functions over
networks that use Internet Protocol, or IP, are commonly known as IP-based PBX
systems. IP is a standard software format for computers to communicate with
each other over the Internet. Our server-based telecommunications systems
combine the attributes of these two types of systems and allow small- to
medium-sized businesses to communicate over both the traditional telephone
network and IP network, such as the Internet, providing these businesses with a
telecommunications solution for the Internet era.
We are a leader in the server-based PBX market and have been shipping our
products since July 1996. We sell our server-based telecommunications systems
through our network of over 400 dealers and key distributors, including Ingram
Micro Inc. and Tech Data Corporation. We also sell our systems through original
equipment manufacturers such as Nitsuko Corporation in Japan. We have joint
marketing agreements with Compaq Computer Corporation and Hewlett-Packard
Company.
Our goal is to extend our leadership position in the server-based PBX market
and expand our current position in the IP-based PBX market. We intend to
achieve this goal by:
. increasing our brand name recognition;
. expanding our distribution channels;
. establishing relationships with technology and strategic partners;
. targeting key markets worldwide; and
. enhancing technology leadership in server-based telecommunications.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by AltiGen ................ shares
Common stock to be outstanding after the
offering....................................... shares
Use of proceeds................................. General corporate purposes,
including working capital
Proposed Nasdaq National Market symbol.......... ATGN
</TABLE>
The number of shares outstanding is based on shares outstanding as of March 31,
1999, excluding 2,716,844 shares that are issuable upon exercise of outstanding
options at a weighted average exercise price of $0.60 per share.
Summary Consolidated Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended September 30, Ended March 31,
------------------------------------- ----------------
1995 1996 1997 1998 1998 1999
----------- ------- ------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues, net........... -- $ 229 $ 1,379 $ 3,890 $ 1,510 $ 2,356
Gross profit (loss)..... -- (9) 339 1,370 323 1,133
Loss from operations.... $(1,101) (1,755) (3,325) (4,041) (1,921) (3,505)
Net loss................ $(1,068) $(1,631) $(3,119) $(3,795) $(1,832) $(3,306)
======= ======= ======= ======= ======= =======
Basic net loss per
share................. $ (1.06) $ (1.28) $ (2.34) $ (2.75) $ (1.37) $ (1.92)
======= ======= ======= ======= ======= =======
Shares used in comput-
ing basic net loss
per share............. 1,007 1,272 1,330 1,378 1,339 1,721
Unaudited pro forma ba-
sic net loss
per share............. $ (0.29) $ (0.15) $ (0.23)
Shares used in comput-
ing unaudited
pro forma basic net
loss per share........ 13,069 12,496 14,493
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
---------------------
Pro As
Actual forma Adjusted
------ ----- --------
(Unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $4,243
Working capital........................................... 5,243
Total assets.............................................. 8,521
Total shareholders' equity ............................... 6,102
</TABLE>
See Note 2 of the Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share data.
The pro forma numbers give effect to the conversion of all preferred stock
outstanding. The as adjusted numbers give effect to the sale of shares of
common stock offered by this prospectus at an assumed public offering price of
$ per share, after deducting the estimated underwriting discount and the
estimated offering expenses payable by us and the application of the estimated
net proceeds from this offering.
5
<PAGE>
Risk Factors
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the shares. If any one of these
risks or uncertainties occurs, our business, operating results and financial
condition could be seriously harmed.
Risks Related to AltiGen
We have a history of losses and expect to incur future losses, which may
prevent us from becoming profitable
We have experienced operating losses since our inception. As of March 31, 1999,
we had an unaudited accumulated deficit of $13.0 million. We expect to incur
operating losses for the foreseeable future, and these losses may be
substantial. Further, we expect our operating cash flows to be negative for the
foreseeable future. Because we expect increased expenditures for product
development and general and administrative expenses, and substantial increases
in sales and marketing expenses, we will need to increase revenues
significantly to achieve profitability and positive operating cash flows. Even
if we do achieve profitability and positive operating cash flows, we may not be
able to sustain or increase profitability or positive operating cash flows on a
quarterly or annual basis.
We have a limited operating history, which makes it difficult to evaluate our
business and our prospects
We shipped our first products in July 1996. As a result of our limited
operating history, we have limited financial data that you can use to evaluate
our business. You must consider our prospects in light of the risks, expenses
and challenges we might encounter because we are at an early stage of
development in a new and rapidly evolving market. To address these risks and
achieve profitability and increased sales levels, we must:
. establish and increase market acceptance of our technology, products and
systems;
. expand our network of distributors, dealers and original equipment
manufacturers, or OEMs, which are companies that buy our products in bulk,
customize them for particular applications or customers, and resell them
under their own names;
. introduce products and systems incorporating our technology and
enhancements to our product applications on a timely basis;
. respond effectively to competitive pressures; and
. successfully market and support our products and systems.
We may not successfully meet any of these challenges, and our failure to do so
will seriously harm our business and results of operations. In addition,
because of our limited operating history, we have limited insight into trends
that may emerge and harm our business.
Our operating results vary, making future operating results difficult to
predict
Our quarterly and annual operating results have varied significantly in the
past and will likely vary significantly in the future. A number of factors,
many of which are beyond our control, may cause our operating results to vary,
including:
. our sales cycle, which may vary substantially from customer to customer;
. unfavorable changes in the prices and delivery of the components we
purchase;
. the size and timing of orders for our products, which may vary depending
on the season, and the contractual terms of those orders;
. the size and timing of our expenses, including operating expenses and
expenses of developing new products and product enhancements;
6
<PAGE>
. deferrals of customer orders in anticipation of new products, services, or
product enhancements introduced by us or by our competitors; and
. our ability to attain and maintain production volumes and quality levels
for our products.
Our budgets and commitments that we have made for the future are based in part
on our expectations of future sales. If our sales do not meet expectations, it
will be difficult for us to reduce our expenses quickly, and consequently our
operating results may suffer.
Our dealers often require immediate shipment and installation of our products.
As a result, we have historically operated with limited backlog, and our sales
and operating results in any quarter depend primarily on orders booked and
shipped during that quarter.
Any of the above factors could harm our business, financial condition and
results of operations. We believe that period-to-period comparisons of our
results of operations are not meaningful, and you should not rely upon them as
indicators of our future performance.
Our market is highly competitive, and we may not have the resources to compete
adequately
The server-based telecommunications systems market is new, rapidly evolving and
highly competitive. We expect competition to intensify in the future as
existing competitors develop new products and new competitors enter the market.
We believe that a critical component to success in this market is the ability
to establish and maintain strong partners and customer relationships with a
wide variety of domestic and international providers. If we fail to establish
or maintain these relationships, we will be at a serious competitive
disadvantage.
We face competition from companies providing traditional private branch
exchange or PBX systems. A PBX system is a private telephone system used within
a business that allows users to make calls to each other and to share a number
of outside lines to make calls to telephones outside of the network. Our
principal competitors that produce traditional PBX systems are Lucent
Technologies and Nortel Networks. We also compete against providers of server-
based PBXs, including Picazo Communications, Inc. and Artisoft, Inc. We
potentially face competition from companies such as Shoreline Teleworks, Inc.,
NBX Corporation, acquired by 3Com Corporation, Selsius Systems, acquired by
Cisco Systems, Inc., as well as any number of future competitors. Many of our
competitors are substantially larger than we are and have significantly greater
name recognition, financial, sales and marketing, technical, customer support,
manufacturing and other resources. These competitors may also have more
established distribution channels and stronger relationships with service
providers. These competitors may be able to respond more rapidly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products. These
competitors may enter our existing or future markets with solutions that may be
less expensive, provide higher performance or additional features or be
introduced earlier than our solutions. We also expect that other companies may
enter our market with better products and technologies. If any technology that
is competing with ours is more reliable, faster, less expensive or has other
advantages over our technology, then the demand for our products and services
could decrease and harm our business.
We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies. If our
competitors successfully introduce new products or enhance their existing
products, this could reduce the sales or market acceptance of our products and
services, increase price competition or make our products obsolete. To be
competitive, we must continue to invest significant resources in research and
development, sales and marketing and customer support. We may not have
sufficient resources to make these investments or to make the technological
advances necessary to be competitive, which in turn will cause our business to
suffer. A description of our principal competitors and the competitive nature
of our market are discussed in greater detail in "Business--Competition."
7
<PAGE>
Losing either of our two key distributors would harm our business. We also need
to establish and maintain relationships with additional distributors and
original equipment manufacturers
Sales through our two key distributors, Ingram Micro Inc. and Tech Data
Corporation, accounted for 47.4% of our revenues in the six months ended March
31, 1999. Our business and operating results will suffer if either of these
distributors does not continue distributing our products, fails to distribute
the volume of our products that it currently distributes or fails to expand our
customer base. We also need to establish and maintain relationships with
additional distributors and original equipment manufacturers. We may not be
able to establish, or successfully manage, relationships with additional
distribution partners. In addition, our agreements with distributors typically
provide for termination by either party upon written notice to the other party.
For example, our agreement with Tech Data provides for termination, with or
without cause, by either party upon 30 days' written notice to the other party,
or upon insolvency or bankruptcy. Generally, these agreements are non-exclusive
and distributors sell products that compete with ours. If we fail to establish
or maintain relationships with distributors and original equipment
manufacturers, our ability to increase or maintain our sales and our customer
base will be substantially harmed.
We sell through dealers and distributors, which limits our ability to control
the timing of our sales, and this makes it more difficult to predict our
revenues
We do not recognize revenue from the sale of our products to our distributors
until these products are sold to either dealers or end users. We have limited
or no control over the timing of product sales to dealers and end users. Our
lack of control over the revenue which we recognize from our disributors' sales
to dealers and end users limits our ability to predict revenue for any given
period. Our budgets and commitments that we have made for the future are based
in part on our expectations of future sales. If our sales do not meet
expectations, it will be difficult for us to reduce our expenses quickly, and
consequently our operating results may suffer.
We rely on sole-sourced components and third-party technology and products; if
these components are not available, our business may suffer
We purchase technology from third parties that is incorporated into our
products. We incorporate the following sole-sourced components in our products:
. Mitel Corporation's chip is included in all of our boards and is
particularly important because it is the means by which our boards
communicate with each other to enable our products to function correctly;
. Texas Instruments' digital signal processor, or DSP, chip for our Triton
family of boards. The DSP chip is designed to perform the mathematics,
data compression and other tasks that are needed to manipulate voice
communications that are routed through our products. The DSP chip is also
used in our Integrated Services Digital Network Basic Rate Interface
board. This board enables our products to work with the communications
networks that are used in Japan. We expect that sales of these boards will
represent an increasing percentage of our revenues in the future.
. PMC Sierra, Inc.'s T1 chip for our Triton T1 board allows our board to
work with digital communications lines. We expect that sales of our Triton
T1 board will represent an increasing percentage of our revenues in the
future.
Lead times for materials and components used in the assembly of our products
vary significantly, and depend on factors such as the specific supplier,
contract terms and demand for a component at a given time. If orders do not
match forecasts, we may have excess or inadequate inventory of certain
materials and components, which may seriously harm our business, financial
condition and results of operations.
We order sole-sourced components using purchase orders and do not have supply
contracts for them. If we were unable to purchase an adequate supply of these
sole-sourced components on a timely basis, we would be required to develop
alternative solutions. This could entail qualifying an alternative source or
redesigning our products based on different components. We may face these types
of problems and delays in the future. Our inability to obtain these sole-
sourced components could significantly delay shipment of our products, which
8
<PAGE>
could have a negative effect on our business, financial condition and results
of operations. See "Business--Manufacturing and Assembly."
We rely on dealers to promote, sell, install and support our products, and
their failure to do so may seriously harm our business
We rely on dealers who can provide high quality sales and support services. As
with our distributors, we compete with other telecommunications systems
providers for our dealers' business, as our dealers generally market competing
products. If a dealer promotes a competitor's products to the detriment of our
products or otherwise fails to market our products and services effectively, we
could lose market share. In addition, the loss of a key dealer or failure of
dealers to provide adequate customer service could cause our business to
suffer. If we insufficiently train our dealers to sell, install and service our
products, our business will suffer.
Software or hardware errors may seriously harm our business and damage our
reputation, causing loss of customers and revenue
Users expect telephone systems to provide a high level of reliability. Our
products are inherently complex and may have undetected software or hardware
errors. We have detected and may continue to detect errors and product defects
in our installed base of products, new product releases and product upgrades.
For example, a small number of our boards failed and were returned. We have
replaced these boards and made certain design changes. We cannot be sure that
the problem has been fully addressed and that similar or different problems may
not occur in existing or new boards in the future. In addition, end users may
install, maintain and use our products improperly or for purposes for which
they were not designed. These problems may degrade or terminate the operation
of our products, which could cause end users to lose telephone service, cause
us to incur significant warranty and repair costs, damage our reputation and
cause significant customer relations problems. Any significant delay in the
commercial introduction of our products due to errors or defects, any design
modifications required to correct these errors or defects or any negative
effect on customer satisfaction as a result of errors or defects could
seriously harm our business, financial condition and results of operations.
Any claims brought because of problems with our products or services could
seriously harm our business, financial condition and results of operations. We
currently offer a one-year hardware guarantee to end users. If our products
fail within the first year, we face replacement costs. Our insurance policies
may not provide sufficient or any coverage should a claim be asserted. In
addition, our introduction of products and systems with reliability, quality or
compatibility problems could result in reduced revenues, uncollectible accounts
receivable, delays in collecting accounts receivable, warranties and additional
costs. Our customers, end users or employees could find errors in our products
and systems after we have begun to sell them, resulting in product
redevelopment costs and loss of, or delay in, their acceptance by the markets
in which we compete. Further, we may experience significant product returns in
the future. Any of these events could have a material adverse effect on our
business, financial condition and results of operations.
We may face infringement issues that could harm our business
We cannot be certain that our products do not, or will not, infringe patents,
trademarks, copyrights or other intellectual property rights held by third
parties. Third parties may assert infringement claims against us. From time to
time in the ordinary course of business we have been, and we expect to continue
to be, subject to claims of alleged infringement of the patents and
intellectual property rights of others. For example, we are currently engaged
in litigation with Netphone, Inc. In June 1999, we received a letter from
Netphone alleging that we infringe a patent owned by Netphone. On June 30,
1999, we filed a request for a declaration from the United States District
Court for the Northern District of California that AltiGen does not infringe
any valid claim of Netphone's patent. Netphone answered AltiGen's complaint on
July 13, 1999 and asserted a counterclaim against AltiGen alleging that AltiGen
infringes the Netphone patent and seeking to preliminarily and permanently
enjoin AltiGen from making, importing, using, offering to sell or selling a
device under the name Quantum.
This litigation could be costly and time consuming. An adverse outcome could
require us to obtain a license from Netphone or require us to cease sales of
what Netphone calls the "Quantum device" and possibly alter the
9
<PAGE>
design of some of our products. Netphone could file one or more counterclaims
or other proceedings against us seeking an injunction preventing us from
selling what Netphone calls the "Quantum device". Either outcome could
materially harm our business. See "Business--Intellectual Property" for a more
detailed discussion of this matter.
More generally, litigation related to these types of claims may require us to
acquire licenses under third-party patents which may not be available on
acceptable terms, if at all. We believe that an increasing portion of our
revenues in the future will come from sales of software applications for our
hardware products. The software market has traditionally experienced widespread
unauthorized reproduction of products in violation of developers' intellectual
property rights. This activity is difficult to detect, and legal proceedings to
enforce developers' intellectual property rights are often burdensome and
involve a high degree of uncertainty and substantial costs.
Any failure by us to protect our intellectual property could harm our business
and competitive position
Our success depends, to a certain extent, upon our proprietary technology. We
currently rely on a combination of patent, trade secret, copyright and
trademark law, together with non-disclosure and invention assignment
agreements, to establish and protect the proprietary rights in the technology
used in our products.
Although we have filed patent applications, we are not certain that our patent
applications will result in the issuance of patents, or that any patents issued
will provide commercially significant protection to our technology. In
addition, others may independently develop substantially equivalent proprietary
information not covered by patents to which we own rights, may obtain access to
our know-how or may claim to have issued patents that prevent the sale of one
or more of our products. Also, it may be possible for third parties to obtain
and use our proprietary information without our authorization. Further, the
laws of some countries, such as those in Japan, one of our target markets, may
not adequately protect our intellectual property or may be uncertain. Our
success also depends on trade secrets that cannot be patented and are difficult
to protect.
If we fail to protect our proprietary information effectively, or if third
parties use our proprietary technology without authorization, our competitive
position and business will suffer. A description of our dependence on
proprietary technology is discussed in greater detail in "Business --
Intellectual Property."
Our products may not meet the legal standards required for their sale in some
countries
The United States and other countries in which we intend to sell our products
have standards for safety and other certifications that must be met for our
products to be legally sold in those countries. We have tried to design our
products to meet the requirements of the countries in which we sell or plan to
sell them. We have also obtained or are trying to obtain the certifications
that we believe are required to sell our products in these countries. However,
we cannot guarantee that our products meet all of these standards or that we
will be able to obtain any certifications required. In addition, there is, and
will likely continue to be, an increasing number of laws and regulations
pertaining to the products we offer and may offer in the future. These laws or
regulations may include, for example, more stringent safety standards,
requirements for additional or more burdensome certifications or more stringent
consumer protection laws.
If our products do not meet a country's standards or we do not receive the
certifications required by a country's laws or regulations, then we may not be
able to sell those products in that country. This may seriously harm our
results of operation by reducing our sales or requiring us to invest
significant resources to conform our products to these standards.
Our market is subject to changing preferences; failure to keep up with these
changes would seriously harm our business, financial condition and results of
operations
Our customers and end users expect frequent product introductions and have
changing requirements for new products and features. Therefore, to be
competitive, we will need to develop and market new products and
10
<PAGE>
product enhancements that respond to these changing requirements on a timely
and cost-effective basis. Our failure to do so promptly and cost-effectively
would seriously harm our business, financial condition and results of
operations. Also, introducing new products could require us to write off
existing inventory as obsolete, which could harm our results of operations.
If we do not manage our growth effectively, our business will suffer
We may not be successful in managing any future growth. We have expanded our
operations rapidly since our inception. In order to manage this expansion and
to grow in the future, we will need to expand or enhance our management,
manufacturing, research and development, sales and marketing capabilities. We
may not be able to hire the management, staff or other personnel required to do
so. We may not be able to install adequate control systems in an efficient and
timely manner, and our current or planned operational systems, procedures and
controls may not be adequate to support our future operations. Difficulties in
installing and implementing new systems, procedures and controls may
significantly burden our management and our internal resources. Delays in the
implementation of new systems or operational disruptions when we transition to
new systems would impair our ability to accurately forecast sales demand,
manage our product inventory, and record and report financial and management
information on a timely and accurate basis.
Our planned expansion in international markets will involve new risks which
could harm our business, financial condition and results of operations
For the six months ended March 31, 1999, approximately 10.7% of our net
revenues came from customers outside of the United States. We intend to expand
our international sales and marketing efforts. Our efforts are subject to a
variety of risks associated with conducting business internationally, any of
which could seriously harm our business, financial condition and results of
operations. These risks include:
. import or export licensing and product certification requirements;
. tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers imposed by foreign countries, especially on
technology;
. potential adverse tax consequences, including restrictions on repatriation
of earnings;
. fluctuations in foreign currency exchange rates, which could make our
products relatively more expensive in foreign markets;
. conflicting regulatory requirements in different countries that may
require us to invest significant resources customizing our products for
each country;
. vague or rapidly changing regulations in some countries that may make it
difficult for us to determine whether our products are legally salable in
those countries;
. burdens of complying with and enforcing a wide variety of foreign laws,
particularly with respect to intellectual property and license
requirements;
. difficulties and costs of staffing and managing foreign operations; and
. the impact of recessions in economies outside of the United States.
Risks Related to the Industry
Server-based telecommunications systems may not achieve widespread acceptance,
which could cause our operating results and business to suffer
The market for server-based telecommunications systems is relatively new and
rapidly evolving. Businesses have invested substantial resources in existing
telecommunications infrastructure, including proprietary PBXs, and may be
unwilling to replace these systems in the near term or at all. Businesses may
also be reluctant to adopt server-based telecommunications systems because of
their concern about the current limitations of data networks, including the
Internet. For example, end users sometimes experience delays in receiving calls
and reduced voice quality during calls when routing calls over data networks.
Moreover, businesses that begin to route calls over the same networks that
currently carry only their data may also experience these problems if the
networks do not have sufficient capacity to carry all of these communications
at the same time. If, as a
11
<PAGE>
result, businesses defer purchasing or decide not to purchase server-based
telecommunications systems and the market for our products does not grow or
grows substantially more slowly than we anticipate, our operating results will
suffer and our business will be harmed.
Future regulation or legislation could harm our business or increase our cost
of doing business
In April 1998, the Federal Communications Commission submitted a report to
Congress stating that it may regulate certain Internet services if it
determines that such Internet services are functionally equivalent to
conventional telecommunications services. The increasing growth of the voice
over data network market and the popularity of supporting products and
services, however, heighten the risk that national governments will seek to
regulate the transmission of voice communications over networks such as the
Internet. In addition, large telecommunications companies may devote
substantial lobbying efforts to influence the regulation of this market so as
to benefit their interests, which may be contrary to our interests. These
regulations may include, for example, assessing access or settlement charges,
imposing tariffs or imposing regulations based on encryption concerns or the
characteristics and quality of products and services. Future laws, legal
decisions or regulations, as well as changes in interpretations of existing
laws and regulations, could require us to expend significant resources to
comply with them. In addition, these future events or changes may create
uncertainty in our market that could reduce demand for our products.
Evolving standards may delay our product introductions, increase our product
development costs or cause end users to defer or cancel plans to purchase our
products, any of which could adversely affect our business
The standards in our market are still evolving. These standards are designed to
ensure that server-based telecommunication products from different
manufacturers can operate together. Some of these standards are proposed by
other participants in our market, including some of our competitors, and
include proprietary technology. In recent years, these standards have changed,
and new standards have been proposed, in response to developments in our
market. Our failure to conform our products to existing or future standards may
limit their acceptance by market participants. We may not anticipate which
standards will achieve the broadest acceptance in our market in the future, and
we may take a significant amount of time and expense to adapt our products to
these standards. We may also have to pay additional royalties to developers of
proprietary technologies that become standards in our market. These delays and
expenses may seriously harm our results of operations. In addition, customers
and users may defer or cancel plans to purchase our products due to concerns
about the ability of our products to conform to existing standards or to adapt
to new or changed standards, and this could seriously harm our results of
operations.
We need additional qualified personnel to maintain and expand our business
We depend, in large part, on our ability to attract and retain highly skilled
personnel, particularly engineers and sales and marketing personnel. We need
highly trained technical personnel to design and support our server-based
telecommunications systems. In addition, we need highly trained sales and
marketing personnel to expand our marketing and sales operations in order to
increase market awareness of our products and generate increased revenues.
Competition for highly trained personnel is intense, especially in the San
Francisco Bay Area where most of our operations are located. We cannot be
certain that we will be successful in our recruitment and retention efforts. If
we fail to attract or retain qualified personnel or suffer from delays in
hiring required personnel, our business, financial condition and results of
operations may be seriously harmed.
Our facilities are vulnerable to damage from earthquakes and other natural
disasters
We perform final assembly, software installation and testing of our products at
our facility in Fremont, California. Our facilities are located on or near
known earthquake fault zones and are vulnerable to damage from fire, floods,
earthquakes, power loss, telecommunications failures and similar events. If
such a disaster occurs, our ability to perform final assembly, software
installation and testing of our products at our facilities
12
<PAGE>
would be seriously, if not completely, impaired. If we were unable to obtain an
alternative place or way to perform these functions, our business, financial
condition and results of operations would suffer. The insurance we maintain may
not be adequate to cover our loses against fires, floods, earthquakes and
general business interruptions.
Our strategy to outsource assembly and test functions in the future could delay
delivery of products, decrease quality or increase costs.
Based on volume or customer requirements, we may begin outsourcing some
assembly and test functions. In addition, we may determine that we need to
establish assembly and test operations overseas to better serve our
international customers. Establishing overseas assembly and test operations may
be more difficult or take longer than we anticipate. This outsourcing strategy
involves certain risks, including the potential lack of adequate capacity and
reduced control over delivery schedules, manufacturing yield, quality and
costs. In the event that any significant subcontractor were to become unable or
unwilling to continue to manufacture or test our products in the required
volumes, we would have to identify and qualify acceptable replacements. Finding
replacements could take time, and we cannot be sure that additional sources
would be available to us on a timely basis. Any delay or increase in costs in
the assembly and testing of products by third-party subcontractors could
seriously harm our business, financial condition and results of operations. A
description of our manufacturing and assembly operations is discussed in
greater detail in "Business--Manufacturing and Assembly."
We face year 2000 risks
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, within
this year, computer systems and software may need to be upgraded to comply with
these year 2000 requirements. Our failure to complete implementation of the
required changes to address year 2000 requirements prior to the year 2000 might
result in significant difficulties in our administration of management
information systems and consequently have a material adverse effect on our
business, financial condition and results of operations. We have not yet
completed a review of the preparations of all of our major suppliers,
distributors and shippers to be year 2000 compliant. We therefore do not have a
basis to assess the impact, if any, that the year 2000 issue will have on our
suppliers, distributors, dealers and shippers and consequently on us. Failure
by our suppliers, distributors, dealers and shippers and other parties with
which we do business to address year 2000 issues could negatively affect our
ability to distribute products for some period of time and otherwise disrupt
our business operations.
We also face the risk that some of our products may not be year 2000 compliant.
If any of our end user customers experience year 2000 issues as a result of
their use of our products, those end users could assert claims against us for
damages which, if successful, could harm our business, financial condition or
results of operations. In addition, many of our products have some third-party
technologies embedded in them, and we expect our products to be increasingly
integrated into enterprise systems involving sophisticated hardware and complex
software products. We cannot adequately evaluate these technologies or products
for year 2000 compliance. We may face claims under our warranties, or
otherwise, based on year 2000 problems in other companies' products, or issues
arising from the integration of multiple products within an overall system. We
are in the process of testing our products to identify any year 2000 issues.
For a more detailed description of our year 2000 assessment, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
Risks Related to the Offering
We may need to raise more capital, but the availability of additional financing
is uncertain
We expect the net proceeds from this offering and recent private equity
financings to be sufficient to meet our working capital and capital expenditure
needs for at least the next 12 months. Subsequently, we may need to
13
<PAGE>
raise more capital, and we may not be able to do so on favorable terms, or at
all. We may also need more capital to acquire or invest in complementary
businesses or products, or obtain the right to use complementary technologies.
If we cannot raise more capital, if needed, on acceptable terms, we may not be
able to develop or enhance our products, take advantage of future
opportunities, or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business, financial condition, and
results of operations. If we raise more capital by selling more shares of our
stock, our net tangible book value per share may decrease, the percentage
ownership of then current stockholders may be diluted, and the stock sold to
new investors may have rights, preferences or privileges senior to those of the
holders of our outstanding securities.
Our certificate of incorporation and bylaws and Delaware law will contain
provisions that could deter takeovers and prevent you from receiving a premium
for your shares
Provisions of our certificate of incorporation, our bylaws and Delaware law
(upon our reincorporation in Delaware) could make it more difficult for a third
party to acquire us, even if doing so might be beneficial to our stockholders.
For example, our certificate of incorporation to be effective upon the closing
of this offering will provide that our board may issue up to 5,000,000 shares
of preferred stock without stockholder approval. See "Description of Capital
Stock" for a more complete discussion of these matters.
Our stock price may be volatile, exposing us to securities class action
litigation
Prior to this offering, you could not buy or sell our common stock in a public
market. An active public market for our common stock may not develop or be
sustained after this offering. Although the initial public offering price will
be fixed, the market price for our common stock will vary from the initial
offering price after this offering. The stock market in general, and the stock
prices of Internet-related companies in particular, have recently experienced
extreme volatility, which has often been unrelated to the operating performance
of any particular company or companies. The market price of our common stock
may fluctuate significantly, which is particularly common among high technology
companies, due to a number of factors, some of which are beyond our control.
We may in the future be the target of securities class action litigation, which
could be costly and time-consuming to defend
Our stock price could decline below our initial public offering price
regardless of our actual operating performance. In the past, securities class
action litigation has often been brought against companies following periods of
volatility in their stock prices. We may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and divert
our management's time and resources, which could harm our business, financial
condition, and operating results.
Our management may not use the proceeds of this offering effectively
Our management has broad discretion over the use of a substantial portion of
the proceeds of this offering. Accordingly, it is possible that our management
may allocate the proceeds differently than investors in this offering would
have preferred, or that we will fail to maximize our return on the proceeds.
Investors will incur immediate dilution because the initial public offering
price of a share of our stock will exceed its book value
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock
immediately after the offering. If you purchase common stock in this offering,
you will incur immediate dilution of approximately $ in the book value per
share of common stock from the price you pay. This calculation assumes you
purchase the common stock for $ per share. See "Dilution."
14
<PAGE>
Substantial sales of our common stock by our existing stockholders could cause
our stock price to fall
If current stockholders sell a substantial number of their shares, including
shares issued upon the exercise of outstanding options, in the public market
during a short period of time, or if stockholders or analysts believe that
these sales will be made, our stock price may decline significantly. These
sales may make it more difficult for us to sell equity securities in the future
at a time and price that we deem appropriate. After this offering, we will have
outstanding shares of common stock. All of the shares sold in this offering
will be freely tradeable. Approximately 15,932,717 shares are subject to lock-
up arrangements between the stockholders and us or the underwriters. Of the
remaining shares of common stock outstanding after this offering, all will be
eligible for sale in the public market 180 days following the date of this
prospectus. Of these shares, 14,401,081 shares will be subject to volume
limitations under federal securities laws.
Our officers and directors and their affiliates will exercise significant
control
Upon completion of this offering, our executive officers and directors and
their affiliates will beneficially own, in the aggregate, approximately %
of our outstanding common stock. As a result, these stockholders will be able
to exercise significant control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions, which could delay or prevent someone from acquiring or
merging with us. See "Principal Stockholders."
15
<PAGE>
Forward-Looking Statements
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, statements regarding the following: expected product revenues as
a percentage of sales, expense levels, use of proceeds, liquidity and expansion
strategy and possible effects of changes in government regulation. These
statements may be found under "Prospectus Summary," "Risk Factors," "Business,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Forward-looking statements typically are identified
by use of terms such as "may", "will", "expect", "anticipate", "intend",
"estimate" and similar words, although some forward-looking statements are
expressed differently. You should be aware that our actual results could differ
materially from those contained in the forward-looking statements due to a
number of factors, including insufficient capital resources, inability to
integrate acquired businesses successfully, adverse economic conditions and
unanticipated difficulties in product development. You should also consider
carefully the statements under "Risk Factors" and other sections of this
prospectus, which address additional factors that could cause our actual
results to differ from those set forth in the forward-looking statements.
Use of Proceeds
We estimate that the net proceeds from the sale of the shares of common stock
we are offering will be approximately $ . If the underwriters fully
exercise the over-allotment option, the net proceeds of the shares we sell will
be $ . Net proceeds is what we expect to receive after paying the
underwriting discount and other expenses of the offering. For the purpose of
estimating net proceeds, we are assuming that the initial public offering price
will be $ per share.
We intend to use the net proceeds of this offering for working capital and
general corporate purposes, including increased sales and marketing programs,
commencement of international expansion and continued expenditures on
development of new products. We may also use a portion of the net proceeds for
potential acquisitions of businesses or technologies that are complementary to
our business, although we have no current agreements or commitments in this
regard.
The timing and amount of our actual expenditures will be based on many factors,
including the status of our research and development efforts and cash flow from
operations.
Until we use the net proceeds of the offering, we intend to invest the funds in
short-term, investment grade, interest-bearing securities.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We
currently expect to retain future earnings, if any, to support operations and
to finance the growth and development of our business. Therefore, we do not
expect to pay cash dividends in the foreseeable future.
16
<PAGE>
Capitalization
The following table shows:
. The capitalization of AltiGen on March 31, 1999, as a California
corporation.
. The capitalization of AltiGen on March 31, 1999, assuming the completion
of the offering at an assumed initial public offering price of $ per
share, the receipt of the net proceeds of the offering, and the conversion
of all outstanding preferred stock into common stock.
You should read the following table with our consolidated financial statements
and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
------------------
As
Actual Adjusted
-------- --------
(in thousands)
<S> <C> <C>
Short-term debt......................................... $ 378 $
======== ========
Shareholders' equity:
Common stock; no par value; 40,000,000 shares
authorized, 1,985,165 shares issued and outstanding,
actual; 60,000,000 shares authorized, 14,757,255
shares issued and outstanding, as adjusted............ 2,333
Convertible preferred stock; no par value; 20,000,000
shares authorized, 12,772,090 shares issued and
outstanding, actual, 5,000,000 shares authorized, no
shares issued and outstanding, as adjusted............ 18,882 --
Deferred stock compensation............................ (2,105) (2,105)
Accumulated deficit.................................... (13,008) (13,008)
-------- --------
Total shareholders' equity............................ 6,102
-------- --------
Total capitalization................................ $ 6,102 $
======== ========
</TABLE>
This table excludes 2,716,844 shares of common stock issuable upon exercise of
outstanding options as of March 31, 1999, at a weighted average exercise price
of $0.60 per share.
17
<PAGE>
Dilution
AltiGen's net tangible book value on March 31, 1999 was approximately $
or per share. Net tangible book value is total assets minus the sum of
liabilities and intangible assets. Net tangible book value per share is net
tangible book value divided by the total number of shares outstanding before
the offering.
After giving effect to adjustments relating to the offering, AltiGen's pro
forma net tangible book value on March 31, 1999, would have been $ or
$ per share. The adjustments made to determine pro forma net tangible book
value per share are the following:
. An increase in the total assets to reflect the net proceeds of the
offering as described under "Use of Proceeds" assuming that the initial
public offering price will be $ per share.
. The addition of the number of shares offered by this prospectus to the
number of common shares outstanding and the conversion of all outstanding
shares of our preferred stock into common stock.
The following illustrates the pro forma increase in net tangible book value of
$ per share and the dilution (the difference between the offering price
per share and net tangible book value per share) to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Net tangible book value per share as of ............ $
Increase in net tangible book value per share attributable to
the offering...................................................
-----
Pro forma net tangible book value per share as of
after giving
effect to the offering.........................................
-----
Dilution per share to new investors in the offering............. $
=====
</TABLE>
The following table shows the difference between existing stockholders and new
investors with respect to the number of shares purchased from AltiGen, the
total consideration paid and the average price paid per share. The table
assumes that the initial public offering price will be $ per share.
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration
---------------- ----------------- Average Price
Number Percent Amount Percent Per Share
-------- ------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... % $ % $
New investors...............
-------- ----- --------- -----
Total..................... 100.0% $ 100.0%
======== ===== ========= =====
</TABLE>
The table above assumes no exercise of any stock options outstanding as of
March 31, 1999. As of March 31, 1999, there were options outstanding to
purchase 2,716,844 shares of common stock at the weighted average exercise
price of $0.60 per share. To the extent any of these options are exercised,
there will be further dilution to investors. See "Capitalization,"
"Management--Employee Benefit Plan," "Description of Capital Stock" and Note 5
of Notes to Consolidated Financial Statements.
18
<PAGE>
Selected Consolidated Financial Data
This section presents selected historical financial data of AltiGen, as a
California corporation. You should read carefully the financial statement
included in this prospectus, including the notes to the financial statements.
The selected data in this section are not intended to replace the financial
statements.
AltiGen derived the consolidated statement of operations data for the year
ended September 30, 1995 and consolidated balance sheet data as of September
30, 1995 from our unaudited consolidated financial statements that are not
included in this prospectus. AltiGen derived the consolidated statement of
operations data for the years ended September 30, 1996, 1997 and 1998, and
consolidated balance sheet data as of September 30, 1997 and 1998 from the
audited consolidated financial statements in this prospectus. Those financial
statements were audited by Arthur Andersen LLP, independent public accountants.
AltiGen derived the consolidated balance sheet data as of September 30, 1996
from audited consolidated financial statements that are not included in the
prospectus. AltiGen derived the consolidated statement of operations data for
the six months ended March 31, 1998 and 1999, and consolidated balance sheet
data as of March 31, 1999 from the unaudited consolidated financial statements
included in this prospectus. AltiGen's management believes that the unaudited
historical financial statements contain all adjustments needed to present
fairly the information included in those statements, and that the adjustments
made consist only of normal recurring adjustments. Results for the six months
ended March 31, 1999 are not necessarily indicative of the results for the year
or for any future period.
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended September 30, Ended March 31,
---------------------------------- ----------------
1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues, net............ -- $ 229 $ 1,379 $ 3,890 $ 1,510 $ 2,356
Cost of revenues......... -- 238 1,040 2,520 1,187 1,223
------- ------- ------- ------- ------- -------
Gross profit (loss)..... -- (9) 339 1,370 323 1,133
------- ------- ------- ------- ------- -------
Operating expenses:
Research and develop-
ment................... $ 700 753 1,498 1,927 799 2,036
Sales and marketing..... 72 446 1,448 2,770 1,106 1,779
General and administra-
tive................... 329 547 718 675 339 702
Deferred stock compensa-
tion .................. -- -- -- 39 -- 121
------- ------- ------- ------- ------- -------
Total operating ex-
penses................ 1,101 1,746 3,664 5,411 2,244 4,638
------- ------- ------- ------- ------- -------
Loss from operations..... (1,101) (1,755) (3,325) (4,041) (1,921) (3,505)
------- ------- ------- ------- ------- -------
Interest and other in-
come, net............... 33 124 206 246 89 199
------- ------- ------- ------- ------- -------
Net loss................. $(1,068) $(1,631) $(3,119) $(3,795) $(1,832) $(3,306)
======= ======= ======= ======= ======= =======
Basic net loss per
share.................. $ (1.06) $ (1.28) $ (2.34) $ (2.75) $ (1.37) $ (1.92)
======= ======= ======= ======= ======= =======
Shares used in computing
basic net loss per
share.................. 1,007 1,272 1,330 1,378 1,339 1,721
</TABLE>
<TABLE>
<CAPTION>
September 30,
---------------------------------- March
1995 1996 1997 1998 31, 1999
------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
short term
investments................. $ 1,768 $ 3,152 $ 3,093 $ 8,057 $ 4,243
Working capital.............. 1,948 3,501 3,535 8,698 5,243
Total assets................. 2,076 3,762 4,714 11,269 8,521
Convertible preferred stock.. 3,159 6,348 9,671 18,882 18,882
Accumulated deficit.......... (1,156) (2,787) (5,906) (9,701) (13,008)
Total shareholders' equity
(deficit)................... (2,020) 3,763 3,787 9,251 6,102
</TABLE>
19
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read this discussion with our consolidated financial statements,
related notes and other financial information included in this prospectus.
Overview
We are a leading provider of server-based telecommunications systems. We were
incorporated in May 1994 and began operations in July 1994. From inception
through July 1996, we were a development stage company and had no revenues.
During this period, our operating activities consisted primarily of developing
our initial product, recruiting personnel, raising capital and building our
corporate infrastructure. We first recognized revenues from product sales of
our Quantum board and AltiWare software in July 1996. We generated net revenues
of $229,000 in fiscal year 1996, $1.4 million in fiscal year 1997 and $3.9
million in fiscal year 1998. As of March 31, 1999, we had an accumulated
deficit of $13.0 million.
We derive our revenues from sales of our AltiServ system, which includes
Quantum boards, Triton boards and AltiWare software. Software sales currently
make up less than 10% of our net revenues. Although we cannot assure you that
this will be the case, we currently anticipate that software sales will
comprise a greater portion of our net revenues in the future. Product revenues
consist of sales to end users (including dealers) and to distributors. Revenues
from product sales to end users are recognized upon shipment. We defer
recognition of sales to distributors until such distributors resell our
products to their customers. Under our distribution contracts, a distributor
has the right in some circumstances to return products it determines are
overstocked, so long as it provides an offsetting purchase order for products
in an amount equal to or greater than the dollar value of the returned
products. In addition, we afford distributors protection from subsequent price
reductions.
We market and sell our products primarily through a small number of our
distributors and a network of over 400 dealers worldwide. In fiscal year 1998,
distributor Tech Data accounted for 24.4% of our net revenues, and distributor
Ingram Micro accounted for 3.1% of our net revenues. For the six months ended
March 31, 1999, Tech Data accounted for 26.9% of our net revenues and Ingram
Micro accounted for 20.5% of our net revenues. To date, we have sold only a
small amount of our products to original equipment manufacturers, or OEMs, but
we currently anticipate that sales to OEMs could account for a significant
portion of our sales in the future. For the six months ended March 31, 1999,
sales to customers outside the United States accounted for approximately 10.7%
of net revenues. We currently anticipate that international sales will account
for an increasing portion of our sales in the future.
Our cost of revenues consists of component and material costs, direct labor
costs, provisions for excess and obsolete inventory, warranty costs and
overhead related to manufacturing our products. Software sales typically carry
a higher gross margin than hardware sales.
We have experienced operating losses and negative cash flows from operations in
each quarterly and annual period since our inception and we currently expect to
continue to incur losses for the foreseeable future. We have not recognized any
future tax benefits of our cumulative net operating losses due to uncertainty
as to future realizability.
20
<PAGE>
Results of Operations
The following table sets forth consolidated statements of operations data for
the periods indicated as a percentage of net revenues.
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended Ended March
September 30, 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues, net................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............. 104.1 75.4 64.8 78.6 51.9
------ ------ ------ ------ ------
Gross profit (loss)......... (4.1) 24.6 35.2 21.4 48.1
Operating expenses:
Research and development.... 328.5 108.7 49.6 52.9 86.4
Sales and marketing......... 194.3 105.0 71.2 73.2 75.5
General and administrative.. 238.5 52.1 17.3 22.5 29.8
Deferred stock compensa-
tion....................... -- -- 1.0 -- 5.2
------ ------ ------ ------ ------
Total operating expenses.... 761.3 265.8 139.1 148.6 196.9
------ ------ ------ ------ ------
Loss from operations......... (765.4) (241.2) (103.9) (127.2) (148.8)
Interest and other income,
net......................... 54.0 15.0 6.3 5.9 8.5
------ ------ ------ ------ ------
Net loss................... (711.4)% (226.2)% (97.6)% (121.3)% (140.3)%
====== ====== ====== ====== ======
</TABLE>
Six Months Ended March 31, 1999 Compared to Six Months Ended March 31, 1998
Revenues, net. Revenues consist of sales to end users (including dealers) and
to distributors. Net revenues increased to $2.4 million in the first six months
of fiscal year 1999 from $1.5 million in the first six months of fiscal year
1998, representing an increase of 56.0%. This change resulted primarily from
increased sales of our AltiServ systems. In the first six months of fiscal year
1999, sales to Tech Data accounted for 26.9% of our net revenues and sales to
Ingram Micro accounted for 20.5% of our net revenues. In the first six months
of fiscal year 1999, sales of the Quantum board represented 89% of net
revenues.
Cost of revenues. Cost of revenues in both the first six months of fiscal year
1999 and the first six months of fiscal year 1998 were approximately $1.2
million. Cost of revenues consists primarily of component and material costs,
direct labor costs, provisions for excess and obsolete inventory, warranty
costs and overhead related to manufacturing our products. Cost of revenues
decreased as a percentage of net revenues in the first six months of fiscal
year 1999 compared to the first six months of fiscal year 1998. This decrease
was primarily as a result of production efficiencies as well as lower component
and overhead costs due to increased production. In addition, the cost of
revenues for the first six months of fiscal year 1998 includes a provision for
excess and obsolete inventory of $301,000 related primarily to the impact of
design changes to our Quantum product. As a result, gross profit increased to
$1.1 million in the first six months of fiscal year 1999 from $323,000 in the
first six months of fiscal year 1998.
Research and development expenses. Research and development expenses increased
to $2.0 million for the first six months of fiscal year 1999 from $799,000 for
the first six months of fiscal year 1998. Research and development expenses
consist principally of salaries and related personnel expenses, consultant fees
and prototype expenses related to the design, development and testing of our
products. We expense our research and development costs as incurred. The
increase was primarily due to our hiring additional engineers, as well as
opening of a research and development office in China, and increases in
depreciation and other related charges due to increases in capital spending on
design and simulation software. We currently intend to increase research and
development expenses in absolute dollars in the forseeable future, to allow us
to develop new products and features.
21
<PAGE>
Sales and marketing expenses. Sales and marketing expenses increased to $1.8
million for the first six months of fiscal year 1999 from $1.1 million for the
first six months of fiscal year 1998, representing an increase of 60.9%. Sales
and marketing expenses consist of compensation, commissions and related costs
for personnel engaged in sales and marketing functions, trade show expenses,
selling and promotional programs, marketing programs and related expenses. This
increase was primarily due to hiring additional sales and marketing personnel,
increasing advertising and promotional activities and increasing training to
identify and educate new qualified authorized dealers. We currently intend to
increase sales and marketing expenses in absolute dollars as we continue to
pursue new channels and markets and to promote customer and end user awareness
of the features and benefits of our products.
General and administrative expenses. General and administrative expenses
increased to $702,000 for the first six months of fiscal year 1999 from
$339,000 for the first six months of fiscal year 1998. General and
administrative expenses consist primarily of salaries and related expenses for
executive, finance and administrative personnel, recruiting expenses,
professional fees and other general corporate expenses. The increase was
primarily due to the hiring of additional personnel in our finance and
accounting, management information systems and administrative groups, an
increase in related facilities expenses and professional services expenses. We
currently intend to increase general and administrative expenses in absolute
dollars, as we add personnel and incur additional costs resulting from the
growth of our business.
Deferred stock compensation expenses. Deferred stock compensation expenses were
$121,000 in the first six months of fiscal year 1999. Deferred stock
compensation expenses reflect the amortization of stock compensation charges
resulting from granting stock options at exercise prices below the deemed fair
value of our common stock on the dates the options were granted. We are
amortizing these amounts using the straight line method over the vesting period
of the stock options. We expect to amortize approximately $405,000 of this
deferred stock compensation in fiscal year 1999, $566,000 in fiscal year 2000,
$566,000 in fiscal year 2001, $528,000 in fiscal year 2002 and $162,000 in
fiscal year 2003 and doing so will decrease our net income. We did not record
any deferred stock compensation expenses in the first six months of fiscal year
1998.
Interest and other income, net. Net interest and other income increased to
$199,000 in the first six months of fiscal year 1999 from $89,000 in the first
six months of fiscal year 1998. This increase was due primarily to higher
average cash and cash equivalents balances between periods.
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September
30, 1997
Revenues, net. Net revenues increased to $3.9 million in fiscal year 1998 from
$1.4 million in fiscal year 1997, representing an increase of 182.1%. This
increase resulted primarily from increased sales of our Quantum boards and
increased sales due to the addition of Tech Data and Ingram Micro as
distributors of our products. Sales to Tech Data accounted for 10.0% of our net
revenues in fiscal year 1997 and for 24.4% of our net revenues in fiscal year
1998. Sales of Quantum boards represented 95% of net revenues in fiscal year
1998 and 100% of net revenues in fiscal year 1997.
Cost of revenues. Cost of revenues increased to $2.5 million in fiscal year
1998 from $1.0 million in fiscal year 1997. This increase was due primarily to
increased sales of our products and higher provision for excess and obsolete
inventory related primarily to the impact of design changes in our Quantum
product, offset by higher volume of lower cost software products and cost
reductions in our manufacturing process. As a result, gross profit increased to
$1.4 million in fiscal year 1998 from $339,000 in fiscal year 1997.
Research and development expenses. Research and development expenses increased
to $1.9 million in fiscal year 1998 from $1.5 million in fiscal year 1997,
representing an increase of 28.7%. The increase was primarily related to
increases in personnel and personnel related costs and increases in the
depreciation and other related charges due to capital spending on design and
simulation software.
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<PAGE>
Sales and marketing expenses. Sales and marketing expenses increased to $2.8
million in fiscal year 1998 from $1.4 million in fiscal year 1997, representing
an increase of 91.3%. The increase was primarily due to
the hiring of additional sales and marketing personnel as well as increased
spending for marketing promotional programs and materials, advertising and
trade show expenses.
General and administrative expenses. General and administrative expenses
remained relatively flat at $675,000 in fiscal year 1998, compared to $718,000
in fiscal year 1997.
Deferred stock compensation expenses. We recorded deferred stock compensation
expenses of $39,000 during the second half of fiscal year 1998. We did not
record any deferred stock compensation expense during the first six months of
fiscal year 1998 because we had not granted any stock options at exercise
prices below the deemed fair market value of our common stock on the dates the
options were granted.We did not record any deferred stock compensation expenses
in fiscal year 1997 or prior periods for the same reason.
Interest and other income, net. Net interest and other income increased to
$246,000 in fiscal year 1998 from $206,000 in fiscal year 1997, representing an
increase of 19.4%. This increase was due to higher average cash balances in
fiscal year 1998 due to our preferred stock financings.
Fiscal Year 1996
We began selling products in July 1996, and net revenues for fiscal year 1996
consisted primarily of sales of our AltiServ system. Cost of revenues of
$239,000 exceeded net revenues due to the impact of establishing additional
production capacity. Operating expenses generally were high as a percentage of
net revenues compared to subsequent periods due primarily to the fact that we
incurred operating costs for the full year but sold products only in the last
three months of the year. We did not incur any deferred stock compensation
expenses in fiscal year 1996. Net interest income of $124,000 primarily
represented interest earned on cash balances resulting from preferred stock
financings.
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<PAGE>
Quarterly Results of Operations
The following tables set forth the unaudited consolidated statement of
operations data for each of the six quarters ended March 31, 1999, as well as
that data expressed as a percentage of our total revenues for the quarters
presented. This unaudited quarterly information has been prepared on the same
basis as our audited consolidated financial statements and, in the opinion of
our management, reflects all normal recurring adjustments that we consider
necessary for a fair presentation of the information for the periods presented.
Operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------
December 31, March 31, June 30, September 30, December 31, March 31,
1997 1998 1998 1998 1998 1999
------------ --------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues, net........... $ 581 $ 929 $1,049 $ 1,331 $ 917 $ 1,439
Cost of revenues........ 670 517 561 772 478 745
------- ----- ------ ------- ------- -------
Gross profit (loss).... (89) 412 488 559 439 694
Operating expenses:
Research and develop-
ment.................. 371 428 549 579 854 1,182
Sales and marketing.... 477 629 720 944 703 1,076
General and administra-
tive.................. 166 173 163 173 300 402
Deferred stock
compensation.......... -- -- -- 39 26 95
------- ----- ------ ------- ------- -------
Total operating
expenses............. 1,014 1,230 1,432 1,735 1,883 2,755
------- ----- ------ ------- ------- -------
Loss from operations.... (1,103) (818) (944) (1,176) (1,444) (2,061)
Interest and other in-
come, net.............. 49 40 50 107 93 106
------- ----- ------ ------- ------- -------
Net loss................ $(1,054) $(778) $ (894) $(1,069) $(1,351) $(1,955)
======= ===== ====== ======= ======= =======
As a Percentage of Total
Revenues:
Revenues, net........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 115.4 55.6 53.5 58.0 52.1 51.8
------- ----- ------ ------- ------- -------
Gross profit (loss).... (15.4) 44.4 46.5 42.0 47.9 48.2
Operating expenses:
Research and develop-
ment.................. 63.8 46.1 52.3 43.6 93.1 82.1
Sales and marketing.... 82.1 67.7 68.6 71.0 76.7 74.8
General and administra-
tive.................. 28.5 18.7 15.6 12.9 32.7 27.9
Deferred stock
compensation.......... -- -- -- 2.9 2.9 6.6
------- ----- ------ ------- ------- -------
Total operating
expenses............. 174.4 132.5 136.5 130.4 205.4 191.4
------- ----- ------ ------- ------- -------
Loss from operations.... (189.8) (88.1) (90.0) (88.4) (157.5) (143.2)
Interest and other in-
come, net.............. 8.4 4.4 4.7 8.1 10.2 7.3
------- ----- ------ ------- ------- -------
Net loss................ (181.4)% (83.7)% (85.3)% (80.3)% (147.3)% (135.9)%
======= ===== ====== ======= ======= =======
</TABLE>
Our net product revenues increased in each of the consecutive quarters, except
the quarter ended December 31, 1998, due primarily to the continued acceptance
of our AltiServ system and enhancements to that system, as well as the
introduction of our Triton boards in March 1999. The seasonal decrease in
purchases by our customers in the quarter ended December 31, 1998 was worsened
due primarily to a sales promotion during the quarter ended September 30, 1998,
which may have resulted in end users accelerating purchases that would
otherwise have been made in the December quarter. Our gross profit for the
quarter ended December 31, 1997 decreased as a percentage of net revenues due
primarily to a change in the design
24
<PAGE>
of our Quantum boards that caused us to write-off as obsolete our existing
inventory of Quantum boards and related components that could no longer be used
for the new design. Our research and development expenses have increased in
absolute dollars in each of the consecutive quarters, but have fluctuated as a
percentage of net revenues, especially during the first two quarters of fiscal
year 1999 as we hired additional engineers to support development of our
products. Sales and marketing expenses decreased in absolute terms for the
quarter ended December 31, 1998 due primarily to reduced expenses for
advertising from seasonal softness in our market.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily from the sale of
private equity securities. We have raised an aggregate of $18.9 million, net of
offering expenses, through the sale of preferred stock. As of March 31, 1999,
we had cash and cash equivalents of $4.2 million.
Net cash used in our operating activities was $3.4 million for the six months
ended March 31, 1999, was $3.8 million for fiscal year 1998, $3.1 million for
fiscal year 1997, and $1.8 million for fiscal year 1996. Net cash use in
operating activities primarily reflected the impact of the net loss for each of
the periods.
Net cash provided by investing activities was $622,000 for the six months ended
March 31, 1999, which was primarily a result of redemption of short-term
investments. Our purchases of short-term investments exceeded the proceeds from
short-term investments and purchases of property and equipment by $3.0 million
in fiscal year 1998 and by $1.0 million in fiscal year 1997. Our proceeds from
short-term investments and our purchases of property and equipment exceeded our
purchases of short-term investments by $641,000 in fiscal year 1996. The
relative decrease in cash used for investing activities in the fiscal year 1998
compared to the prior year was primarily due to decreases in the net cash being
invested in the year. The relative increase in cash used for investing
activities for fiscal year 1997 compared to the prior period was primarily due
to an increase in purchases of $207,000 for engineering capital equipment and a
decrease in redemption of short-term investments of $2.0 million between the
periods.
Net cash provided by financing activities was $36,000 for the six months ended
March 31, 1999. Cash provided from financing activities was $9.2 million for
fiscal year 1998, $3.3 million in fiscal year 1997 and $3.2 million in fiscal
1996. The increase in cash provided by investing activities for fiscal year
1998 compared to the prior period was primarily due to $1.4 million in net
proceeds from our issuance of series C preferred stock and $7.8 million in net
proceeds from our issuance of series D preferred stock.
We currently believe that the net proceeds from this offering, together with
the existing cash and cash equivalents balances, will provide us with
sufficient funds to finance our operations through at least the next twelve
months. Our management intends to invest our cash in excess of current
operating requirements in short-term, interest-bearing investment-grade
securities. Subsequently, we may need to raise additional funds, and additional
financing may not be available on favorable terms, if at all. We may also
require additional capital to acquire or invest in complementary businesses or
products, or obtain the right to use complementary technologies. If we cannot
raise funds, if needed, on acceptable terms, we may not be able to develop or
enhance our products, take advantage of future opportunities, or respond to
competitive pressures or unanticipated requirements, which could seriously harm
our business, financial condition, and results of operations. If additional
funds are raised through the issuance of equity securities, the net tangible
book value per share may decrease, the percentage ownership of then current
stockholders may be diluted, and such equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock.
25
<PAGE>
Year 2000 Compliance
The information in this section is a "Year 2000 Readiness Disclosure" as
defined in the Year 2000 Information and Readiness Disclosure Act of 1998.
Impact of the year 2000 problem. The year 2000 problem refers to the potential
for system and processing failures of date-related data as a result of
computer-controlled systems using two digits rather than four to define the
applicable year. For example, computer programs that have time-sensitive
software may recognize a date represented as "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
To date, we have not experienced any year 2000 issues with any of our internal
systems or our products, and we do not expect to experience any of them.
Assessment. The year 2000 problem affects the computers, software and other
equipment that we use, operate or maintain for our operations. Accordingly, we
have organized a program team responsible for monitoring the assessment and
remediation status of our year 2000 issues and reporting to our management.
This project team is currently assessing the potential effect and costs of
remediating year 2000 issues for our internal systems. To date, we have not
obtained independent verification or validation to assure the reliability of
our risk and cost estimates because we do not feel that the scope of our
program warrants this time and expense.
Internal infrastructure. We believe that we have identified most of the major
computers, software applications and related equipment used in connection with
our internal operations that will need to be evaluated to determine if they
must be modified, upgraded or replaced to minimize the possibility of a
material disruption to our business. We are currently assessing the potential
impact of year 2000 issues on these computers, equipment and applications. We
expect to complete this evaluation by July 1999 and will then begin modifying,
upgrading and replacing major systems that we believe have year 2000 issues.
Systems other than information technology systems. In addition to computers and
related systems, the operation of office and facilities equipment, such as fax
machines, security systems and other common devices may have year 2000 issues.
We are currently assessing the potential effect on and the costs of remediating
these issues, if any, for our office equipment and our facilities in Fremont,
California and Shanghai, China.
Products. Since June 1998, we have designed our products to be year 2000
compliant and believe that using these products as documented should not cause
any year 2000-related issues. We have tested and intend to continue to test all
of our products introduced since September 1998 for year 2000 issues. While we
believe these products are year 2000 compliant, it is impractical for us to
test these products in every telecommunications systems environment or with all
available combinations of our products with components supplied by our
customers or other third party suppliers. As a result, there may be situations
where the combination of these products working with components supplied by
other third parties could result in year 2000 issues.
Two versions of our AltiWare CE software product introduced before September
1998 were not designed specifically to be year 2000 compliant. These versions
are currently being used on a small number of end user systems. As a result, we
have decided not to test these versions for year 2000 compliance. Instead, we
have notified all of our customers and advised them to upgrade any systems that
are using these older versions. We have and will continue to offer users who
request it a free software upgrade to a later version of AltiWare CE that is
year 2000 compliant. However, users who do not upgrade may experience year 2000
issues and make potentially damaging claims against us. See "Risk Factors--We
face year 2000 risks."
Costs of remediation. We currently anticipate that our total cost of addressing
our year 2000 issues will be $50,000, of which approximately $22,000 has been
incurred through March 31, 1999 and expensed to date.
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<PAGE>
We do not have a separate information technology or similar budget. The cost of
addressing year 2000 issues will be reported as a general and administrative
expense. We have not deferred any material information technology projects due
to our year 2000 efforts.
Suppliers. We are contacting third-party suppliers of components and our key
subcontractors used in the manufacturing of our products to identify, and to
the extent possible, resolve issues relating to the year 2000 issue. While we
expect that we will be able to resolve any significant year 2000 issue
identified with these third parties, because we have limited to no control over
the actions of these parties, there is no assurance that these third parties
will remediate any or all of the year 2000 issues identified. Any failure of
any of these third parties to timely resolve year 2000 issues with either their
products sold to us, or their systems could have a material adverse effect on
our business, operating results and financial condition.
Most likely consequence of year 2000 issues. We expect to identify and resolve
all year 2000 issues that could materially adversely affect our business
operations. However, for the reasons discussed above, we believe that it is not
possible to determine with complete certainty that all year 2000 issues
affecting us have been identified or corrected. As a result, we believe that
the following consequences are possible:
. operational inconveniences and inefficiencies for us, our contract
manufacturers and our customers that will divert our management's time and
attention and our financial and human resources from ordinary business
activities;
. business disputes and claims for pricing adjustments or penalties by our
customers due to year 2000 issues, which we believe will be resolved in
the ordinary course of business; and
. business disputes alleging that we failed to comply with the terms and
conditions of contracts or industry standards of performance that result
in litigation on contract termination.
Contingency plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct year 2000 issues affecting
our internal systems are not effective. Depending on the systems affected,
these plans could include:
. accelerated replacement of affected equipment or software;
. short- to medium-term use of backup equipment and software;
. increased work hours for our personnel; and
. use of contract personnel to correct on an accelerated schedule any year
2000 issues that arise or to provide manual workarounds for information
systems.
Our implementation of any of these contingency plans could have a material
adverse effect on our business, operating results and financial conditions.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board or FASB issued Statement
of Financial Accounting Standards or SFAS No. 130, "Reporting Comprehensive
Income," ("SFAS No. 130") which establishes standards for reporting and
presentation of comprehensive income. SFAS No. 130, which was adopted by the
Company in the first quarter of 1998, requires companies to report a new
measurement of income. "Comprehensive Income (Loss)" is to include as other
comprehensive income foreign currency translation gains and losses and other
unrealized gains and losses that have historically been excluded from net
income (loss) and reflected instead in equity. The Company does not have any
items of other comprehensive income and is, therefore, not required to report
comprehensive income.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.131
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 was adopted by the Company beginning on October 1,
1997. SFAS No. 131 establishes standards for disclosures about
27
<PAGE>
operating segments, products and services, geographic areas and major
customers. The Company is organized and operates as one operating segment. The
Company operates primarily in one geographic area, the United States.
In June 1998, FASB also issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards, requiring every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value and that changes in the derivative's fair value be recognized
currently in earnings. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 must be applied to derivative instruments and
to certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after September 30, 1997. In
management's opinion, the impact of adopting SFAS No. 133 on the financial
statements will not be material.
In April 1998, the AICPA issued SOP No. 98-5 "Reporting on the Costs of Start-
Up Activities" ("SOP No. 98-5"). SOP No. 98-5 requires that all start-up costs
related to new operations must be expensed as incurred. In addition, all start-
up costs that were previously capitalized must be written off when SOP No. 98-5
is adopted. The Company adopted SOP NO. 98-5 in fiscal 1999. The adoption did
not have a material impact on the Company's financial position or results of
operations.
Qualitative and Quantitative Disclosures About Market Risk
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in cash
equivalents and short-term instruments. Due to the short-term nature of our
cash equivalents and investments, we have concluded that there is no material
market risk exposure. Therefore, no quantitative tabular disclosures are
required.
28
<PAGE>
Business
AltiGen designs, manufactures and markets computer, or server, based
telecommunications systems that allow businesses to use the Internet and the
traditional telephone network interchangeably and seamlessly to carry voice and
data communications. As the Internet accelerates the convergence of voice and
data communications, an increasing percentage of voice communications is being
carried over the same network as data, creating the need for a next generation
communications system. We believe that businesses, particularly small and
medium-sized businesses, will begin to use integrated systems that receive,
manipulate and transmit voice communications over the traditional telephone
network, as well as over data networks such as the Internet. Our
telecommunications systems provide new services to end users, giving businesses
the choice of placing calls over data networks or traditional phone lines.
Historically, manufacturers have not built this capability into traditional
private telephone switching systems, which are also known as private branch
exchanges or PBXs. To use these new services, businesses have had to add
hardware and software to their traditional PBXs.
As businesses seek capabilities beyond those of traditional PBXs to meet
today's communication needs, they have begun to purchase server-based
telecommunications systems in place of traditional PBXs. These new integrated
computer and telephone systems, which are generally based on free and publicly
available hardware and software standards, allow products from different
companies to be used together to provide basic telephony services such as
placing and receiving calls.
Telecommunications systems that provide these and other services over the
traditional telephone network using a general purpose computer are commonly
known as server-based PBX systems. Systems that provide these functions over
networks that use Internet Protocol, or IP, are commonly known as IP-based PBX
systems. IP is a standard software format for computers to communicate with
each other over the Internet. Our server-based telecommunications systems
combine the attributes of these two types of systems and allow small- to
medium-sized businesses to communicate over both the traditional telephone
network and IP networks such as the Internet, providing these businesses with a
telecommunications solution for the Internet era.
Industry Background
The Growth of the Internet
The Internet is experiencing tremendous growth and is emerging as a global
medium for communications and commerce. A number of factors are driving the
growth of the Internet, including improvements in the architecture of
communications networks, the emergence of technologies which facilitate e-
commerce and easier, faster and cheaper Internet access through a large and
growing base of personal computers and other devices. According to
International Data Corporation, or IDC, the number of Internet users worldwide
will grow from 69 million at the end of 1997 to 320 million by 2002. The
increasing capabilities and use of the Internet and other networks such as
corporate intranets are significantly influencing telecommunications today.
Convergence of Voice and Data
Traditionally, businesses have supported two separate, incompatible networks to
handle their communications needs: a circuit-switched network for voice, such
as the telephone system, and a packet-switched network for data, such as the
Internet. A circuit-switched network establishes and maintains a dedicated line
between calling parties for the duration of a call. In contrast, most data
traffic today, traversing local area networks, or LANs, wide area networks, or
WANs, and the Internet, is transmitted over packet-switched networks. In
packet-switched networks, voice, video, images or data is divided into small
packets of signals that are simultaneously routed over different paths to a
final destination where they are recombined. Packet-switched networks are more
efficient because network paths are not dedicated to a single user, but instead
are available to be shared by all users. In contrast to a circuit-switched
network, network capacity is allocated only during transmission, and messages
can be compressed and stored more efficiently. The Internet is accelerating the
29
<PAGE>
convergence of voice and data to a single integrated packet-based network that
can support both voice and data using Internet Protocol.
A growing number of businesses have recognized the Internet as a valuable and
economical medium for public and corporate communications. These businesses
seek to move their voice communications to packet-switched networks such as
corporate intranets and the Internet to reduce their telecommunications costs.
Although packet-switched networks can offer more efficiency and value to
businesses, the traditional telephone network remains the standard for voice
communication today. As a result, businesses that wish to take advantage of
packet-switched networks for voice communications must nevertheless be able to
place and receive calls over the traditional telephone network with customers,
suppliers and others who rely solely on the traditional telephone network for
voice communications. Consequently, there is a need for one common switching
system that can interface with both packet-based networks and the traditional
telephone network.
Evolution Begins in Small- to Medium-Sized Businesses
Small- to medium-sized businesses of up to 150 employees are likely to be the
first to use converged voice and data networks because, unlike large
organizations, they may not be heavily invested in legacy systems and can more
quickly take advantage of new technological trends. Most of these businesses
today use a PBX as the backbone of their connection to the voice network, and
maintain a separate data network. The traditional PBX switches calls between
users on internal lines, while allowing all users to share a fixed number of
external phone lines.
Today's traditional PBX remains an expensive, proprietary solution. A
traditional PBX requires skilled personnel to physically prepare the
installation site and install the equipment and can be difficult to install,
upgrade and maintain. For example, adding voice mail to a traditional PBX
system requires not only a separate database for tracking system users, but
also requires configuring and connecting a separate server to the PBX. A
traditional PBX may resemble the figure below after adding features such as
voice mail.
Traditional Telecommunications System
[Traditional Telecommunications System Graphic appears here]
This graphic illustrates that PBX systems are traditionally enhanced by
establishing connections with separate specialized communication systems such
as integrated voice response units, voice over IP gateways, voice mail
systems, and other adjunct communication systems.
Once installed, this type of system can be difficult to maintain because of
its many hardware components and the connections among them. Administering
this system may become prohibitively expensive for small- to medium-sized
businesses that have limited resources.
In recent years, a new generation of server-based telecommunications system,
including server-based PBXs and IP-based PBXs, has emerged to address the
challenges and inadequacies associated with traditional PBX systems. Frost &
Sullivan estimates that the market for server-based PBX systems was $41.8
million in 1998
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and will grow to $403.9 million in 2002, representing a compounded annual
growth rate of 76.3%. Frost & Sullivan also estimates that the market for IP-
based PBX systems was $31.5 million in 1998 and will grow to $595.1 million in
2002, representing a compounded annual growth rate of 108.4%.
Most existing server-based telecommunications systems do not address the needs
of businesses that wish to transmit voice communications over both the
traditional telephone network and the packet-switched networks. For example,
businesses may wish to route internal calls over their existing voice network
and route calls between offices over the Internet, all using the same
telecommunications system. We believe a significant opportunity exists to
provide small- to medium-sized businesses with an integrated solution that
delivers the benefits of server-based telecommunications systems using the
Internet as well as the traditional telephone network.
The AltiGen Solution
We design, manufacture and market next generation, server-based
telecommunications systems that use both data networks such as the Internet
and the traditional telephone network to provide new services to end users
that were unavailable with traditional PBX systems. AltiServ, our Windows NT-
based system, interfaces with the circuit-switched network and packet-switched
networks, permitting our customers to take advantage of the converging
communications infrastructure. Our systems integrate voice and data
communications with fewer components than traditional systems and other
server-based telecommunications systems. An example of our system is
illustrated below.
This graphic illustrates that AltiGen's server-based PBX system contains PBX,
voice messaging, auto-attendant, E-mail, and VoIP capabilities within a single
server-software platform. The server-based PBX can connect with both the PSTN
and IP networks.
Key benefits of our solution include:
. Ability to use both the Data Networks such as the Internet and the
Traditional Telephone Network. Our systems provide the benefits of the
converging communications infrastructure by enabling businesses to route
voice calls over the Internet and other packet-switched networks or the
traditional telephone network. Our system design integrates seamlessly
with both types of networks, providing flexibility for businesses to
configure their telecommunications systems to suit their needs.
. Lower Telecommunications Costs. By routing voice over packet-switched
networks, including the Internet, our systems eliminate toll charges
associated with long-distance calls. Using our products, businesses can
send and receive voice communications over the Internet or existing data
lines that constitute their intranets.
. Innovative Features. Our systems provide integrated voice and data
capability, allowing numerous features previously available only with a
combination of multiple systems, typically from different vendors.
AltiServ has typical call handling and routing functions, as well as
specialized
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functions such as Zoomerang, which enables users to retrieve a voice mail
message, automatically place a call to respond and return to the voice
mail system to continue reviewing messages.
. Ease of Installation, Use and Maintenance. The configuration of the
AltiServ system and its use of industry-standard hardware and software
platforms allows for easy installation and system maintenance. AltiServ
enables system administrators to manage the voice, voice messaging, email
and Internet features of our products through a single consistent user
interface.
. Reduced Administration Costs. Our user interface allows end users to
administer their system internally. With a traditional PBX, businesses
frequently require a third party service provider to perform tasks as
simple as changing a phone extension or adding a phone line. These
expenses can be significant for installation, system upgrades and
modifications. Using AltiServ, system administrators can perform many of
these tasks and reduce additional expenditures.
Strategy
Our strategy is to capitalize on the need for a next generation
telecommunications system, which results from the convergence of voice and data
communications. Our objective is to extend our leadership position in the
server-based PBX market and expand our current position in the IP-based PBX
market.
Key elements of our business strategy are as follows:
. Increase our brand name recognition. We intend to increase awareness of
our brand name among our end users, dealers, distributors and original
equipment manufacturers, through radio, print and Web advertisements,
direct mail and other activities. We believe these efforts will generate
more sales leads for our dealers by increasing end user awareness of our
products.
. Expand our distribution channels. We sell our products through a network
of more than 400 dealers and distributors. We intend to expand this
network and to focus our sales efforts on larger dealers and distributors
with the goal of leveraging their ability to provide more complete
services to end users. We also intend to expand sales with existing and
new original equipment manufacturers.
. Establish relationships with technology and strategic partners. We have
established strategic alliances with companies such as Hewlett-Packard and
Compaq under which they market our products through their channels and to
their customers. We intend to pursue additional alliances with various
telecommunications and computer industry leaders. We believe these
alliances facilitate and accelerate the acceptance of our technology, as
well as enhance the marketing and distribution of our products.
. Target key markets worldwide. We intend to expand our presence globally by
establishing additional relationships with distributors and dealers in our
targeted markets to expand our sales presence. Currently, Nitsuko, one of
our key Japanese distributors, is localizing our products for its market.
. Enhance leadership in server-based telecommunications technologies. We
believe that we are a technology leader in the server-based
telecommunications systems market. We intend to maintain this position by
leveraging our technology expertise in the areas of switching and
communications applications that integrate voice and data networks. We
intend to leverage our engineering expertise and our core technologies to
enhance the capabilities of our existing products and to develop new
products to meet the evolving needs of our market.
Products and Core Technologies
We design and develop hardware (circuit boards) and software for integration by
our distributors and dealers into general purpose computer platforms for use by
small- to medium-sized business. AltiGen's AltiServ is a complete
communications system for handling calls, including email and voice mail. The
AltiServ system answers incoming phone calls, transfers calls to called phone
numbers or to groups of company representatives and tracks the call activity
for future performance improvements. An auto attendant feature allows incoming
callers the opportunity to select choices in the kind of service they need or
to answer calls
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when no attendants are available. Our software is designed for easy
installation and maintenance.
AltiServ functions over packet-switched networks including corporate intranets
and the Internet. AltiServ supports combining multiple forms of communication
such as voice mail, email and data files into a single email message. AltiServ
forwards email and voice mail messages over data networks to other mail service
systems. AltiServ also provides remote employees access to their voice mail
messages over the Internet.
AltiServ allows a business to connect multiple branch offices using AltiServ
systems such that calls between these locations can be carried over low-cost IP
network connections as opposed to the traditional telephone network.
The main features of our products are as follows:
<TABLE>
<CAPTION>
Product Description
------- -----------
<C> <S>
Software
AltiWare IP.......... Enables people to place and receive telephone calls
over data networks supporting the Internet Protocol.
AltiView............. A personal computer program that allows users to, for
example, receive and place calls, listen to voice
mail messages and identify the phone number of the
caller.
AltiWare OE.......... A graphical user interface program that provides
telephone services to users through their computers.
AltiWare CE.......... Provides the same services as AltiWare OE but does
not support some desktop program messaging
capabilities offered by AltiWare OE.
Hardware
Triton IP............ A circuit board that allows calls to be carried over
public and private data networks that support the
Internet Protocol.
Triton T1............ A circuit board that allows calls to be carried over
telephone lines.
Quantum.............. A circuit board that allows calls to be carried over
traditional analog telephone lines.
ISDN BRI............. A circuit board that allows calls to be carried over
specialized digital telephone lines supporting the
Japanese telephone system.
</TABLE>
Software
AltiWare IP. AltiWare IP is a software program that allows users to place and
receive telephone calls from two or more locations connected by a network that
supports IP. For example, a business may use AltiWare IP to connect branch
offices so that long distance calls between these offices are made over the
Internet, rather than over a traditional telephone line, allowing the business
to save long-distance toll charges. AltiWare IP is designed so that making
these calls is similar to making calls over the traditional telephone network.
Our product also allows businesses to add more users, change the extensions of
telephones on the system and take care of other administrative matters that
affect one or more locations from a single location, potentially reducing
administrative costs. [Users may also add more features to their system by
adding AltiWare OE software.]
AltiView. AltiView is a software program that shares information with other
parts of the AltiServ system and allows users to see the phone number of the
person calling them, to transfer the caller and to terminate the phone call by
clicking buttons on their computer screens. AltiView can also display other
information on a user's computer screens, such as a list of voice messages left
for users, and allows users to listen to the messages through personal computer
speakers. AltiView also supports special software messages that allow it to
work with Microsoft's Outlook product.
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AltiWare OE. AltiWare Open Edition (OE) is a software program that enables
computers to provide the same services as traditional PBXs, including
controlling how and where telephone calls are connected to users. AltiWare
measures the time, type, duration and other data about each call and records
this information for later use. AltiWare OE allows users to manage phone
communications, record and manage voice messages left by callers reaching a
busy phone and to receive email communications. Unlike traditional PBXs,
AltiWare OE also supports sharing caller information and exchanging voice
messages and email messages with multimedia content.
AltiWare CE. AltiWare Classic Edition (CE) provides small- to medium-sized
businesses with all of the call features of AltiWare OE except the information
sharing and multimedia features.
Hardware
Triton IP. Triton IP is a circuit board that is based on H.323, an industry
standard format for transmitting voice and other kinds of communications over
data networks that use the Internet Protocol. The Triton IP board translates
telephone calls into electrical signals in H.323 format that can be sent over a
data network and decoded by telephone systems such as the AltiServ system that
support the H.323 standard. Each AltiServ system can accept up to six Triton IP
circuit boards, each of which can support up to four calls simultaneously.
Triton T1. Triton T1 is a circuit board that enables the AltiServ system to
send and receive telephone calls over high-speed, digital lines commonly known
as T1 lines that some businesses use to connect to the traditional telephone
network. Each Triton T1 board can carry up to 24 telephone calls at one time.
The boards are designed to allow the AltiServ system to simultaneously provide
all users with voicemail services such as recording and playing voicemail
messages.
Quantum. Quantum is a circuit board that enables telephone calls to be carried
over analog telephone lines, which are the most common connection to the
traditional telephone network. The Quantum board can support up to 12
simultaneous telephone calls, up to six of which can simultaneously make use of
the AltiServ system's voicemail or auto-attendant services. The Quantum board
can receive caller ID information from the public telephone carriers, and can
pass on this information to AltiView or directly to the telephones that are
equipped to display the information. Finally, Quantum can indicate to AltiWare
system phone users that they have voice messages.
ISDN BRI. The ISDN BRI board enables voice conversations to be carried over
digital communications networks supporting a special information format which
defines the connection as supporting a carrier service called Integrated
Services Digital Network, or ISDN. The Altiserv system supports up to four ISDN
BRI boards for a total of eight ISDN communication channels. This board
complies with the Japanese INS64 standard for ISDN BRI and has received
approval from the Japan Approvals Institute for Telecommunications Equipment.
With our Triton Resource Board, the ISDN BRI board supports voice messaging and
voice conferencing.
Hardware and Firmware
AltiGen developed a single base circuit board with powerful digital signal
processing technology. Digital signal processing is simply a computer built
right on to the circuit board which can run special, high speed software
programs, called firmware. The firmware can receive, send, and modify digital
information for communications with network services. AltiGen's basic Triton
DSP board can be used to create different circuit boards to meet many
communication requirements by simply adding a few hardware and/or software
components to the basic board. For example, AltiGen's Triton DSP series circuit
board becomes a T1, ISDN, or IP communication circuit boards with simple
changes in on-board software and in some cases, new chips.
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This modular design not only allows AltiGen to provide new capabilities but
also allows AltiGen to achieve high reliability since the underlying technology
is the same and hence receives our full attention to any material and
processing improvements that can or need to be made.
Software
AltiGen's software products are based on modular software components similar to
the concept discussed for our hardware/firmware above. The service provider
layer of software are separate software components, each of which communicates
with a hardware circuit board within the AltiServ system. The middleware layer
interacts with all the service providers in the system, and manages their
resources. This layer hides the complexity of the hardware from application
programs wanting to provide specific features. The application program layer
consists of components that implement the application logic such as voice mail,
auto attendant. These applications do not need to know about the hardware or
how to communicate with the hardware.
The layered architecture of AltiServ provides important benefits:
.Shorter time is required to develop new features;
.Development times are more predictable shaving money;
.New hardware and software features can be added easily and rapidly;
.Changing one component in the systems does not mean that other components have
to be changed.
Marketing, Sales and Customer Support
Marketing
Our marketing efforts currently focus on increasing demand for our products in
North America, Japan, Europe and Latin America. We work to increase market
awareness of our technology and demand for our products in the small- to
medium-sized business market through cooperative marketing, print, radio and
web advertising and direct mail campaigns. We have a customer referral program
through which our AltiServ customers can refer potential buyers to us through
our Web site.
To assist distributors, dealers, original equipment manufacturers and strategic
partners in marketing, selling and supporting our products, we provide market
development funds and technical and sales training developed specifically for
our products. In return, these companies must provide us with point-of-sale
reports that allow us to develop a profile of end users of our systems and
evaluate the effectiveness of our marketing efforts.
We have recently formed marketing alliances with Hewlett-Packard and Compaq. We
have signed a memorandum of understanding with the Covision Internet Solutions
Program of Hewlett-Packard, under which this group will market our products
through its Internet channels. We have signed a Compaq Solutions Alliance
Agreement, under which Compaq will market and bundle our products to its
channel members and to customers. To date we have not recognized significant
revenue as a result of these alliances.
Sales
We currently have sales and support staff in New York, New York, Chicago,
Illinois, Atlanta, Georgia, Dallas, Texas and Fremont, California. Our network
of distributors and over 400 dealers sell our systems to end users. Our sales
force answers incoming customer calls and refers new leads to a qualified
dealer near the customer's location.
Customers
Our customers are distributors and dealers who sell and resell our products to
end users. We have distribution agreements with Ingram Micro and Tech Data
Corporation in the United States and Kanematsu Semiconductor
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Corporation and Nitsuko Corporation abroad. Sales through Ingram Micro and Tech
Data accounted for 3% and 24%, respectively, of our revenues in fiscal year
1998, and 21% and 27%, respectively, of our revenues in the six months ended
March 31, 1999. We also have over 400 authorized dealers, who sell our products
directly to end users. We continually seek to identify and authorize new
dealers. We review our dealers quarterly and de-authorize those who do not meet
our standards.
Customer Support
We believe that consistent, high-quality service and support are key factors in
attracting and retaining customers. Our customer support group, located in
Fremont, California, coordinates service and technical support of our products
and provides service 24 hours a day, seven days a week. This group assists our
distributors and dealers in resolving installation and support issues that
arise from their sales to end users and also provides limited support to end
users in conjunction with their dealer support. Customers can also access
technical information and receive technical support through our Web site.
Research and Development
The market for our products is characterized by rapidly changing technology,
evolving industry standards and frequent product introductions. We believe that
our future success depends in large part upon our ability to continue to
enhance the functionality and uses of our core technology. We intend to extend
the functionality and uses of our hardware and software technology by
continuing to invest in research and development.
We currently conduct the majority of our product development in-house. We also
use a small number of independent contractors to assist with certain product
development and testing activities. We intend to continue working with our
strategic partners to enhance our products. As of March 31, 1999, we had 27
software engineers in our research and development group.
Competition
The markets for our products are intensely competitive, continually evolving,
and subject to changing technologies. We currently compete with companies
providing traditional PBX systems, principally Lucent Technologies and Nortel
Networks. We also compete against companies providing server-based PBXs
including Picazo Communications, Inc. and Artisoft, Inc. We potentially face
competition from companies such as Shoreline Teleworks, Inc., NBX Corporation,
acquired by 3Com Corporation, Selsius Systems, acquired by Cisco Systems, Inc.,
as well as any number of future competitors. Many of our competitors are
substantially larger than we are and have significantly greater name
recognition, financial, sales and marketing, technical, customer support,
manufacturing and other resources. These competitors may also have more
established distribution channels and stronger relationships with local, long
distance and Internet service providers. These competitors may be able to
respond more rapidly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and sale
of their products. These competitors may enter our existing or future markets
with solutions that may be less expensive, provide higher performance or
additional features or be introduced earlier than our solutions.
We believe the principal competitive factors in our market include, or are
likely to include:
. product performance and features such as the ability to integrate voice
and data;
. reliability;
. ease of use;
. size of customer base;
. quality of service and technical support;
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<PAGE>
. sales and distribution capabilities; and
. strength of brand name.
We believe that our principal competitive advantages include:
. established brand-name recognition;
. well-developed and trained channel; and
. a considerable lead in product development and marketing.
We cannot be certain that we will be able to compete successfully with existing
or new competitors. If we fail to compete successfully against current or
future competitors, our business could suffer.
Intellectual Property
We generally rely upon patent, copyright, trademark and trade secret laws to
protect and maintain our proprietary rights for our technology and products.
AltiGen is a registered trademark, and Zoomerang is a trademark pending
registration, of AltiGen in the United States and other jurisdictions. In
addition, the AltiGen logo is a trademark of AltiGen in the United States and
other jurisdictions.
We have filed several U.S. patent applications relating to various aspects of
our client and server software, mixed-media communications, computer telephony
and analog telephones. We expect to file patent applications as we deem
appropriate to protect our technology and products. We cannot be sure that our
patent applications will result in the issuance of patents, or that any issued
patents will provide commercially significant protection to our technology.
Generally, litigation, which could be costly and time consuming, may be
necessary to determine the scope and validity of others' proprietary rights, or
to enforce any patent issued to us, in either case, in judicial or
administrative proceedings. For example, we are currently engaged in litigation
with Netphone, Inc. In June 1999, we received a letter from Netphone alleging
that we infringe a patent owned by Netphone. On June 30, 1999, we filed a
request for a declaration from the United States District Court for the
Northern District of California that AltiGen does not infringe any valid claim
of Netphone's patent. Netphone answered AltiGen's complaint on July 13, 1999
and asserted a counterclaim against AltiGen alleging that AltiGen infringes the
Netphone patent and seeking to preliminarily and permanently enjoin AltiGen
from making, importing, using, offering to sell or selling a device under the
name Quantum.
An adverse outcome in the Netphone litigation or any other litigation could
subject us to significant liabilities to third parties, require us to obtain
licenses from third parties, or require us to cease product sales and possibly
alter the design of the products. Not all licenses required under third-party
patents or proprietary rights may be available on acceptable terms. In
addition, the laws of certain countries may not protect our intellectual
property.
To help protect our intellectual property rights, our employees, consultants
and strategic partners enter into confidentiality agreements that prohibit
disclosure of our proprietary information. We also currently require employees
and consultants to assign to us their ideas, developments, discoveries and
inventions.
Manufacturing and Assembly
Our manufacturing operations consist of purchasing, receiving, inspection,
testing, packaging and shipping. We purchase hardware product components, put
them into kits and send them to a sub-contractor or external manufacturing
facility for assembly. The final hardware assembly, software installation and
testing of our products is performed in-house at our 11,000 square-foot
manufacturing floor, located at our corporate headquarters in Fremont,
California. Our manufacturing and assembly processes enable us to configure our
products to adapt to different customer specifications at the final assembly
stage. This flexibility is designed to
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reduce both our assembly cycle time and our need to maintain a large inventory
of finished goods. We believe that the efficiency of our assembly process to
date is largely due to our product architecture and our commitment to assembly
process design.
We test our products both during and after the assembly process using
internally developed product assurance testing procedures, which include
initial visual inspection and functional testing and final systems testing.
Although we generally use standard components for our products and try to
maintain alternative sources of supply, we purchase some key components from
sole-source suppliers for which alternative sources are not currently
available.
Employees
As of March 31, 1999, we employed 67 people, including 30 in engineering,
research and development and support and 29 in sales, marketing and
administration. We also employed eight people in manufacturing. None of our
employees is subject to a collective bargaining agreement, and we consider our
relations with our employees to be good.
Competition for technical personnel in our industry is intense. We believe that
we have been successful in recruiting qualified employees, but there is no
assurance that it will continue to be as successful in the future. We believe
that our future success depends in part on our continued ability to hire,
assimilate and retain qualified personnel.
Facilities
Our headquarters for corporate administration, research and development and
sales and marketing occupies approximately 35,000 square feet of space in
Fremont, California, which we lease at an annual rental of approximately
$325,000. We also conduct research and development in a 2,919 square foot
facility in Shanghai, China, which we lease at an annual rate of approximately
$30,000.We believe that our existing facilities are adequate for our needs
through at least the end of 1999. We believe that any additional space we may
need in the future will be available on commercially reasonable terms.
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Management
Executive Officers and Directors
Our executive officers and directors, and their ages as of June 30, 1999, are
as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Gilbert Hu(2)................. 42 President, Chief Executive Officer, Director
Philip M. McDermott........... 53 Chief Financial Officer
Simon Chouldjian.............. 46 Vice President of Manufacturing
Tricia Chu.................... 45 Vice President of Finance and Administration
En-Kuang Lung................. 32 Vice President of Research and Development
Carl M. Marszewski............ 56 Vice President of Business Development
Michele Shannon............... 37 Vice President of Sales
Anthony Spielman.............. 51 Vice President of Marketing
Richard Black(1).............. 65 Director
Wen-Huang (Simon) Chang(1).... 47 Director
Thomas Shao(1)................ 64 Director
Masaharu Shinya(2)............ 55 Director
Kenneth Tai(2)................ 49 Director
</TABLE>
- -------------------
(1) Member of the Audit
Committee.
(2) Member of the Compensation
Committee.
Gilbert Hu founded AltiGen and has served as our President and Chief Executive
Officer since May 1994. Before founding AltiGen, Mr. Hu was founder, President
and Chief Executive Officer of Centrum Communications, Inc., a networking
company acquired by 3Com Corporation in early 1994. Mr. Hu has also served in
technical and managerial roles at Vitalink Communication Corporation, an
internetworking equipment manufacturer. He received a Bachelor of Science
degree in Electrical Engineering from National Chiao-Tung University in Taiwan
and a Masters of Science degree in Electrical Engineering from Arizona State
University. Mr. Hu is a brother-in-law of director Wen-Huang (Simon) Chang.
Philip M. McDermott has served as our Chief Financial Officer since June 1999.
From October 1995 until May 1999, Mr. McDermott served as Director of Finance
Americas Sales for 3Com Corporation, a networking equipment company. From
October 1994 to October 1995, Mr. McDermott served as Vice President of
Finance, Operating and Administration for DAVID Systems, a division of Chipcom
Corporation, a public networking company. Chipcom was subsequently acquired by
3Com Corp. Mr. McDermott received Certified Management Accountant accreditation
from The Society of Management Accounting in Montreal, Canada.
Simon Chouldjian has served as our Vice President of Manufacturing since June
1997. From June 1984 to June 1997, Mr. Chouldjian was the founder and Executive
Vice President of Luxcom, Inc., a manufacturer of communication hub equipment.
Mr. Chouldjian has held managerial positions in engineering at the Hewlett-
Packard Company and TRW, Inc. He received a Bachelor of Science degree in
Electrical Engineering from the University of California, Berkeley and a
Masters of Science degree in Electrical Engineering from Stanford University.
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Tricia Chu has served as our Vice President of Finance and Administration since
June 1999. From March 1999 to June 1999, Ms. Chu served as our Senior Director
of Finance and Administration. From February 1994 to March 1999, Ms. Chu worked
for 3Com Corporation, first as Controller of 3Com's Remote Access Division,
then as Controller of Americas Sales. Ms. Chu has also held finance and
accounting positions with Centrum Communications, Inc. (a networking company
acquired by 3Com Corporation in early 1994), Integrated Silicon Solutions,
Inc., a designer of high-performance memory devices, and Rugged Digital Systems
Inc., a producer of computer systems. Ms. Chu received a Bachelor of Science
degree in Finance and International Trade from Tankung University in Taiwan and
a Masters in Business Administration from Central State University in Oklahoma.
En-Kuang Lung has served as our Vice President of Research and Development
since May 1998. Mr. Lung joined our engineering group in September 1995 as
Director of Platform Engineering. From January 1990 to September 1995, Mr. Lung
worked first as Senior Software Engineer/Project Lead, then as Manager of
Product Development for Centigram Communications Corp., a manufacturer of voice
messaging systems. Prior to working at Centigram, Mr. Lung spent approximately
three years at Bell Northern Research/Nortel, where he worked on the
development of Nortel's Meridian digital telephone sets. Mr. Lung received a
Bachelor of Science degree in Electrical Engineering and Computer Science from
The Johns Hopkins University.
Carl M. Marszewski has served as our Vice President of Business Development
since November 1998. From August 1997 to November 1998, Mr. Marszewski worked
as an independent sales and marketing consultant who specialized in
distribution channel development for small companies. From January 1994 to July
1997, Mr. Marszewski served as a Vice President of Worldwide Sales of Repeater
Technology, Inc., a wireless telecommunications company. Mr. Marszewski has
held managerial positions with Compression Labs, Inc., a videoconferencing
equipment manufacturer, and Nortel, a telecommunications equipment company. Mr.
Marszewski received a Bachelor of Science degree in Psychology from Seton Hall
University.
Michele Shannon has served as our Vice President of Sales since October 1996.
From March 1995 to October 1996, Ms. Shannon was Director of Worldwide Channel
Sales and Marketing at NetManage, Inc., an international supplier of standards-
based intranet software. Ms. Shannon served from December 1991 to February 1995
as Director of Field Marketing at Novell, Inc., a networking applications
company. Ms. Shannon has also held sales and marketing positions with
Businessland Inc., a retailer of advanced office equipment and computer
systems. Ms. Shannon received a Bachelor of Arts degree in music from Arizona
State University.
Anthony Spielman has served as our Vice President of Marketing since May 1999.
From September 1997 until December 1998, Mr. Spielman was Senior Director of
U.S. Sales and Business Development for Teltrend Ltd., a European and U.S.-
based networking company. From May 1994 to October 1997, Mr. Spielman served as
Vice President of Marketing and Asian Sales for SBE, Inc., a data
communications company. Mr. Spielman has also held marketing positions at
Asante Technologies, Inc., a manufacturer of high-performance networking
products, 3Com Corporation, Network Systems Corporation, a manufacturer of
secure networking and intranet solutions, and Hewlett-Packard Company.
Richard Black has served as a director of AltiGen since May 1999. Since
December 1987, he has served as a director of Oak Technology, Inc., a supplier
of semiconductor products to the personal computer and consumer electronics
markets. He also served as President of Oak from January 1998 to March 1999 and
has been Vice-Chairman of Oak since March 1999. Currently, Mr. Black also sits
on the boards of directors of investment advisors and investment banking
companies, Gabelli Funds, Inc. and Gabelli Asset Management, Inc. Mr. Black
also sits on the boards of GSI Lumonics Inc., a manufacturer of laser scanning
systems and components, and Morgan Group, Inc., a public transportation
services company.
From April 1987 until December 1998, he was a general partner of KBA Partners,
L.P., a venture capital firm. He has also served in managerial positions with
Vulcan Material Company, which produces construction
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materials. Mr. Black received a Bachelor of Science degree in Engineering from
Texas A&M University, a Masters in Business Administration from Harvard
University and an honorary Ph.D. from Beloit College.
Wen-Huang (Simon) Chang has served as a director of AltiGen since June 1994.
From July 1991 to January 1995, he was Chairman of Centrum Technology
Corporation, a networking company. From August 1991 to early 1994, he served as
a director of Centrum Communications, Inc., a networking company acquired by
3Com Corporation in early 1994. Mr. Chang received a Bachelor of Science Degree
in Forest Industry from the National Taiwan University in Taiwan. Mr. Chang is
a brother-in-law of Gilbert Hu, our President and Chief Executive Officer and a
director.
Thomas Shao has served as a director of AltiGen since April 1996. Since
September 1997, Dr. Shao has served as Managing Director of Technology
Associates Management Co., Ltd., a venture fund manager consisting of five
employees. From September 1995 to September 1997, Dr. Shao was a senior
consultant for Technology Associates Corporation of Taiwan, a venture capital
firm. From September 1985 to September 1995, he served as Senior Vice President
of DynaTech Development Corporation, a management consulting and investment
firm. Prior to 1985, Mr. Shao held positions with AT&T/Bell Labs and IBM. In
addition to AltiGen, Dr. Shao is a member of the board of directors of AboveNet
Communications Inc., a colocation company. Dr. Shao received a Bachelor of
Science degree in Mechanical Engineering from the National Taiwan University in
Taiwan, a Masters of Science in Aeronautical Engineering from the University of
Illinois and a Ph.D. in Applied Mathematics and Computer Science from the
University of Illinois.
Masaharu Shinya has served as a director of AltiGen since April 1999. From July
1990 to March 1999, he served as President of Kanematsu Semiconductor
Corporation, Mr. Shinya continues to serve as an advisor to Kanematsu
Semiconductor Corporation. Mr. Shinya was on the board of directors for Quality
Semiconductor, Inc., a semiconductor manufacturer, until its acquisition by
Integrated Device Technology, Inc. Mr. Shinya received a Bachelors degree in
Economics from Waseda University in Japan.
Kenneth Tai has served as a director of AltiGen since April 1998. Since March
1996, Mr. Tai has been the Chairman of InveStar Capital (Taiwan), Inc., a
venture capital firm. From March 1993 to December 1995, Mr. Tai served as the
Vice-Chairman of UMAX USA, which makes computer peripherals. Mr. Tai was one of
the co-founders of the Acer Group, and held various positions with the Acer
Group, including Vice President of Worldwide Sales and Marketing, and President
of the Acer Group USA from 1990 to March 1993. Mr. Tai received a Bachelor of
Science degree in Electrical Engineering from the National Chiao Tung
University in Taiwan and a Masters of Science degree in Electrical Engineering
from Stanford University.
Classified Board and Tenure of Officers
Our by-laws provide that, following the closing of this offering, our Board of
Directors will be divided into three classes of directors, with each class
serving a staggered three-year term. As a result, a portion of our Board of
Directors will be elected each year. To implement the classified structure,
prior to the consummation of the offering, two of the nominees to the Board
will be elected to one-year terms, two will be elected to two-year terms and
three will be elected to three-year terms. Thereafter, directors will be
elected for three-year terms. Thomas Shao and Kenneth Tai have been designated
Class I directors whose term expires at the 2000 annual meeting of
stockholders. Richard Black and Wen-Huang (Simon) Chang have been designated
Class II directors whose term expires at the 2001 annual meeting of
stockholders. Masaharu Shinya and Gilbert Hu have been designated Class III
directors whose term expires at the 2002 annual meeting of stockholders.
Each executive officer is appointed by the Board of Directors and serves until
his or her successor has been duly elected and qualified or until his or her
earlier resignation or removal.
41
<PAGE>
Board Committees
Our Board of Directors currently has two committees: an Audit Committee and a
Compensation Committee.
The Audit Committee makes recommendations to our Board of Directors regarding
the selection of independent auditors, reviews the results and scope of audit
and other services provided by our independent auditors and reviews the
accounting principles and auditing practices and procedures to be used for the
financial statements of AltiGen.
The Compensation Committee reviews and makes recommendations to our Board of
Directors regarding the compensation of officers and other managerial
employees.
Compensation Committee Interlocks and Insider Participation
Mr. Hu, our President and Chief Executive Officer, also is a member of the
Compensation Committee of our Board of Directors. None of our executive
officers serves as a member of the Board of Directors or compensation committee
of another entity that has one or more executive officers serving on our Board
of Directors or compensation committee.
Director Compensation and Other Arrangements
Our directors do not receive cash compensation for their services as directors,
but are reimbursed for their reasonable and necessary expenses associated with
attendance of meetings of the Board of Directors and its committees.
Additionally, in April 1998, our non-employee directors each received options
to purchase 10,000 shares of our common stock at $0.50 per share under our 1994
Stock Option Plan. At that time, our non-employee directors were Messrs. Chang,
Lin, Shao and Tai. In June 1999 our directors Messrs. Black and Shinya were
granted options to purchase 10,000 shares of our common stock at $7.00 per
share under our 1999 Stock Option Plan.
Executive Compensation
The following table sets forth the compensation earned for services rendered to
AltiGen in all capacities for fiscal year 1998 by our Chief Executive Officer
and our other most highly compensated executive officers whose salary and bonus
during the last completed fiscal year exceeded $100,000. These individuals are
referred to as the "Named Executive Officers" here and elsewhere in this
prospectus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------- ------------
Bonus and Securities
Salary Commissions Underlying
Name and Principal Position ($) ($) Options (#)
--------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Gilbert Hu................................ $120,000 $30,218 500,000
President and Chief Executive Officer
Simon Chouldjian.......................... 110,004 -- 80,000
Vice President of Manufacturing
Michele Shannon........................... 120,000 33,616 2,390
Vice President of Sales
</TABLE>
42
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers in fiscal year 1998. The
figures representing percentages of total options granted to employees in the
last fiscal year are based on an aggregate of 1,430,452 options granted by
AltiGen during the fiscal year ended September 30, 1998 to our employees and
consultants, including the Named Executive Officers.
Also shown below is the potential realizable value over the term of the option.
In accordance with the rules of the Securities and Exchange Commission, we have
based our calculation of the potential realizable value on the term of the
option at its time of grant, and we have assumed that:
. the value of our stock at the assumed initial public offering price
appreciates at the indicated annual rate compounded annually for the
entire term of the option; and
. the option is exercised and sold on the last day of its term for the
appreciated stock price.
These amounts are based on 5% and 10% assumed rates of appreciation and do not
represent our estimate of future stock prices. Actual gains, if any, on stock
option exercises will be dependent on the future performance of the common
stock. The gains shown are net of the option exercise price, but do not include
deductions for taxes and other expenses payable upon the exercise of the option
or for sale of underlying shares of common stock. Unless otherwise indicated,
the options in this table were granted under the 1994 Stock Option Plan, have
10-year terms, and vest over a period of four years. Twenty-five percent of the
shares subject to each option will vest on the first anniversary of the vesting
start date, and 1/48th of the shares subject to each option will vest each
month thereafter. All of the options have exercise prices equal to the fair
market value of our common stock on the date of grant.
Option Grants During Fiscal Year Ended September 30, 1998
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed
Annual Rates
Percent of of Stock
Total Price
Number of Options Appreciation
Securities Granted to for Option
Underlying Employees Exercise Price Term ($)
Options In Fiscal Per Share Expiration ------------
Name Granted (#) Year 1998 ($/share) Date(1) 5% 10%
---- ----------- ---------- -------------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gilbert Hu(2)........... 500,000 34.9% $0.14 10/30/07 $ $
Simon Chouldjian(3)..... 80,000 5.5 0.14 10/30/07
Michele Shannon......... 2,390 0.1 0.14 10/30/07
</TABLE>
- -------------------
(1) The options may terminate before their expiration dates if the optionee's
status as an employee or consultant is terminated.
(2) The vesting start date for the options granted to Mr. Hu is July 1, 1994.
(3) The vesting start date for the options granted to Mr. Chouldjian is June 9,
1997.
43
<PAGE>
Aggregate Option Exercises in Last Fiscal Year
The following table summarizes the value of options held at September 30, 1998
by our Named Executive Officers. The value of unexercised in-the-money options
at September 30, 1998 figures in the right-hand columns are based on the fair
market value of our common stock at September 30, 1998 as determined by our
Board of Directors, minus the per-share exercise price, multiplied by the
number of shares issued upon exercise of the option.
Aggregated Option Exercises in Fiscal Year Ended September 30, 1998
<TABLE>
<CAPTION>
Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at
Shares Options at September 30, 1998
Acquired on Value September 30, 1998 (#) ($)
Exercise Realized ------------------------------------------
Name (#) ($) Vested Unvested Vested Unvested
---- ----------- -------- ------------ -------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Gilbert Hu.............. -- -- 1,033,300 -- $ $
Simon Chouldjian........ -- -- 25,000 55,000
Michele Shannon......... 37,500 $15,000 10,417 54,473
</TABLE>
Employee Benefit Plans
1994 Stock Option Plan
Our Board of Directors has adopted, and our stockholders have approved, the
1994 Stock Option Plan, under which stock options may be granted to our
officers, employees, consultants and outside directors. Currently, 3,500,000
shares of common stock have been reserved for issuance under our 1994 Stock
Option Plan. Any options which have been granted but which expire or terminate
unexercised are returned to the plan and may be granted at a later date to any
qualified recipient. As of June 30, 1999, there were a total of 2,627,698
options outstanding under the 1994 Stock Option Plan.
The Compensation Committee of our Board of Directors administers our 1994 Stock
Option Plan. The Committee has the authority to interpret the 1994 Stock Option
Plan and to determine:
. the persons to whom options are granted;
. when options are granted;
. the number of shares subject to each option; and
. the terms and conditions associated with each option, including the
exercise price and the time period during which the option will be
exercisable.
Our 1994 Stock Option Plan permits the grant of stock options that qualify as
incentive stock options, or ISOs, under Section 422 of the Internal Revenue
Code, and non-qualified stock options, or NSOs, which do not so qualify. The
exercise price of options granted under our 1994 Stock Option Plan may not be
less than 100% of the fair market value of our common stock on the date of
grant in the case of ISOs, and not less than 85% of the fair market value of
our common stock on the date of grant in the case of NSOs. In addition, the
exercise price of options granted to a greater than 10% stockholder may not be
less than 110% of the fair market value on the date of grant. The value of
common stock subject to ISOs that become exercisable by any one employee in any
calendar year may not exceed $100,000.
The term of each option granted under our 1994 Stock Option Plan is determined
by our Board's Compensation Committee; provided, however, that the maximum term
of any option granted under the 1994 Stock Option Plan is ten years or, in the
case of an option granted to a greater than 10% stockholder, five years.
Generally, options granted under our 1994 Stock Option Plan vest and become
exercisable over a
44
<PAGE>
four-year period. In the event there is a change of control of AltiGen, all of
the unexercised options granted under our 1994 Stock Option Plan will terminate
unless those options are assumed or substituted by the successor corporation
(or a parent or subsidiary thereof). The 1994 Stock Option Plan may be
terminated or suspended by our Board of Directors in its sole discretion.
1998 Stock Purchase Plan
Our Board of Directors has adopted, and our stockholders have approved,
AltiGen's 1998 Stock Purchase Plan, pursuant to which 25,800 shares of series D
preferred stock were reserved for issuance to some of our employees,
consultants, and outside directors. The 1998 Stock Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code.
Our Board of Directors or a Board committee administers our 1998 Stock Purchase
Plan. The Board or committee has authority to set the purchase price of shares
subject to the 1998 Stock Purchase Plan; provided, however, that the price of
each share purchased under our 1998 Stock Purchase Plan may not be less than
85% of the fair market value at the time of purchase and, in the case of a
purchase by a greater than 10% stockholder, the price may not be less than 110%
of the fair market value.
1999 Stock Option Plan
Our Board of Directors has adopted, and our stockholders have approved,
AltiGen's 1999 Stock Option Plan, under which stock options may be granted to
our officers, employees, consultants, and outside directors. 3,500,000 shares
of common stock have been reserved for issuance under the 1999 Stock Option
Plan. An annual increase will be added on the first day of our fiscal year
beginning in 2000 equal to the lesser of:
. 3,000,000 shares;
. 5% of the outstanding shares on that date; or
. an amount determined by the Board of Directors.
Any options which have been granted but which expire or terminate unexercised
are returned to the plan and may be granted at a later date to any qualified
recipient. As of June 30, 1999, there were a total of 327,081 options
outstanding under the 1999 Stock Option Plan.
The Compensation Committee of our Board of Directors administers our 1999 Stock
Option Plan. The Committee has the authority to interpret the 1999 Stock Option
Plan and to determine:
. the persons to whom options are granted;
. when options are granted;
. the number of shares subject to each option;
. the terms and conditions associated with each option, including the
exercise price and the time period during which the option will be
exercisable; and
. the forms of agreement for use under the 1999 Stock Option Plan.
Our 1999 Stock Option Plan permits the grant of stock options that qualify as
ISOs under Section 422 of the Internal Revenue Code, and NSOs which do not so
qualify. The exercise price of options granted under our 1999 Stock Option Plan
may not be less than 100% of the fair market value of our common stock on the
date of grant in the case of ISOs, and not less than 85% of the fair market
value of the common stock on the date of grant in the case of NSOs. Also, the
exercise price of options granted to a greater than 10% stockholder may not be
less than 110% of the fair market value on the date of grant. The value of
common stock subject to ISOs that become exercisable by any one employee in any
calendar year may not exceed $100,000.
45
<PAGE>
Our Board's Compensation Committee determines the term of each option granted
under our 1999 Stock Option Plan; provided, however, that the maximum term of
any option granted under the 1999 Stock Option Plan is ten years or, in the
case of an option granted to a greater than 10% stockholder, five years.
Generally, options granted under our 1999 Stock Option Plan vest and become
exercisable over a four-year period. In the event there is a change of control
of AltiGen, any unexercised options granted under our 1999 Stock Option Plan
may be assumed or substituted by the successor corporation. Any unexercised
options not assumed or substituted will become fully vested and exercisable,
and the optionee will be provided a fixed time period in which to exercise
those options. Any options that remain unexercised at the end of that period
will immediately terminate. At its sole discretion, our Board of Directors may
terminate or suspend the 1999 Stock Option Plan.
1999 Employee Stock Purchase Plan
Our Board of Directors has adopted, and our stockholders have approved the 1999
Employee Stock Purchase Plan will be effective upon the completion of this
offering. Initially, 500,000 shares of common stock will be reserved for
issuance under the 1999 Employee Stock Purchase Plan. An annual increase will
be added on the first day of our fiscal year beginning in 2000 equal to the
lesser of:
. 1,000,000 shares;
. 2% of the outstanding shares on that date; or
. an amount determined by the Board of Directors.
The 1999 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Code, will be administered by the Board of Directors or by a
committee of the Board. Our employees, including officers and directors of
AltiGen who are also employees, or any subsidiary designated by the Board of
Directors for participation in the 1999 Employee Stock Purchase Plan, are
eligible to participate in the 1999 Employee Stock Purchase Plan if they are
customarily employed for more than 20 hours per week and more than five months
per year. The 1999 Employee Stock Purchase Plan will be implemented by
consecutive offering periods generally six months in duration. However, the
first offering period under the 1999 Employee Stock Purchase Plan will commence
on the effective date of this offering and terminate on or before July 31,
2001. The Board of Directors may change the dates or duration of one or more
offering periods.
The 1999 Employee Stock Purchase Plan permits our eligible employees to
purchase shares of common stock through payroll deductions at 85% of the lower
of the fair market value of the common stock on the first day of the offering
period or a specified exercise date. Participants generally may not purchase
shares on any exercise date, to the extent that, immediately after the grant,
the participant would own stock or options to purchase stock totaling 5% or
more of the total combined voting power of all stock of AltiGen, or greater
than $25,000 worth of our stock in any calendar year. In addition, no more than
10,000 shares may be purchased by any participant during any offering period.
In the event of a sale or merger of AltiGen, the Board may accelerate the
exercise date of the current purchase period to a date prior to the change of
control, or the acquiring corporation may assume or replace the outstanding
purchase rights under the 1999 Employee Stock Purchase Plan.
46
<PAGE>
Principal Stockholders
The following table sets forth information regarding the beneficial ownership
of shares of our common stock as of June 30, 1999 and as adjusted to reflect
the sale of shares in this offering. The table shows ownership by:
. each person or entity known to us to own beneficially more than 5% of the
shares of our outstanding stock;
. each of our directors;
. each of our named executive officers; and
. all of our directors and executive officers as a group.
The percentage ownership figures are based on 15,980,528 shares of common stock
outstanding as of June 30, 1999 and shares outstanding after completion
of this offering. The percentage ownership figures shown in the "After
Offering" column in following table are adjusted to reflect the conversion of
all outstanding shares of preferred stock upon the closing of this offering and
assume no exercise of the underwriters' overallotment option.
Unless otherwise indicated, the principal address of each of the stockholders
below is: c/o AltiGen Communications, Inc., 47427 Fremont Boulevard, Fremont,
California 94538. Except as otherwise indicated in the footnotes to this table,
and subject to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all shares of
AltiGen common stock as beneficially owned by them.
<TABLE>
<CAPTION>
Percent of Shares
Number of Beneficially Owned
Name and Address Shares Beneficially ------------------------------
of Beneficial Owner Owned(1) Before Offering After Offering
------------------- ------------------- --------------- --------------
<S> <C> <C> <C>
Directors and Executive
Officers
Gilbert Hu(2)(8)(9).... 2,386,700 14.9%
Kenneth Tai(3)......... 1,503,333 9.4
Wen-Huang (Simon)
Chang(4)(9)........... 1,000,798 6.3
Thomas Shao(5)......... 353,125 2.2
Masaharu Shinya........ 200,000 1.3
Simon Chouldjian(6).... 76,022 *
Michele Shannon(7)..... 75,833 *
Philip McDermott....... -- --
Richard Black.......... -- --
All directors and
executive officers as
a group (9 persons)... 5,595,811 35.0
5% Stockholders
Technology Associates
Corporation(8)........ 1,574,174 9.9
11F 201, Chien Kuo
South Road,
Section 2, Taipei,
Taiwan R.O.C.
Shing-Kao (Jerry)
Liao.................. 829,380 5.2
</TABLE>
- -------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares of common stock subject to
options that are currently exercisable or exercisable within 60 days of
June 30, 1999 are deemed to be outstanding and to be beneficially owned by
the person holding such options for the purpose of computing the percentage
ownership of such person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Includes 20,000 shares registered in the name of Mr. Hu's wife May Kuei-
Rong Hu, 166,700 registered in the name of his daughter Michelle Hu, and
166,700 shares registered in the name of his daughter Stephanie Hu. Also
includes vested, but unexercised, options held by Mr. Hu to purchase
1,033,300 shares.
47
<PAGE>
(3) Includes shares held by the following affiliated entities: 1,000,000 shares
registered in the name of InveStar Burgeon Venture Capital, Inc.; 166,667
shares registered in the name of InveStar Dayspring Venture Group, Inc.;
166,667 shares registered in the name of InveStar Excelsus Venture Capital
(Int'l) Inc., LDC; and 166,666 shares registered in the name of Forefront
Venture Partners, L.P. Director Kenneth Tai is a general partner of all of
the above entities and disclaims beneficial ownership of the securities
held by the entities except for his proportional interest in the entities.
Also includes vested, but unexercised, options held by Mr. Tai to purchase
3,333 shares.
(4) Includes 250,000 shares registered in the name of Mr. Chang's wife, Hsiang-
Li Chang Hu, and 240,000 shares registered in the name of his daughter Ya-
Ting Chang. Also includes vested, but unexercised, options held by Mr.
Chang to purchase 3,333 shares.
(5) Includes 300,000 shares registered in the name of Techgains Corporation, of
which Mr. Shao is managing director, and 30,000 shares registered in the
name of TSS Enterprises. Also includes 19,792 vested, but unexercised,
shares held by TSS Enterprises. Mr. Shao disclaims beneficial ownership of
the securities held by these entities except for his proportional interest
in the entities. Also includes vested, but unexercised, options held by Mr.
Shao to purchase 3,333 shares.
(6) Includes vested, but unexercised, options held by Mr. Chouldjian to
purchase 43,333 shares.
(7) Includes vested, but unexercised, options held by Ms. Shannon to purchase
33,333 shares.
(8) Includes 234,267 shares registered in the name of affiliated entity Tech
Alliance Corporation.
(9) Mr. Hu and Mr. Chang are brothers-in-law.
Certain Transactions
Equity Investment Transactions
Series B Preferred Stock. In August 1995 and January 1996, we sold 2,495,286
shares of our series B preferred stock for $0.70 per share. The purchasers of
the series B preferred stock included, among others:
<TABLE>
<CAPTION>
Shares of
Purchaser Series B Preferred Stock
--------- ------------------------
<S> <C>
Tricia Chu(1)...................................... 200,000
Shing-Kao (Jerry) Liao............................. 197,680
Gilbert Hu(2)...................................... 133,300
Hsiang-Li Chang Hu(3).............................. 86,831
Ya-Ting Chang(3)................................... 86,831
Nicholas Shih(4)................................... 50,000
Diana Shih(4)...................................... 50,000
En-Kuang Lung...................................... 40,000
Chang-Hou Lin...................................... 39,536
</TABLE>
- -------------------
(1) Of the 200,000 series B shares purchased by Ms. Chu, 30,000 were
subsequently transferred to other individuals.
(2) Mr. Hu subsequently transferred all 133,300 shares to his sister Hsiang-Li
Chang Hu.
(3) Hsiang-Li Chang Hu is the spouse, and Ya-Ting Chang is the child, of
director Wen-Huang (Simon) Chang. Ms. Chang Hu is the sister of our
President and Chief Executive Officer Gilbert Hu.
(4) Nicholas Shih is the son, and Diana Shih is the daughter, of our Vice
President of Finance and Administration Tricia Chu.
48
<PAGE>
Series C Preferred Stock. From June 1996 to December 1997, we sold 5,999,995
shares of our series C preferred stock at a weighted average price of $1.31 per
share. The purchasers of our series C preferred stock included, among others:
<TABLE>
<CAPTION>
Shares of
Purchaser Series C Preferred Stock
--------- ------------------------
<S> <C>
Entities affiliated with Technology Associates
Corporation(1)................................... 1,000,000
Entities affiliated with InveStar Capital,
Inc.(2).......................................... 1,000,000
Entities affiliated with Techgains Corpora-
tion(3).......................................... 560,000
Shing-Kao (Jerry) Liao............................ 265,000
Masaharu Shinya................................... 200,000
Wen-Huang (Simon) Chang(4)........................ 107,465
Hsiang-Li Chang Hu(4)............................. 103,169
Ya-Ting Chang(4).................................. 73,169
Chin-Tzu Lin Wu(5)................................ 80,000
May Kuei-Rong Hu(6)............................... 20,000
Simon Chouldjian.................................. 10,000
Michele Shannon................................... 5,000
</TABLE>
- -------------------
(1) Technology Associates Corporation and Tech Alliance Corporation are
affiliated. Together, these entities are considered a greater than 5%
stockholder of AltiGen.
(2) InveStar Capital, Inc. includes affiliated entities InveStar Burgeon
Venture Capital, Inc., InveStar Dayspring Venture Capital Group, Inc.,
InveStar Excelsus Venture Capital (Int'l) Inc., LDC. and Forefront Venture
Partners L.P. Together, these entities are considered a greater than 5%
stockholder of AltiGen. Director Kenneth Tai is a general partner of all of
the above funds, and disclaims beneficial ownership of the securities held
by such entities, except for his proportional interest in the entities.
(3) Techgains Corporation is affiliated with Tekkang Management Consulting Inc.
and TSS Enterprises. Together, these entities are considered a greater than
5% stockholder of AltiGen. Director Thomas Shao is a Managing Director of
Techgains Corporation and a joint owner and principal of TSS Enterprises.
(4) Hsiang-Li Chang Hu is the spouse, and Ya-Ting Chang is the child, of
director Wen-Huang (Simon) Chang. Ms. Chang Hu is the sister of our
President and Chief Executive Officer Gilbert Hu.
(5) Chin-Tzu Lin Wu is the mother-in-law of our Vice President of Research and
Development En-Kuang Lung.
(6) May Kuei-Rong Hu is the spouse of our President and Chief Executive Officer
Gilbert Hu.
Series D Preferred Stock. In April, August and September 1998 and May 1999, we
sold a total of 2,376,282 shares of our series D preferred stock at a weighted
average price of $5.73 per share. The purchasers of our series D preferred
stock included, among others:
<TABLE>
<CAPTION>
Shares of
Purchaser Series D Preferred Stock
--------- ------------------------
<S> <C>
Entities affiliated with Technology Associates
Corporation(1)................................... 574,174
Entities affiliated with InveStar Capital,
Inc.(2).......................................... 500,000
Entities affiliated with Kanematsu Corpora-
tion(3).......................................... 214,222
Wen-Huang (Simon) Chang........................... 140,000
</TABLE>
- -------------------
(1) Technology Associates Corporation and Tech Alliance Corporation are
affiliated. Together, these entities are considered a greater than 5%
stockholder of AltiGen.
(2) InveStar Capital, Inc. includes affiliated entities InveStar Burgeon
Venture Capital, Inc., InveStar Dayspring Venture Capital Group, Inc.,
InveStar Excelsus Venture Capital (Int'l) Inc., LDC. and Forefront Venture
Partners L.P. Together, these entities are considered a greater than 5%
stockholder of AltiGen. Director Kenneth Tai is a general partner of all of
the above funds, and disclaims beneficial ownership of the securities held
by such entities, except for his proportional interest in the entities.
(3) Kanematsu Corporation, Kanematsu Semiconductor Corporation, and Kanematsu
USA, Inc. are affiliated entities. Director Masaharu Shinya formerly was
President of Kanematsu Semiconductor Corporation.
49
<PAGE>
Distributor Agreement with Kanematsu Semiconductor Corporation
In a distributor agreement dated as of April 1997, we granted Kanematsu
Semiconductor Corporation a non-exclusive, non-transferable right to market and
distribute certain of our products to original equipment manufacturers, system
integrators, and dealers in several East and South Asian countries, including
Japan, China, Korea, Taiwan, Singapore, the Philippines, and India. At the time
we signed this agreement, Mr. Shinya, who is currently one of our directors,
was the President of Kanematsu Semiconductor Corporation. In fiscal year 1998,
our agreement with Kanematsu Semiconductor generated approximately $82,000 in
revenue to us. Unless terminated by written notice provided by either party,
the distributor agreement automatically renews on an annual basis.
Employment Contract with Tricia Chu
In March 1999, we entered into an employment contract with Tricia Chu, our Vice
President of Finance and Administration. Ms. Chu currently holds options that,
when fully vested, will have an aggregate exercise price of $138,000. The
contract provides that in the event Ms. Chu is terminated without cause all of
her options will immediately vest and become exercisable.
Employment Contract with Philip McDermott
In June 1999, we entered into an employment contract with Philip McDermott, our
Chief Financial Officer. Mr. McDermott currently holds options that, when fully
vested, will have an aggregate exercise price of $840,000. The contract
provides that in the event of a change of control of AltiGen immediately after
which Mr. McDermott no longer holds the title and responsibilities of Chief
Financial Officer (or a position of similar title and responsibilities), all of
his options will immediately vest and become exercisable.
Conversion of Promissory Notes by Simon Chouldjian
Between February and June 1997, we issued five promissory notes to Simon
Chouldjian, now our Vice President of Manufacturing, in return for consulting
services. In these notes, we agreed to sell Mr. Chouldjian a total of 22,689
shares of AltiGen preferred stock at the price of preferred stock as of the
date of each note. Between September 1995 and December 1998, we also issued
promissory notes to other persons for consulting services. In June 1999, the
Board authorized the conversion of these notes, and the noteholders, including
Mr. Chouldjian, agreed to accept one share of common stock in lieu of each
share of preferred stock. In the aggregate, we received approximately $378,000
from the noteholders for conversion of their notes. The original principal
amount of Mr. Chouldjian's notes totaled approximately $31,000.
Description of Capital Stock
Authorized Shares
Immediately following the closing of this offering, our authorized capital
stock will consist of shares of common stock, $0.001 par value per share,
and 5,000,000 shares of preferred stock, $0.001 par value per share, issuable
in series. As of June 30, 1999, and assuming the conversion of all outstanding
shares of preferred stock into shares of common stock upon the closing of this
offering, there were outstanding 15,980,528 shares of common stock held by 179
stockholders.
Common Stock
The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available in such amounts as our Board may from
time to time determine. These rights may be subordinate to the rights of
holders of outstanding shares of preferred stock. Each stockholder is entitled
to one vote for each share of common stock held on all matters submitted to a
vote of stockholders. The common stock is not
50
<PAGE>
entitled to preemptive rights and is not subject to conversion or redemption.
Upon a liquidation, dissolution or winding up of AltiGen, and after payment of
claims of creditors, the assets legally available for distribution to
stockholders are to be distributed ratably among the holders of the common
stock and any participating preferred stock outstanding at the time after
payment of liquidation preferences.
Preferred Stock
Our certificate of incorporation authorizes our Board of Directors to create
and issue one or more series of preferred stock and to determine the rights and
preferences of each wholly unissued series and any qualifications, limitations
or restrictions thereon. Among other rights, our Board may determine, without
further vote or action by our stockholders, dividend rights, voting rights,
redemption rights, conversion rights, liquidation preferences and the number of
shares constituting any series or the designation of any series. The issuance
of preferred stock could, among other things, have the effect of delaying,
deferring or preventing a change in control of AltiGen without further action
by the stockholders, and may adversely affect the voting and other rights of
the holders of our common stock. The issuance of preferred stock with voting
and conversion rights may have the effect of decreasing the market price of our
common stock, and may adversely affect the voting power of the holders of our
common stock, including the loss of voting control to others. Upon the
completion of this offering, each outstanding share of preferred stock will be
converted into a share of common stock, leaving no shares of preferred stock
issued or outstanding. At present, we have no plans to issue any shares of
preferred stock after the completion of this offering.
Registration Rights
After this offering, the holders of approximately 13,601,419 shares of common
stock will be entitled to rights with respect to the registration of those
shares under the Securities Act. Under the terms of the agreements between us
and the holders of such registrable securities, if we propose to register any
of our securities under the Securities Act, either for our own account or for
the account of other security holders exercising registration rights, the
holders are entitled to notice of the registration and are entitled to include
their shares in the registration. Additionally, a majority of the holders of
these shares of common stock may require us on no more than one occasion to
file a registration statement under the Securities Act at our expense with
respect to the shares of common stock, and we are required to use our best
efforts to effect that registration. Moreover, the holders of at least 30% of
these shares of common stock may require us to file additional registration
statements at our expense. All of these registration rights are subject to
certain conditions and limitations, among them the right of the underwriters of
an offering to defer a registration, or to limit the number of shares included
in a registration.
Limitations on Director Liability
Our certificate of incorporation provides that, to the fullest extent permitted
by the Delaware General Corporation Law, none of our directors will be
personally liable to our stockholders for monetary damages, subject to our
reincorporation in Delaware. Section 102(b)(7) of the Delaware General
Corporation Law provides that a director's liability for breach of fiduciary
duty may be eliminated, except for liability:
. for any breach of the director's duty of loyalty to the corporation or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, for unlawful
dividends or unlawful stock repurchase or redemptions
. for any transaction from which the director derives an improper personal
benefit.
Any amendment to these provisions of the Delaware General Corporation Law will
automatically be incorporated by reference into our certificate of
incorporation, without any vote on the part of our stockholders unless
otherwise required.
51
<PAGE>
Our bylaws provide that we will indemnify our directors and officers to the
fullest extent permitted by Delaware law. Generally, we are required to
indemnify our directors and officers for all:
. judgments;
. fines;
. settlements;
. legal fees; and
. other expenses incurred in connection with pending or threatened legal
proceedings arising from the director's or officer's position with us.
Delaware law and certain provisions of our certificate of incorporation and
bylaws
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make more difficult the acquisition of our company by means of a
tender offer, a proxy contest, or otherwise, and the removal of incumbent
officers and directors. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of our company to first negotiate
with us. We believe that the benefits of increased protection of our company's
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure our company outweighs the
disadvantages of discouraging such proposals, including proposals that are
priced above the then current market value of our common stock, because, among
other things, negotiation of such proposals could result in an improvement of
their terms.
We are subject to section 203 of the Delaware General Corporation Law. This
provision generally prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years following the date such stockholder became an interested stockholder,
unless:
. prior to such date the Board of Directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
. on or subsequent to such date, the Board of Directors approves the
business combination and the stockholders authorize the business
combination at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
. the receipt of the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, section 203 defines an
52
<PAGE>
interested stockholder as any entity or person beneficially owning 15% or
more of the outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by such entity or
person.
Our certificate of incorporation and bylaws require that any action required or
permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by a
consent in writing. In addition, special meetings of our stockholders may be
called only by the Board of Directors or certain of our officers. Our bylaws
provide that, beginning upon the closing of the offering, our Board of
Directors will be divided into three classes, with each class serving staggered
three-year terms. These provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management of our company.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Boston EquiServe L.P.
Its address is 150 Royall Street, Canton, Massachusetts 02021. Its telephone
number at this location is (781) 575-3010.
53
<PAGE>
Shares Eligible for Future Sale
Shares Eligible for Future Sale
When this offering is completed, we will have a total of shares of
common stock outstanding, assuming no exercise of outstanding options. The
shares offered by this prospectus will be freely tradeable unless they
are purchased by our "affiliates," as defined in Rule 144 under the Securities
Act of 1933. The remaining 15,980,528 shares are "restricted," which means they
were originally sold in offerings that were not subject to a registration
statement filed with the Securities and Exchange Commission. These restricted
shares may be resold only through registration under the Securities Act of 1933
or under an available exemption from registration, such as provided through
Rule 144.
Rule 144
In general, under Rule 144, a person, or persons whose shares are aggregated,
who has beneficially owned restricted securities for at least one year,
including the holding period of any holder who is not an affiliate, is entitled
to sell within any three month period a number of our shares of common stock
that does not exceed the greater of:
. 1% of the then-outstanding shares of our common stock; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on which
notice of sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. Under Rule
144 and subject to certain volume limitations, 14,401,081 of the 15,980,528
restricted shares are expected to be immediately eligible for sale upon
consummation of this offering, 421,153 of the restricted shares will be
eligible for sale beginning the 181st day after the date of this offering, and
1,158,294 will become saleable after April 2000. However, approximately
15,932,717 shares eligible for sale under Rule 144 are subject to 180-day
"lock-ups."
A person who is not deemed an affiliate of ours at any time during the 90 days
preceding a sale and who has beneficially owned shares for at least two years,
including the holding period of any prior owner who is not an affiliate, would
be entitled to sell shares following this offering under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
or notice requirements of Rule 144.
Rule 701 and Options
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or consultant to AltiGen who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell such shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. All holders of Rule 701 shares are required to wait
until 90 days after the date of this prospectus before selling such shares.
However, all shares issued by us pursuant to Rule 701 are subject to lock-up
provisions and will only become eligible for sale upon the expiration of 180
days after this offering.
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering shares of common stock subject to outstanding
options or issued or issuable under our 1994 Stock Option Plan, 1999 Stock
Option Plan, 1998 Stock Purchase Plan and our 1999 Employee Stock Purchase
Plan. Based on the number of shares subject to outstanding options at June 30,
1999, and currently reserved for issuance under all such plans, such
registration statement would cover approximately 7,525,800 shares. Such
54
<PAGE>
registration statement will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market immediately after the 180-day lock-up agreements
expire. Also beginning 180 days after the date of this offering, certain
holders of shares of common stock will be entitled to certain rights with
respect to registration of such shares of common stock for offer and sale to
the public. See "Description of Capital Stock--Registration Rights".
Lock-up Agreements
The holders of approximately 15,932,717 shares of common stock have agreed to a
180-day "lock-up" with respect to these shares. This generally means that they
cannot sell these shares during the 180 days following the date of this
prospectus. After the 180-day lock-up period, these shares may be sold in
accordance with Rule 144.
55
<PAGE>
Underwriting
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, and FAC/Equities, a division of First Albany
Corporation, are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the
commitment of any other underwriter to purchase shares. Subject to the terms
and conditions of the underwriting agreement, each underwriter has severally
agreed to purchase the number of shares of common stock set forth opposite its
name below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
CIBC World Markets Corp.....................................
Dain Rauscher Wessels ......................................
FAC/Equities, a division of First Albany Corporation........
------
Total......................................................
======
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The shares should be ready for delivery on or about , 1999 against
payment in immediately available funds. is the th business day
following the date of this prospectus. The th day settlement may affect the
trading of the shares on the date of this prospectus and on the [ ]
following business day[s]. The representatives have advised AltiGen that the
underwriters propose to offer the shares directly to the public at the public
offering price that appears on the cover page of this prospectus. In addition,
the representatives may offer some of the shares to other securities dealers at
such price less a concession of $ per share. The underwriters may also
allow, and such dealers may reallow, a concession not in excess of $ per
share to other dealers. After the shares are released for sale to the public,
the representatives may change the offering price and other selling terms at
various times.
AltiGen has granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of additional shares
from AltiGen to cover over-allotments. If the underwriters exercise all or part
of this option, they will purchase shares covered by the option at the initial
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full, the total price
to public will be $ , and the total proceeds to AltiGen will be $ .
The underwriters have severally agreed that, to the extent the over-allotment
option is exercised, they will each purchase a number of additional shares
proportionate to the underwriter's initial amount reflected in the foregoing
table.
The following table provides information regarding the amount of the discount
to be paid to the underwriters by us.
<TABLE>
<CAPTION>
Total without Exercise
of Over-Allotment Total with Full Exercise
Per Share Option of Over-Allotment Option
--------- ---------------------- ------------------------
<S> <C> <C> <C>
AltiGen........... $ $ $
</TABLE>
56
<PAGE>
AltiGen estimates that its total expenses of the offering, excluding the
underwriting discount, will be approximately $ .
AltiGen has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
AltiGen, its officers and directors, and holders of approximately 15,932,717
shares of common stock have agreed to a 180-day "lock up" with respect to
shares of common stock and certain other of AltiGen securities that they
beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This "lock up" means that, subject to certain exceptions, for a
period of 180 days following the date of this prospectus, AltiGen and such
persons may not offer, sell, pledge or otherwise dispose of these securities
without the prior written consent of CIBC World Markets Corp.
The representatives have informed AltiGen that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
The underwriters have reserved for sale up to shares for employees,
directors and certain other persons associated with AltiGen. These reserved
shares will be sold at the initial public offering price that appears on the
cover page of this prospectus. The number of shares available for sale to the
general public in the offering will be reduced to the extent reserved shares
are purchased by such persons. The underwriters will offer to the general
public, on the same terms as other shares offered by this prospectus, any
reserved shares that are not purchased by such persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by the representatives and us, based on the
following factors:
. our record of operations;
. our current financial position and future prospects;
. the experience of our management;
. the economics of our industry in general; and
. the character of the equities markets.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
. Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
. Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
. Penalty bids--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
57
<PAGE>
Neither AltiGen nor the underwriters make any representation or prediction as
to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.
AltiGen and the underwriters expect that the shares will be ready for delivery
on the th business day following the date of this prospectus. Under
Securities and Exchange Commission regulations, secondary market trades are
required to settle in three business days following the trade date (commonly
referred to as "T+3"), unless the parties to the trade agree to a different
settlement cycle. As noted above, the shares will settle in T+ . Therefore,
purchasers who wish to trade on the date of this prospectus or during the next
succeeding business day[s] must specify an alternate settlement cycle at
the time of the trade to prevent a failed settlement. Purchasers of the shares
who wish to trade shares on the date of this prospectus or during the next
succeeding business day[s] should consult their own advisors.
Legal Matters
The validity of the shares of common stock offered hereby will be passed upon
for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Pillsbury Madison & Sutro LLP, Palo Alto, California, is
acting as counsel for the underwriters in connection with various legal matters
relating to the shares of common stock offered by this prospectus.
Experts
The consolidated financial statements and schedule included in this Prospectus
or elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, to the extent and for the periods
indicated in their reports and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
Where Can You Find More Information
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with this offering. In addition, upon
completion of the offering, we will be required to file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy the registration statement and any
other documents filed by us at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the Public Reference Room. Our Securities and Exchange
Commission filings are also available to the public at the Securities and
Exchange Commission's Internet site at "http://www.sec.gov".
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of ours, the
reference may not be complete, and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.
This prospectus includes statistical data that were obtained from industry
publications generated by International Data Corporation and Frost & Sullivan.
These industry publications generally indicate that the authors of these
publications have obtained information from sources believed to be reliable,
but do not guarantee the accuracy and completeness of their information. While
AltiGen believes these industry publications to be reliable, AltiGen has not
independently verified their data.
58
<PAGE>
AltiGen Communications, Inc.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Shareholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
To AltiGen Communications, Inc.:
We have audited the accompanying consolidated balance sheets of AltiGen
Communications, Inc. (a California corporation) and subsidiary as of September
30, 1997 and 1998 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended September 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AltiGen Communications, Inc.
and subsidiary as of September 30, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
November 20, 1998
F-2
<PAGE>
AltiGen Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
------------------------ March 31,
1997 1998 1999
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,987,869 $ 7,003,569 $ 4,243,430
Short-term investments................ 1,105,538 1,053,060 --
Accounts receivable, net of allowances
of $41,000, $133,000 and $266,000,
respectively......................... 438,015 1,190,291 1,334,187
Inventories........................... 846,178 1,294,080 1,706,883
Prepaid expenses and other current
assets............................... 85,199 175,248 378,571
----------- ----------- ------------
Total current assets................. 4,462,799 10,716,248 7,663,071
----------- ----------- ------------
Property and equipment:
Furniture and equipment............... 305,291 528,448 814,505
Computer software..................... 78,211 295,947 440,842
----------- ----------- ------------
383,502 824,395 1,255,347
Less: Accumulated depreciation........ (131,830) (271,241) (397,123)
----------- ----------- ------------
Net property and equipment........... 251,672 553,154 858,224
----------- ----------- ------------
$ 4,714,471 $11,269,402 $ 8,521,295
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 188,016 $ 441,457 $ 381,888
Notes payable......................... 278,573 365,687 378,485
Accrued liabilities--
Payroll and related benefits......... 47,807 91,160 178,011
Warranty............................. 139,000 474,410 705,101
Other................................ 92,362 187,722 125,513
Deferred revenue...................... 182,168 458,078 650,575
----------- ----------- ------------
Total current liabilities.............. 927,926 2,018,514 2,419,573
----------- ----------- ------------
Commitments (Note 4)
Shareholders' equity:
Convertible preferred stock, no par
value; aggregate liquidation
preference of $16,846,388 at
September 30, 1998 and March 31, 1999
(unaudited); Authorized--20,000,000
shares; Outstanding (Series A, B, C
and D) 10,817,677 shares at September
30, 1997, 12,772,090 shares at
September 30, 1998 and March 31, 1999
(unaudited).......................... 9,671,242 18,882,198 18,882,198
Common stock, no par value
Authorized--40,000,000 shares
Outstanding--1,338,770 shares at
September 30, 1997, 1,454,811 shares
at September 30, 1998,
1,985,165 shares at March 31, 1999
(unaudited)......................... 21,712 186,300 2,332,366
Deferred stock compensation........... -- (116,250) (2,105,083)
Accumulated deficit................... (5,906,409) (9,701,360) (13,007,759)
----------- ----------- ------------
Total shareholders' equity........... 3,786,545 9,250,888 6,101,722
----------- ----------- ------------
$ 4,714,471 $11,269,402 $ 8,521,295
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AltiGen Communications, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended March
Fiscal Year Ended September 30, 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues, net........... $ 229,277 $ 1,378,528 $ 3,889,336 $ 1,509,939 $ 2,356,242
Cost of revenues........ 238,697 1,039,721 2,519,794 1,186,958 1,223,581
----------- ----------- ----------- ----------- -----------
Gross profit (loss).... (9,420) 338,807 1,369,542 322,981 1,132,661
Operating expenses:
Research and develop-
ment.................. 753,160 1,497,860 1,927,433 799,159 2,035,708
Sales and marketing.... 445,442 1,447,905 2,770,090 1,105,926 1,778,990
General and administra-
tive.................. 546,838 718,139 674,626 339,055 701,535
Deferred stock compen-
sation................ -- -- 38,750 -- 121,727
----------- ----------- ----------- ----------- -----------
Total operating ex-
penses............... 1,745,440 3,663,904 5,410,899 2,244,140 4,637,960
----------- ----------- ----------- ----------- -----------
Loss from operations.... (1,754,860) (3,325,097) (4,041,357) (1,921,159) (3,505,299)
Interest and other in-
come, net.............. 123,700 206,315 246,406 89,375 198,900
----------- ----------- ----------- ----------- -----------
Net loss................ $(1,631,160) $(3,118,782) $(3,794,951) $(1,831,784) $(3,306,399)
=========== =========== =========== =========== ===========
Basic net loss per
share................. $ (1.28) $ (2.34) $ (2.75) $ (1.37) $ (1.92)
=========== =========== =========== =========== ===========
Shares used in comput-
ing basic net loss per
share................. 1,272,040 1,330,176 1,378,019 1,338,770 1,721,097
=========== =========== =========== =========== ===========
Unaudited pro forma ba-
sic net loss per
share................. $ (0.29) $ (0.15) $ (0.23)
=========== =========== ===========
Shares used in comput-
ing unaudited pro
forma basic net loss
per share............. 13,069,080 12,495,997 14,493,187
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AltiGen Communications, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Deferred Total
---------------------- -------------------- Stock Accumulated Shareholders'
Shares Amount Shares Amount Compensation Deficit Equity
---------- ----------- --------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
SEPTEMBER 30, 1995..... 5,098,142 $ 3,158,714 1,263,187 $ 17,354 $ -- $ (1,156,467) $ 2,019,601
Issuance of Series B
convertible preferred
stock................. 127,000 88,900 -- -- -- -- 88,900
Issuance of Series C
convertible preferred
stock................. 3,100,005 3,100,005 -- -- -- -- 3,100,005
Exercise of stock
options............... -- -- 22,708 1,186 -- -- 1,186
Net loss............... -- -- -- -- (1,631,160) (1,631,160)
---------- ----------- --------- ---------- ----------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1996..... 8,325,147 6,347,619 1,285,895 18,540 -- (2,787,627) 3,578,532
Issuance of Series C
convertible preferred
stock................. 2,492,530 3,323,623 -- -- -- -- 3,323,623
Exercise of stock
options............... -- -- 52,875 3,172 -- -- 3,172
Net loss............... -- -- -- -- -- (3,118,782) (3,118,782)
---------- ----------- --------- ---------- ----------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1997..... 10,817,677 9,671,242 1,338,770 21,712 -- (5,906,409) 3,786,545
Issuance of Series C
convertible preferred
stock................. 407,460 1,426,123 -- -- -- -- 1,426,123
Issuance of Series D
convertible preferred
stock................. 1,546,953 7,784,833 -- -- -- -- 7,784,833
Exercise of stock
options............... -- -- 116,041 9,588 -- -- 9,588
Deferred stock
compensation.......... -- -- -- 155,000 (155,000) -- --
Amortization of de-
ferred stock compensa-
tion.................. -- -- -- -- 38,750 38,750
Net loss............... -- -- -- -- -- (3,794,951) (3,794,951)
---------- ----------- --------- ---------- ----------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1998..... 12,772,090 18,882,198 1,454,811 186,300 (116,250) (9,701,360) 9,250,888
Unaudited:
Exercise of stock
options............... -- -- 530,354 35,506 -- -- 35,506
Deferred stock
compensation.......... -- -- -- 2,110,560 (2,110,560) -- --
Amortization of de-
ferred stock compensa-
tion.................. -- -- -- -- 121,727 -- 121,727
Net loss............... -- -- -- -- -- (3,306,399) (3,306,399)
---------- ----------- --------- ---------- ----------- ------------ -----------
BALANCE,
MARCH 31, 1999
(Unaudited)............ 12,772,090 $18,882,198 1,985,165 $2,332,366 $(2,105,083) $(13,007,759) $ 6,101,722
========== =========== ========= ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
AltiGen Communications, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months
Fiscal Year Ended September 30, Ended March 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $(1,631,160) $(3,118,782) $(3,794,951) $(1,831,784) $(3,306,399)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation.......... 32,390 75,382 139,411 57,215 125,882
Amortization of
deferred stock
compensation......... -- -- 38,750 -- 121,727
Provision for accounts
receivable
allowance............ 10,000 31,000 92,000 20,605 132,779
Provision for excess
and obsolete
inventories.......... 94,000 187,000 418,000 301,000 96,000
Increase in notes
payable.............. 4,315 274,258 87,114 40,885 12,798
Changes in operating
assets and
liabilities:
Accounts receivable... (175,426) (303,589) (844,276) (195,658) (276,675)
Inventories........... (242,778) (679,595) (865,902) (301,109) (508,803)
Prepaid expenses and
other current
assets............... 20,760 (70,824) (90,049) 73,158 (203,323)
Accounts payable...... 30,585 145,583 253,441 62,559 (59,569)
Accrued liabilities... 34,901 195,868 474,123 193,288 255,333
Deferred revenue...... 54,048 128,120 275,910 (12,605) 192,497
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities........... (1,768,365) (3,135,579) (3,816,429) (1,592,446) (3,417,753)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
short-term
investments........... 2,340,441 371,000 52,478 81,631 1,053,060
Purchases of short-term
investments........... (1,657,096) (1,138,538) -- -- --
Purchases of property
and equipment......... (42,161) (249,644) (440,893) (83,427) (430,952)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities........... 641,184 (1,017,182) (388,415) (1,796) 622,108
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from
issuance of
convertible preferred
stock................. 3,188,905 3,323,623 9,210,956 1,426,123 --
Net proceeds from
issuance of common
stock................. 1,186 3,172 9,588 -- 35,506
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities........... 3,190,091 3,326,795 9,220,544 1,426,123 35,506
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 2,062,910 (825,966) 5,015,700 (168,119) (2,760,139)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 750,925 2,813,835 1,987,869 1,987,869 7,003,569
----------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 2,813,835 $ 1,987,869 $ 7,003,569 $ 1,819,750 $ 4,243,430
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements
September 30, 1998
(All information as of and for the six months ended
March 31, 1998 and 1999 is unaudited)
1. ORGANIZATION OF THE COMPANY:
AltiGen Communications, Inc. (the "Company") was incorporated in California on
May 18, 1994 and began operations in July of that year. The Company designs,
manufactures, and markets server-based telecommunications systems that allow
businesses to use the Internet and the Public Switched Telephone Network
interchangeably to carry voice and data communications.
The Company is subject to the risks associated with early stage technology
companies. These risks include, but are not limited to: history of losses,
limited operating history, dependence on a smaller number of key individuals,
customers and suppliers, competition from larger, more established companies,
the continued need for additional financing, the impact of rapid technological
changes and changes in customer demand/requirements. There is no assurance that
the Company's efforts will be successful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Fiscal Year-End
The Company's consolidated financial statements for the six months ended March
31, 1999 reflect the operations of the Company and its wholly owned subsidiary.
The subsidiary is located in Shanghai, China and was incorporated in November
1998. All significant intercompany transactions and balances have been
eliminated. The Company's fiscal year-end is September 30. Unless otherwise
stated, all references to 1998, 1997, and 1996 refer to the twelve months ended
September 30 of that year.
Unaudited Interim Financial Data
The unaudited consolidated financial statement data as of March 31, 1999 and
for the six months ended March 31, 1998 and 1999 have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. The Company performs
ongoing credit evaluations of its customers' financial condition and requires
letters of credit whenever deemed necessary to help reduce its credit risk.
Additionally, the Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends related to past losses and other information. As of September 30, 1997
and 1998, approximately 65% and 66%, respectively, of accounts receivable were
concentrated with ten customers.
F-7
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company's purchases are concentrated with three suppliers and certain key
components of the Company's products are sole sourced. For fiscal years 1996,
1997, 1998 and for the six months ended March 31 1999 these three suppliers
provided 73%, 72%, 78% and 73%, respectively, of all raw materials purchased.
Loss of one of these suppliers could adversely impact the Company's operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less from the date of purchase to be cash equivalents.
Investments in highly liquid financial instruments with original maturities
greater than three months but less than one year are classified as short-term
investments. As of September 30, 1998, the Company's cash and cash equivalents
consisted of cash deposited in checking, money market accounts and a mutual
fund and short-term investments consisted of a certificate of deposit with an
original maturity of one year. The certificate of deposit matured in October
1998. For fiscal years 1996, 1997, and 1998, the Company did not make any cash
payments for interest or income taxes.
Inventories
Inventories (which include costs associated with components assembled by third-
party assembly manufacturers, as well as internal labor and overhead) are
stated at the lower of cost (first-in, first-out) or market. Provisions, when
required, are made to reduce excess and obsolete inventories to their estimated
net realizable values. Provisions for excess and obsolete inventory totaled
approximately $94,000, $187,000 and $418,000 for fiscal years 1996, 1997 and
1998, respectively, and $301,000 and $96,000 for the six months ended March 31,
1998 and 1999, respectively. The components of inventories include:
<TABLE>
<CAPTION>
September 30,
------------------- March 31,
1997 1998 1999
-------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Raw materials................................ $529,632 $ 966,516 $ 986,208
Work-in-progress............................. 41,088 -- 198,073
Finished goods............................... 275,458 327,564 522,602
-------- ---------- ----------
$846,178 $1,294,080 $1,706,883
======== ========== ==========
</TABLE>
Prepaid Royalties
The Company is in the process of developing a multifunction resource card which
contains certain third party proprietary technology. In connection with the
development of this product, the Company prepaid royalty payments to the
developer of this technology totaling $100,000 and $250,000 as of September 30,
1998 and March 31, 1999 (unaudited), respectively. The prepayments are included
in prepaid expenses and other current assets in the accompanying consolidated
balance sheets and will be amortized against future product shipments. Royalty
payments will be determined based on 40% of the profit (as defined) realized
from the Company's sales of this product. Such sales are expected to commence
in the third quarter of fiscal 1999.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets which is
three years. Depreciation expense for fiscal years 1996, 1997, 1998 was
$32,000, $75,000 and $139,000, respectively. All repairs and maintenance costs
are expensed as incurred.
F-8
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," the Company capitalizes eligible computer software development costs
upon the establishment of technological feasibility, which it has defined as
completion of a working model. The amount of costs eligible for capitalization,
after consideration of factors such as realizable value, were not material and,
accordingly, all software development costs have been charged to research and
development expense in the accompanying consolidated statements of operations.
Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," which establishes a fair value method of
accounting for stock-based compensation plans. As allowed under the provisions
of SFAS No. 123, the Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
employee stock option plan (see Note 5 for a discussion of compensation cost
recorded related to certain employee stock options granted). The Company
follows the provisions of SFAS 123 for options granted to consultants and
nonemployees. Compensation expense for such grants for all periods presented
was nominal and therefore immaterial.
Revenue Recognition
Revenues consist of sales to end users, including dealers, and to distributors.
Revenues from sales to end users are recognized upon shipment. The Company
provides for estimated sales returns and allowances and warranty costs related
to such sales at the time of shipment. Net revenues consist of product revenues
reduced by estimated sales returns and allowances. Sales to distributors are
made under terms allowing certain rights of return and protection against
subsequent price declines on the Company's products held by the distributors.
Upon termination, any unsold products may be returned by the distributor for a
full refund. These agreements may be canceled by either party based on a
specified notice. As a result of the above provisions, the Company defers
recognition of revenues and the proportionate costs of revenues derived from
sales to distributors until such distributors resell the Company's products to
their customers. The amounts deferred as a result of this policy are reflected
as "deferred revenue" in the accompanying consolidated balance sheets.
For fiscal years 1996, 1997, 1998 and for the six months ended March 31, 1999,
sales to four distributors of the Company's products accounted for
approximately 24%, 25%, 46% and 56% of net revenues, respectively.
The following customers accounted for more than 10% of net revenues:
<TABLE>
<CAPTION>
Fiscal Year
Ended
September 30, Six Months
---------------- Ended March
1996 1997 1998 31, 1999
---- ---- ---- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Customer A........................................... -- 10% 24% 27%
Customer B........................................... -- -- -- 21%
Customer C........................................... 24% -- 14% --
</TABLE>
Revenues derived from sales to customers outside of the United States,
primarily in Japan, accounted for approximately 4%, 11%, 7% and 11% of the
Company's net revenues for fiscal years 1996, 1997, 1998 and for the six months
ended March 31, 1999, respectively.
F-9
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share
Historical net loss per share has been calculated under Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No. 128
requires companies to compute earnings per share under two methods (basic and
diluted). Basic net loss per share is calculated by dividing net loss by the
weighted average shares of common stock outstanding during the period. No
diluted loss per share information has been presented in the accompanying
consolidated statements of operations since potential common shares from the
conversion of preferred stock, stock options and warrants are antidilutive. The
Company evaluated the requirements of the Securities and Exchange Commission
Staff Accounting Bulletin No. 98 ("SAB"), and concluded that there are no
nominal issuances of common stock or potential common stock which would be
required to be shown as outstanding for all periods presented herein as
outlined in SAB 98.
Unaudited pro forma basic net loss per share has been calculated assuming the
conversion of the outstanding preferred stock into an equivalent number of
shares of common stock, as if the shares had been converted on the dates of
their issuance.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
presentation of comprehensive income. SFAS No. 130, which was adopted by the
Company in the first quarter of 1998, requires companies to report a new
measurement of income. "Comprehensive Income (Loss)" is to include as other
comprehensive income foreign currency translation gains and losses and other
unrealized gains and losses that have historically been excluded from net
income (loss) and reflected instead in equity. The Company does not have any
items of other comprehensive income and is, therefore, not required to report
comprehensive income.
Segment Reporting
In June 1997, the Financial Accounting Standards Board also issued SFAS No.131
"Disclosures About Segments of an Enterprise and Related Information." ("SFAS
No. 131"). SFAS No. 131 was adopted by the Company beginning on October 1,
1997. SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers. The
Company is organized and operates as one operating segment. The Company
operates primarily in one geographic area, the United States.
Financial Instruments
In June 1998, FASB also issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards, requiring every derivative instrument be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999. The Statement must be applied to derivative instruments
and to certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after September 30, 1997. In
management's opinion, the impact of adopting SFAS No. 133 on the financial
statements will not be material.
Start-up Costs
In April 1998, the AICPA issued SOP No. 98-5 "Reporting on the Costs of Start-
Up Activities" ("SOP No. 98-5"). SOP No. 98-5 requires that all start-up costs
related to new operations must be expensed as incurred. In addition, all start-
up costs that were previously capitalized must be written off when SOP No. 98-5
is adopted. The Company adopted SOP No. 98-5 in fiscal 1999. The adoption did
not have a material impact on the Company's financial position or results of
operations.
F-10
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
3. NOTES PAYABLE:
As of September 30, 1998, the Company has non-interest-bearing notes payable of
$365,687 outstanding to consultants in exchange for services received by the
Company primarily during fiscal years 1996 and 1997. The Company had agreed to
issue a total of 327,121 shares of preferred stock at the fair market values on
the dates of the respective issuances of the notes which is $0.70-$5.20 per
share as payment for the notes. However, no preferred shares have been issued.
In June 1999, the note holders agreed to accept common shares on a 1:1 basis in
lieu of preferred shares. Such common shares were issued in June 1999.
4. COMMITMENTS:
The Company leases its facilities under operating lease agreements expiring
through February 2002. Rent expense for all operating leases totaled
approximately $74,000, $125,000 and $167,000 for fiscal years 1996, 1997 and
1998, respectively. Minimum future lease payments under all noncancellable
operating leases as of March 31, 1999 are as follows (Unaudited):
<TABLE>
<S> <C>
1999............................................................ $264,000
2000............................................................ 331,000
2001............................................................ 27,000
--------
$622,000
========
</TABLE>
5. CAPITAL STOCK:
Convertible Preferred Stock
Preferred stock consists of the following:
<TABLE>
<CAPTION>
September 30,
------------------- March 31,
1997 1998 1999
--------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
Series A, 2,729,856 shares authorized,
2,729,856 shares outstanding at September
30, 1997 and 1998 and March 31, 1999..... 1,500,914 1,500,914 1,500,914
Series B, 2,495,286 shares authorized,
2,495,286 shares outstanding at September
30, 1997 and 1998 and March 31, 1999..... 1,746,700 1,746,700 1,746,700
Series C, 5,999,995 shares authorized,
5,592,535 shares outstanding at September
30, 1997, 5,999,995 shares outstanding at
September 30, 1998 and March 31, 1999.... 6,423,628 7,849,751 7,849,751
Series D, 6,000,000 shares authorized,
1,546,953 shares outstanding at September
30, 1998 and March 31, 1999.............. -- 7,784,833 7,784,833
</TABLE>
The rights and preferences of the outstanding series A, B, C and D preferred
stock are as follows:
Dividends
The holders of series A, B, C and D preferred stock are entitled to receive
non-cumulative dividends at an annual rate of $0.05, $0.07, $0.10 and $0.50 per
share, respectively. Such dividends shall be payable only when, as, and if
declared by the Board of Directors. No dividends shall be payable on any common
stock until dividends to series A, B, C and D preferred stock have been paid or
declared by the Board of Directors. Additionally, no dividends shall be paid or
declared for any series of preferred stock unless at the same time a like
proportionate dividend, ratably in proportion to the respective annual dividend
rates fixed therefore, is paid and declared for the shares of all other series
preferred stock. As of September 30, 1998 and March 31, 1999 (unaudited), no
dividends have been declared.
F-11
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
holders of series A, B, C and D preferred stock are entitled to receive, in
preference to holders of common stock, the amounts of $0.50, $0.70, $1.00 and
$5.00 per share, respectively, plus all declared but unpaid dividends. Such
amounts will be adjusted for any stock split, stock dividends and
recapitalizations. After payment of the above amounts, holders of common stock
are entitled to receive the amount of $0.50 per share, adjusted for any stock
split, stock dividends and recapitalizations. If such amounts are not available
to sufficiently satisfy the full preferential amount, the entire assets of the
Company will be distributed to the preferred shareholders in proportion to
their aggregate liquidation preference of the shares of preferred stock held.
After payment to the holders of preferred stock and common stock of the above
preferential amounts, the entire remaining assets and funds of the Company
shall be distributed to the holders of common stock and preferred stock in
proportion to the shares of common stock and preferred stock, on an as-
converted basis, held by these holders.
Voting Rights
The holders of the series A, B, C and D preferred stock are entitled to the
number of votes equal to the number of shares of common stock into which such
preferred stock is convertible.
Conversion
Each share of series A, B, C and D preferred stock is convertible into one
share of common stock at (a) the date specified by vote or written consent by
preferred shareholders of at least two-thirds of outstanding preferred stock or
(b) the consummation of the Company's sale of common stock in an underwritten
public offering which results in aggregate cash proceeds to the Company in
excess of $10,000,000 and the public offering price is not less than $5.00 per
share. The conversion rate is subject to adjustment for dilution, including,
but not limited to, stock splits, stock dividends and stock combinations.
Common Stock
According to the Company's amended Articles of Incorporation, the Company is
authorized to issue 40,000,000 shares of common stock. At September 30, 1998,
the Company had reserved the following shares for future issuance:
<TABLE>
<S> <C>
Conversion of Series A outstanding preferred stock................ 2,729,856
Conversion of Series B outstanding preferred stock................ 2,495,286
Conversion of Series C outstanding preferred stock................ 5,999,995
Conversion of Series D outstanding preferred stock................ 1,546,953
Reserved for consultants.......................................... 327,121
1994 Stock Option Plan............................................ 3,264,626
----------
16,363,837
==========
</TABLE>
1998 Stock Purchase Plan
In June 1999, the Company ratified the 1998 Stock Purchase Plan and authorized
the issuance of 25,800 shares of Series D preferred stock to employees,
consultants and directors. The price of each preferred share purchased under
the 1998 Stock Purchase Plan may not be less than 85% of the fair market value
at the time of purchase and, in the case of a purchase by a greater than 10%
shareholder, the price may not be less than 110% of the fair market value. All
shares available under the 1998 Stock Purchase Plan were sold during fiscal
year 1998.
F-12
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
Stock Option Plans
In October 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan") and authorized the issuance of 3,500,000 shares, as amended, thereunder
to employees, directors, and consultants. Under the 1994 Plan, the Board of
Directors may grant incentive and nonqualified stock options to employees,
directors, and consultants of the Company. The exercise price per share for an
incentive stock option cannot be less than 100% of the fair market value, as
determined by the Board of Directors, on the date of grant. The exercise price
per share for nonqualified stock options cannot be less than the 85% of the
fair market value, as determined by the Board of Directors, on the date of
grant. Also, the exercise price of options granted to a greater than 10%
shareholder may not be less than 110% of the fair market value on the date of
grant. The value of common stock subject to incentive stock options that become
exercisable by any one employee in any calendar year may not exceed $100,000.
Options generally vest over a four year period and generally expire ten years
after the date of grant.
In 1999, the Company adopted the 1999 Stock Option Plan (the "1999 Plan") and
authorized the issuance of 2,500,000 shares to employees, directors and
consultants. Under the 1999 Plan, the Board of Directors may grant incentive
and nonqualified stock options to employees, directors and consultants of the
Company. The exercise price per share for an incentive stock option cannot be
less than 100% of the fair market value, as determined by the Board of
Directors, on the date of grant. The exercise price per share for a
nonqualified stock option cannot be less than 85% of the fair market value, as
determined by the Board of Directors, on the date of grant. Also, the exercise
price of options granted to a greater than 10% shareholder may not be less than
110% of the fair market value on the date of grant. The value of common stock
subject to incentive stock options that become exercisable by any one employee
in any calendar year may not exceed $100,000. Options under this plan generally
vest over a four year period and generally expire ten years after the date of
grant. Option activity under the 1994 and 1999 Plans was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise
Outstanding Price
----------- --------
<S> <C> <C>
September 30, 1995...................................... 380,000 $0.05
Authorized............................................. -- --
Granted................................................ 1,046,301 0.07
Exercised.............................................. (20,208) 0.05
Canceled............................................... (18,500) 0.06
--------- -----
September 30, 1996...................................... 1,387,593 0.07
Authorized............................................. -- --
Granted................................................ 168,000 0.10
Exercised.............................................. (55,375) 0.06
Canceled............................................... (88,125) 0.06
--------- -----
September 30, 1997...................................... 1,412,093 0.07
Granted................................................ 1,430,452 0.27
Exercised.............................................. (116,041) 0.08
Canceled............................................... (26,000) 0.31
--------- -----
September 30, 1998...................................... 2,700,504 0.17
Unaudited:
Authorized............................................. -- --
Granted................................................ 641,500 1.91
Exercised.............................................. (530,354) 0.07
Canceled............................................... (94,806) 0.28
--------- -----
March 31, 1999 (Unaudited).............................. 2,716,844 $0.60
========= =====
</TABLE>
F-13
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Exercisable at September 30, 1997................... 830,133 $0.06
Exercisable at September 30, 1998................... 1,243,657 $0.09
Exercisable at March 31, 1999 (Unaudited)........... 1,393,182 $0.14
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------
Number
Number Weighted Exercisable
Outstanding at Average Weighted at Weighted
Exercise September 30, Remaining Average September 30, Average
Prices 1998 Life Exercise Price 1998 Exercise Price
-------- -------------- --------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$0.05-
$0.07 1,135,760 5.97 $0.06 945,474 $0.06
0.10-
0.14 1,027,962 5.84 0.16 256,297 0.14
0.35-
0.52 536,782 8.55 0.42 41,886 0.46
------ --------- ---- ----- --------- -----
$0.05-
$0.52 2,700,504 6.45 $0.17 1,243,657 $0.09
====== ========= ==== ===== ========= =====
</TABLE>
The Company accounts for the Plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Had compensation expense for the Plan been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and basic net loss per share would have
been increased to the following pro forma amounts (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported....................... $(1,631,160) $(3,118,782) $(3,794,951)
Pro forma......................... (1,632,026) (3,122,558) (3,806,197)
Basic net loss per share:
As reported....................... $ (1.28) $ (2.34) $ (2.75)
Pro forma......................... (1.28) (2.35) (2.76)
</TABLE>
The weighted-average grant date fair value of options granted during fiscal
years 1996, 1997 and 1998 was $0.02, $0.03 and $0.07, respectively. The fair
value of each option grant is estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions
used for grants in 1996, 1997 and 1998: risk free interest rates ranging from
6.0-6.2%; expected dividend yields of zero percent; expected lives of 5 years.
Because the Company has been a non-public entity, it has omitted expected
volatility in determining a value for its options.
In connection with the issuance of certain stock options to employees in fiscal
1998, the Company has recorded deferred stock compensation in the aggregate
amount of approximately $155,000, representing the difference between the
deemed fair value of the Company's common stock and the exercise price of stock
options at the date of grant. The Company is amortizing the deferred stock
compensation expense over the vesting period of four years. For fiscal year
1998 and for the six months ended March 31, 1999, amortization expense was
$38,750 and $19,375, respectively.
In connection with the issuance of stock options to employees during the six
months ended March 31, 1999, the Company has recorded deferred stock
compensation in the aggregate amount of approximately
F-14
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
$2,111,000, representing the difference between the deemed fair value of the
Company's common stock and the exercise price of the stock options at the date
of grant. The Company is amortizing the deferred compensation expense over the
vesting period of four years. For the six months ended March 31, 1999,
amortization expense was $102,352.
6. INCOME TAXES:
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for
Income Taxes". SFAS No. 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. The components of the net
deferred income tax asset are as follows:
<TABLE>
<CAPTION>
September 30
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards................. $ 1,575,000 $ 2,807,000
Capitalized start-up costs....................... 353,000 263,000
Reserve and other cumulative temporary differ-
ences......................................... 273,000 414,000
----------- -----------
2,201,000 3,484,000
Valuation allowance.............................. (2,201,000) (3,484,000)
----------- -----------
Net deferred tax asset....................... $ -- $ --
=========== ===========
</TABLE>
As of September 30, 1998, the Company has cumulative net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $7.8 million and $2.6 million, respectively, which expire in
various periods from 2003 to 2013. Under current tax law, net operating loss
carryforwards available in any given year may be limited upon the occurrence of
certain events, including significant changes in ownership interests, such as
an initial public stock offering.
A valuation allowance has been recorded for the entire deferred tax asset as a
result of uncertainties, regarding realization of the asset, including limited
operating history of the Company, the lack of profitability to date and the
uncertainty over future operating profitability and taxable income.
As of September 30, 1997 and 1998, the Company had no significant deferred tax
liabilities.
7. SUBSEQUENT EVENTS (Unaudited):
In April 1999, the Board of Directors approved the reincorporation of the
Company in the State of Delaware, subject to shareholder ratification.
In May 1999, the Company issued 829,329 additional shares of series D preferred
stock at $7.00 per share for gross proceeds to the Company of approximately
$5.8 million.
In June 1999, the Board of Directors approved an amendment to the Company's
1999 Stock Plan (the "1999 Plan") to increase the number of shares of common
stock reserved under the 1999 Plan from 2,500,000 to 3,500,000 shares.
In June 1999, the Board of Directors adopted the 1999 Employee Stock Purchase
Plan whereby 500,000 shares of common stock were reserved for issuance to
eligible employees at a price of 85% of the lower of the fair market value of
the common stock on the first day of the offering period or a specified
exercise date (last trading day in January or July). An annual increase will be
added on the first day of each
F-15
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
fiscal year beginning in 2000 equal to the lesser of (i) 1,000,000 shares, (ii)
2% of the outstanding shares on that date or (iii) a lesser amount determined
by the Board of Directors. Participants under the 1999 Purchase Plan generally
may not purchase shares on any exercise date to the extent that, immediately
after the grant, the participant would own stock totaling 5% or more of the
total combined voting power of all stock of the Company, or greater than
$25,000 worth of stock in any calendar year. In addition, no more than
10,000 shares may be purchased by any participant during any offering period.
In the event of a sale or merger of the Company, the Board may accelerate the
exercise date of the current purchase period to a date prior to the change of
control, or the acquiring company may assume or replace the outstanding
purchase rights under the 1999 Purchase Plan. The first offering period under
the 1999 Plan will commence on the effective date of this offering and
terminate on or before July 31, 2001.
F-16
<PAGE>
[LOGO OF ALTIGEN COMMUNICATIONS, INC.]
AltiGen Communications, Inc.
Shares
Common Stock
-----------------
PROSPECTUS
-----------------
,
CIBC World Markets
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
FAC/Equities
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. No
dealer, salesperson or other person is authorized to give information that is
not contained in this prospectus. This prospectus is not an offer to sell nor
is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
Dealer Prospectus Delivery Obligation: Until , (25 days after the
commencement of the offering), all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
Part II
Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale
and distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD registration fees and
the Nasdaq National Market listing fee. All of the expenses below will be paid
by AltiGen.
<TABLE>
<CAPTION>
Item
---- --------
<S> <C>
Registration fee................................................... $ 14,387
NASD filing fee.................................................... 5,675
Nasdaq National Market listing fee................................. *
Blue sky fees and expenses......................................... 10,000
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... 320,000
Transfer Agent and Registrar fees.................................. *
Miscellaneous...................................................... *
--------
Total............................................................ $350,062
========
</TABLE>
- -------------------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Our bylaws provide that we will indemnify our
directors and officers to the fullest extent permitted by law.
Our certificate of incorporation provides that, pursuant to Delaware law,
our directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty of care to AltiGen and our stockholders. This
provision in the certificate of incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware
law. In addition, each director will continue to be subject to liability for
breach of the director's duty of loyalty to the Company or our stockholders,
for acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
In addition, our certificate of incorporation (Exhibit 3.1 to this
registration statement) provides that we shall indemnify our directors and
officers if such persons acted (1) in good faith, (2) in a manner reasonably
believed to be in or not opposed to our best interests and (3) with respect to
any criminal action or proceeding, with reasonable cause to believe such
conduct was lawful. We intend to obtain directors' and officers' liability
insurance in connection with this offering.
In addition, we have entered or, concurrently with this offering, will enter
into agreements to indemnify our directors and certain of our officers in
addition to the indemnification provided for in the certificate of
incorporation and bylaws. These agreements will, among other things, indemnify
our directors and certain of our officers for certain expenses (including
attorneys' fees), judgments, fines and settlement
II-1
<PAGE>
amounts incurred by such person in any action or proceeding, including any
action by or in our right, on account of services by that person as a director
or officer of AltiGen or as a director or officer of any subsidiary of
AltiGen, or as a director or officer of any other company or enterprise that
the person provides services to at the request of AltiGen.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the underwriters of AltiGen and its officers and directors, and by AltiGen
of the underwriters, for certain liabilities arising under the Securities Act
or otherwise.
Item 15. Recent Sales of Unregistered Securities
AltiGen has sold and issued the following securities within the past three
years. None of the transactions as set forth below involved any public
offering or any underwriter. The recipients in each transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to share certificates and instruments issued
in such transactions. All recipients had adequate access, through their
relationships with AltiGen, to information about AltiGen.
(1) In June 1996 through December 1997, we completed a series of private
placements of 5,999,995 shares of series C preferred stock to a group of
institutional investors, certain members of senior management and employees,
including Michele Shannon, and immediate family members of our directors and
executive officers, for an aggregate purchase price of $7,849,750.
(2) In March 1998 through May 1999, we completed a series of private
placements of 2,376,282 shares of series D preferred stock for an aggregate
offering price of $13,624,299. Of these 2,376,282 shares, 25,800 were sold to
certain of our employees pursuant to our 1998 Stock Purchase Plan.
(3) In June 1999, we issued 328,965 shares of common stock to 12 individuals
and entities in satisfaction of certain promissory notes held by them, for
aggregate consideration of $378,486.
(4) We have from time to time granted stock options to employees,
consultants and outside directors in reliance upon an exemption under the
Securities Act pursuant to Rule 701. From June 1, 1996 through June 30, 1999,
an aggregate of 786,957 shares of common stock were issued pursuant to option
exercises at exercise prices ranging from $0.05 to $7.00.
(5) Prior to the completion of this offering, Altigen intends to effect a 1
for 1.75 reverse stock split of its outstanding common and preferred stock.
The sales and issuances of securities in the transactions described in
paragraphs (1) and (2) above were deemed to be exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act") by virtue of
Regulation D and Regulation S promulgated thereunder as transactions by an
issuer not involving any public offering.
The sale and issuance of securities in the transaction described in
paragraph (3) above was deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act.
The grants of stock options to employees, consultants and outside directors
described in paragraph (4) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 701 promulgated thereunder.
The issuance described in paragraph (5) above was or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transaction did not involve a "sale" of securities.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation, to be
filed and effective upon completion of this offering.
3.3** Bylaws.
3.4 Form of Amended and Restated Bylaws, to be filed and effective upon
completion of this offering.
4.1 See Exhibit 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate
of Incorporation and Bylaws defining the rights of holders of Common
Stock.
4.2* Specimen Common Stock certificates.
4.3** Third Amended and Restated Rights Agreement dated May 7, 1999 by and
among AltiGen Communications, Inc. and the Investors and Founder
named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati.
10.1 Form of Indemnification Agreement.
10.2** 1994 Stock Option Plan, as amended, and form of stock option
agreement.
10.3** 1998 Stock Purchase Plan.
10.4** 1999 Stock Option Plan, as amended, and form of stock option
agreement.
10.5 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.6** Sublease and Consent to Sublease Agreement: 47427 Fremont Boulevard,
Fremont, California between Hitachi America, Ltd. and Phase Metrics,
Inc., dated April 1, 1997.
10.7** Sub-Sublease and Consents to Sub-Sublease: 47427 Fremont Boulevard,
Fremont, California between Phase Metrics, Inc. and AltiGen
Communications, Inc., dated December 11, 1998.
10.8+** Dealer Agreement and Addendum between Teleco Inc. and AltiGen
Communications, Inc., dated September 9, 1996.
10.9+** Distributor Agreement between Kanematsu Semiconductor Corporation and
AltiGen Communications, Inc., dated April 21, 1997 and Modification
dated May 13, 1997.
10.10+** Distribution Agreement between Tech Data Product Management, Inc. and
AltiGen Communications, Inc., dated July 21, 1997.
10.11+** Distribution Agreement between TerraComSortium and AltiGen
Communications, Inc., dated November 3, 1997.
10.12+** OEM Private Label License Agreement between Renaissance Network
Technology Corporation and AltiGen Communications, Inc., dated May
1998.
10.13** Services Agreement between Sumitronics, Inc. and AltiGen
Communications, Inc., dated June 2, 1998 and related Commission
Agreement dated March 1999.
10.14+** Distribution Agreement between Ingram Micro Inc. and AltiGen
Communications, Inc., dated June 12, 1998.
10.15 Contract Purchase Agreement between RadiSys Corporation and AltiGen
Communications Inc., dated July 31, 1998.
10.16** Software License and Binary Distribution Agreement between Lucent
Technologies Inc. and AltiGen Communications, Inc., dated as of
September 23, 1998.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.17** Consulting and Development Agreement between Sollecon, Inc. and
AltiGen Communications, Inc., dated as of October 27, 1998.
10.18 Employment Agreement by and between the Registrant and Tricia Chu,
dated April 26, 1999.
10.19 Employment Agreement by and between the Registrant and Philip
McDermott, dated June 8, 1999.
10.20 Compaq Solutions Alliance Agreement between Compaq Computer
Corporation and AltiGen Communications, Inc., dated as of January 18,
1999.
10.21 Memorandum of Understanding between Hewlett-Packard Covision Internet
Solutions Program and AltiGen Communications, Inc., dated as of
November 9, 1998.
10.22+ Original Equipment Manufacture Private Label Agreement between Nitsuko
Corporation and AltiGen Communications, Inc., dated as of February 2,
1999.
10.23+ Joint Development Agreement between Nitsuko Corporation, Sumisho
Electronics Co., Ltd. and AltiGen Communications, Inc., dated as of
July 14, 1998.
11.1** Statement regarding Computation of Per Share Earnings (contained in
Notes to Financial Statements).
21.1* Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati (Included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- -------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Securities Act. In
accordance with Rule 406, these confidential portions have been omitted
from this exhibit and filed separately with the Commission.
(b) Financial Statement Schedules
The following financial statement schedules are included in this
Registration Statement:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which the provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore has
been omitted.
Item 17. Undertakings
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of us
pursuant to the foregoing provisions, or otherwise, the Registrant been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment of expenses
by the Registrant incurred
II-4
<PAGE>
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
AltiGen Communications, Inc. has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fremont, State of California, on the
15th day of July, 1999.
ALTIGEN COMMUNICATIONS, INC.
/s/ Gilbert Hu
By: _________________________________
Gilbert Hu,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement on Form S-1 has been signed by
the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gilbert Hu Chief Executive Officer July 15, 1999
____________________________________ (principal executive) and
Gilbert Hu Director
/s/ Phillip McDermott Chief Financial (principal July 15, 1999
____________________________________ financial and accounting
Phillip McDermott officer)
* Director July 15, 1999
____________________________________
Wen-Huang Chang
* Director July 15, 1999
____________________________________
Thomas Shao
* Director July 15, 1999
____________________________________
Masaharu Shinya
* Director July 15, 1999
____________________________________
Kenneth Tai
* Director July 15, 1999
____________________________________
Richard Black
*By: /s/ Gilbert Hu
-----------------------------
Gilbert Hu
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Write-offs Period
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended September 30, 1996
Allowance for returns and doubtful
accounts......................... 0 10,000 -- 10,000
Year ended September 30, 1997
Allowance for returns and doubtful
accounts......................... 10,000 31,000 -- 41,000
Year ended September 30, 1998
Allowance for returns and doubtful
accounts......................... 41,000 92,000 -- 133,000
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To AltiGen Communications Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of AltiGen Communications, Inc. included in
this Registration Statement and have issued our report thereon dated November
20, 1998. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying Schedule II--
Valuation and Qualifying Accounts is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
San Jose, California
November 20, 1998
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation, to be
filed and effective upon completion of this offering.
3.3** Bylaws.
3.4 Form of Amended and Restated Bylaws, to be filed and effective upon
completion of this offering.
4.1 See Exhibit 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate
of Incorporation and Bylaws defining the rights of holders of Common
Stock.
4.2* Specimen Common Stock certificates.
4.3** Third Amended and Restated Rights Agreement dated May 7, 1999 by and
among AltiGen Communications, Inc. and the Investors and Founder
named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati.
10.1 Form of Indemnification Agreement.
10.2** 1994 Stock Option Plan, as amended, and form of stock option
agreement.
10.3** 1998 Stock Purchase Plan.
10.4** 1999 Stock Option Plan, as amended, and form of stock option
agreement.
10.5 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.6** Sublease and Consent to Sublease Agreement: 47427 Fremont Boulevard,
Fremont, California between Hitachi America, Ltd. and Phase Metrics,
Inc., dated April 1, 1997.
10.7** Sub-Sublease and Consents to Sub-Sublease: 47427 Fremont Boulevard,
Fremont, California between Phase Metrics, Inc. and AltiGen
Communications, Inc., dated December 11, 1998.
10.8+** Dealer Agreement and Addendum between Teleco Inc. and AltiGen
Communications, Inc., dated September 9, 1996.
10.9+** Distributor Agreement between Kanematsu Semiconductor Corporation and
AltiGen Communications, Inc., dated April 21, 1997 and Modification
dated May 13, 1997.
10.10+** Distribution Agreement between Tech Data Product Management, Inc. and
AltiGen Communications, Inc., dated July 21, 1997.
10.11+** Distribution Agreement between TerraComSortium and AltiGen
Communications, Inc., dated November 3, 1997.
10.12+** OEM Private Label License Agreement between Renaissance Network
Technology Corporation and AltiGen Communications, Inc., dated May
1998.
10.13** Services Agreement between Sumitronics, Inc. and AltiGen
Communications, Inc., dated June 2, 1998 and related Commission
Agreement dated March 1999.
10.14+** Distribution Agreement between Ingram Micro Inc. and AltiGen
Communications, Inc., dated June 12, 1998.
10.15 Contract Purchase Agreement between RadiSys Corporation and AltiGen
Communications Inc., dated July 31, 1998.
10.16** Software License and Binary Distribution Agreement between Lucent
Technologies Inc. and AltiGen Communications, Inc., dated as of
September 23, 1998.
10.17** Consulting and Development Agreement between Sollecon, Inc. and
AltiGen Communications, Inc., dated as of October 27, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.18 Employment Agreement by and between the Registrant and Tricia Chu,
dated April 26, 1999.
10.19 Employment Agreement by and between the Registrant and Philip
McDermott, dated June 8, 1999.
10.20 Compaq Solutions Alliance Agreement between Compaq Computer
Corporation and AltiGen Communications, Inc., dated as of January 18,
1999.
10.21 Memorandum of Understanding between Hewlett-Packard Covision Internet
Solutions Program and AltiGen Communications, Inc., dated as of
November 9, 1998.
10.22+ Original Equipment Manufacture Private Label Agreement between Nitsuko
Corporation and AltiGen Communications, Inc., dated as of February 2,
1999.
10.23+ Joint Development Agreement between Nitsuko Corporation, Sumisho
Electronics Co., Ltd. and AltiGen Communications, Inc., dated as of
July 14, 1998.
11.1** Statement regarding Computation of Per Share Earnings (contained in
Notes to Financial Statements).
21.1* Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati (Included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- -------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Securities Act. In
accordance with Rule 406, these confidential portions have been omitted
from this exhibit and filed separately with the Commission.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ALTIGEN COMMUNICATIONS, INC.
a Delaware corporation
AltiGen Communications, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is AltiGen Communications, Inc. The
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on May 5, 1999.
2. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with Sections 242 and 245 of the General Corporation Law
of the State of Delaware and restates and amends the Certificate of
Incorporation of this corporation to read in its entirety as follows:
FIRST: The name of the corporation (hereinafter referred to as the
-----
"Corporation") is AltiGen Communications, Inc.
SECOND: The address, including street, number, city and county of
------
the registered office of the Corporation in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801;
and the name of the registered agent of the Corporation in the State of Delaware
at such address is The Corporation Trust Company.
THIRD: The nature of the business and the purpose to be conducted
-----
and promoted by the Corporation shall be to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
------
Corporation has authority to issue is _____________________ shares, consisting
of ___________ shares of Common Stock, par value $0.001 per share (the "Common
------
Stock"), and 5,000,000 shares of Preferred Stock, par value $0.001 per share
- -----
(the "Preferred Stock"). Upon the amendment of this Article Fourth, every 1.75
---------------
share of Common Stock shall be converted to 1 share of Common Stock.
The shares of Preferred Stock may be issued from time to time in one
or more series pursuant to a resolution or resolutions providing for such issue
duly adopted by the Board of Directors. The Board of Directors of the
Corporation is expressly authorized, by filing a certificate pursuant to the
applicable law of the State of Delaware, to: (i) establish from time to time the
number of shares to be included in each such series; (ii) fix the rights,
preferences, restrictions and designations of the shares of each such series,
including but not limited to the fixing or alteration of
<PAGE>
the dividend rights, dividend rate, conversion rights, conversion rate, voting
rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices, voting rights and liquidation preferences of any
series of Preferred Stock for which no shares have been issued and are
outstanding; (iii) increase number of shares of any series at any time; and (iv)
decrease the number of shares of any series prior or subsequent to the issue of
shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
FIFTH: The Corporation is to have perpetual existence.
-----
SIXTH: Elections of directors need not be by written ballot unless
-----
a stockholder demands election by written ballot at the meeting and before
voting begins or unless the Bylaws of the Corporation shall so provide.
SEVENTH: Meetings of stockholders may be held within or without the
-------
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the Corporation.
EIGHTH: Vacancies created by newly created directorships or created
------
in accordance with the Bylaws of this Corporation may be filled by the vote of a
majority, although less than a quorum, of the directors then in office, or by a
sole remaining director.
NINTH: The number of directors which constitute the whole Board of
-----
Directors of the Corporation shall be designated in the Bylaws of the
Corporation.
TENTH: At any time following the closing of the first sale of
-----
Common Stock of the Corporation pursuant to a registration statement declare
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended, stockholders of the Corporation may not take any action by
written consent in lieu of a meeting and any action contemplated by stockholders
after such time must be taken at a duly called annual or special meeting of
stockholders.
ELEVENTH: In furtherance and not in limitation of the powers
--------
conferred by statute, the Board of Directors is expressly authorized to make,
alter, amend or repeal the Bylaws of the Corporation.
TWELFTH: No director of the Corporation shall be liable to the
-------
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the General Corporation Law of the State of Delaware is
amended after the filing of this First Amended Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, the
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<PAGE>
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of the State of
Delaware.
THIRTEENTH: The Corporation reserves the right to amend, alter,
----------
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
3. Pursuant to a resolution of the Board of Directors of the Corporation,
the foregoing amendment and restatement was submitted for consideration by the
stockholders of the Corporation, and holders of the necessary number of shares
as required by statute and the Certificate of Incorporation of the Corporation
adopted said amendment and restatement by written consent, in accordance with,
and written notice to stockholders has been given as provided in Section 228 of
the Delaware General Corporation Law.
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<PAGE>
IN WITNESS WHEREOF, the undersigned President and Chief Executive Officer,
as attested by the Assistant Secretary, does hereby make this Amended and
Restated Certificate of Incorporation, which restates and amends the provisions
of the Certificate of Incorporation of the Corporation, having been duly adopted
in accordance with Sections 242 and 245 of the Delaware General Corporation Law,
and hereby declares and certifies that this is his act and deed and the facts
herein stated are true, and accordingly, has hereunto set his hand this ____ day
of _____________, 1999.
AltiGen Communications, Inc.
a Delaware corporation
By:________________________________
Gilbert Hu
President and Chief Executive Officer
Attest:
By:________________________________
Gilbert Hu
Assistant Secretary
**AMENDED AND RESTATED CERTIFICATE OF INCORPORATION**
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<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
ALTIGEN COMMUNICATIONS, INC.
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES............................................. 1
1.1 REGISTERED OFFICE............................................. 1
1.2 OTHER OFFICES................................................. 1
ARTICLE II - MEETINGS OF STOCKHOLDERS...................................... 1
2.1 PLACE OF MEETINGS............................................. 1
2.2 ANNUAL MEETING................................................ 1
2.3 SPECIAL MEETING............................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.............................. 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................. 2
2.6 QUORUM........................................................ 2
2.7 ADJOURNED MEETING; NOTICE..................................... 2
2.8 VOTING........................................................ 3
2.9 WAIVER OF NOTICE.............................................. 3
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.................... 3
2.11 PROXIES....................................................... 4
2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE......................... 4
2.13 NOMINATIONS AND PROPOSALS..................................... 4
2.14 SPECIAL MEETING .............................................. 5
2.15 INSPECTORS OF ELECTION........................................ 6
ARTICLE III - DIRECTORS.................................................... 7
3.1 POWERS........................................................ 7
3.2 NUMBER OF DIRECTORS........................................... 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS....... 7
3.4 RESIGNATION AND VACANCIES..................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...................... 8
3.6 REGULAR MEETINGS.............................................. 8
3.7 SPECIAL MEETINGS; NOTICE...................................... 9
3.8 QUORUM........................................................ 9
3.9 WAIVER OF NOTICE.............................................. 9
3.10 ADJOURNED MEETING; NOTICE.................................... 10
3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............ 10
3.12 FEES AND COMPENSATION OF DIRECTORS........................... 10
3.13 APPROVAL OF LOANS TO OFFICERS................................ 10
3.14 REMOVAL OF DIRECTORS......................................... 10
3.15 CLASSES OF DIRECTORS......................................... 10
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE IV - COMMITTEES.................................................... 11
4.1 COMMITTEES OF DIRECTORS........................................ 11
4.2 COMMITTEE MINUTES.............................................. 12
4.3 MEETINGS AND ACTION OF COMMITTEES.............................. 12
ARTICLE V - OFFICERS....................................................... 12
5.1 OFFICERS....................................................... 12
5.2 ELECTION OF OFFICERS........................................... 12
5.3 SUBORDINATE OFFICERS........................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS............................ 13
5.5 VACANCIES IN OFFICES........................................... 13
5.6 CHAIRMAN OF THE BOARD.......................................... 13
5.7 PRESIDENT...................................................... 13
5.8 VICE PRESIDENT................................................. 14
5.9 SECRETARY...................................................... 14
5.10 CHIEF FINANCIAL OFFICER........................................ 14
5.11 ASSISTANT SECRETARY............................................ 15
5.12 ADMINISTRATIVE OFFICERS........................................ 15
5.13 AUTHORITY AND DUTIES OF OFFICERS............................... 15
ARTICLE VI - INDEMNITY..................................................... 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 15
6.2 INDEMNIFICATION OF OTHERS...................................... 16
6.3 INSURANCE...................................................... 16
ARTICLE VII - RECORDS AND REPORTS.......................................... 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS.......................... 16
7.2 INSPECTION BY DIRECTORS........................................ 17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................... 17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................. 17
ARTICLE VIII - GENERAL MATTERS............................................. 17
8.1 CHECKS......................................................... 17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............... 18
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES......................... 18
8.4 SPECIAL DESIGNATION ON CERTIFICATES............................ 18
8.5 LOST CERTIFICATES.............................................. 19
8.6 CONSTRUCTION; DEFINITIONS...................................... 19
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
8.7 FISCAL YEAR................................................... 19
8.8 SEAL.......................................................... 19
8.9 TRANSFER OF STOCK............................................. 19
8.10 STOCK TRANSFER AGREEMENTS..................................... 20
8.11 REGISTERED STOCKHOLDERS....................................... 20
ARTICLE IX - AMENDMENTS................................................... 20
ARTICLE X - DISSOLUTION................................................... 20
ARTICLE XI - CUSTODIAN.................................................... 21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES................... 21
11.2 DUTIES OF CUSTODIAN........................................... 22
</TABLE>
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<PAGE>
AMENDED AND RESTATED BYLAWS
---------------------------
OF
--
ALTIGEN COMMUNICATINS, INC.
--------------------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, Wimington, New Castle County, Delaware 19801. The name of
its registered agent at such address is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. At the meeting, directors shall
be elected and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than ninety (90) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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<PAGE>
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.10 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder and stockholders shall not be entitled to
cumulate their votes in the election of directors or with respect to any matter
submitted to a vote of the stockholders.
2.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For the purpose of determining the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion,
or exchange of stock, or other lawful purpose (other than the expression of
consent to corporate action in writing without a meeting) the directors may fix,
in advance, a record date, which, in the case of a meeting of stockholders,
shall not be more than 60 days nor less than 10 days before the date of such
meeting. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held and the record date for
determining stockholders for any other purpose pursuant to this Section 2.10
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at any meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
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<PAGE>
2.11 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(e) of the General Corporation Law of Delaware.
2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.13 NOMINATIONS AND PROPOSALS
-------------------------
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder
meeting
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of their intent to make such nomination or nominations or to
propose such business. To be timely, such stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than one hundred twenty (120) calendar days in advance of the date
specified in the corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders; provided,
however, that in the event that no
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<PAGE>
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received a reasonable time before the solicitation is made. To
be in proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.14 INSPECTORS OF ELECTION
----------------------
Before any meeting of stockholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment. If
no inspector of election is so appointed, then the chairman of the meeting may,
and on the request of any stockholder or a stockholder's proxy shall, appoint an
inspector or inspectors of election to act at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed at
a meeting pursuant to the request of one (1) or more stockholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any stockholder or
a stockholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
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<PAGE>
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election
or vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The authorized number of directors shall be seven (7). This number may be
changed by a duly adopted amendment to the certificate of incorporation or by an
amendment to this bylaw adopted by the vote or written consent of the holders of
a majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
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<PAGE>
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in the certificate of incorporation and Section 3.4 of
these bylaws, directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Directors need not be stockholders
unless so required by the certificate of incorporation or these bylaws, wherein
other qualifications for directors may be prescribed. Each director, including a
director elected to fill a vacancy, shall hold office until his successor is
elected and qualified or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders
-7-
<PAGE>
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors
-8-
<PAGE>
present at any meeting at which there is a quorum shall be the act of the board
of directors, except as may be otherwise specifically provided by statute or by
the certificate of incorporation. If a quorum is not present at any meeting of
the board of directors, then the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
3.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.10 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.12 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.13 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in
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<PAGE>
such manner as the board of directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation. Nothing contained in
this section shall be deemed to deny, limit or restrict the powers of guaranty
or warranty of the corporation at common law or under any statute.
3.14 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
3.15 CLASSES OF DIRECTORS
--------------------
Following the closing of the corporation's initial public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "1933 Act"), covering the offer and sale of Common Stock of the
corporation (the "Initial Public Offering"), the Directors, shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Such Directors shall be assigned to each class in accordance with a resolution
or resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class I Directors shall expire and Class I Directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class II Directors shall expire and Class II Directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class III Directors shall expire and Class III Directors shall be
elected a full term of three years. At each succeeding annual meeting of
stockholders, such Directors shall be elected for a full term of three years to
succeed the Directors of the class whose terms expire at such annual meeting.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent
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or disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), Section 3.10 (adjournment and notice of adjournment), and
Section 3.11 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
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ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
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5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
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The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
-----------------------
In addition to the officers of the corporation as provided in Section 5.1
of these bylaws and such subordinate officers as may be appointed in accordance
with Section 5.3 of these bylaws, there may also be such Administrative Officers
of the corporation as may be designated and appointed from time to time by the
president of the corporation. Administrative Officers shall perform such duties
and have such powers as from time to time may be determined by the president or
the board of directors in order to assist the officers in the furtherance of
their duties. In the performance of such duties and the exercise of such powers,
however, such Administrative Officers shall have limited authority to act on
behalf of the corporation as the board of directors shall establish, including
but not limited to limitations on the dollar amount and on the scope of
agreements or commitments that may be made by such Administrative Officers on
behalf of the corporation, which limitations may not be exceeded by such
individuals or altered by the president without further approval by the board of
directors.
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5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any
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<PAGE>
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
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7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares
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registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws.
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Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
8.7 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.8 SEAL
----
This corporation may have a corporate seal, which may be adopted or
altered at the pleasure of the board of directors, and may use the same by
causing it or a facsimile thereof, to be impressed or affixed or in any other
manner reproduced.
8.9 TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.10 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.11 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
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ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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EXHIBIT 10.1
ALTIGEN COMMUNICATIONS, INC.
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of the ___
day of ____________________, 1999 by and between AltiGen Communications, Inc., a
Delaware corporation (the "Company") and ________________ ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnities to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify to the
---------------------------
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or are threatened to be made a party to or
witness or other participant in, any
<PAGE>
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believe might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of Indemnitee while serving in such
capacity (hereinafter an "Indemnifiable Event") against any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurred in connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a witness in
or participate in, any such action, suit, proceeding, alternative dispute
resolution mechanism, hearing, inquiry or investigation), judgments, fines,
penalties and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitees
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than twenty days after written demand by Indemnitees
therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agree to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commence legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). The Indemnitee's obligation to reimburse the Company for
any Expense Advance shall be unsecured and no interest shall be charged thereon.
If there has not been a Change in Control (as defined in
-2-
<PAGE>
Section 10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel referred to in Section
1(c) hereof. If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitees and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 8 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than
twenty days after written demand by Indemnitee therefor to the Company.
-3-
<PAGE>
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's counsel in any such Claim at Indemnitee's expense and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the
-4-
<PAGE>
Company shall not continue to retain such counsel to defend such Claim, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company. The Company shall have the right to conduct such defense as it sees fit
in its sole discretion, including the right to settle any claim against
Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
-5-
<PAGE>
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
----------------------
chat in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. The Company shall, from time to time, make the
-------------------
good faith determination whether or not it is practicable for the Company to
obtain and maintain a policy or policies of insurance with reputable insurance
companies providing the officers and directors of the Company with coverage for
losses from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. In all policies of directors' and
officers' liability insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company's key employees, if Indemnitee is
not an officer or director but is a key employee. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a subsidiary or parent of the
Company.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
----------------------------
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law;
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
-6-
<PAGE>
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
-7-
<PAGE>
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if, on or after the date of this Agreement, (i) any
------------------------------------------
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company acting in such
capacity or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing more
than 50% of the total voting power represented by the Company's then outstanding
---
Voting Securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a merger or
consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitees within the last three years (other than
with respect to matters concerning the rights of Indemnitees under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
-8-
<PAGE>
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee's counterclaims and cross-claims made in
such action), and shall be entitled to the advancement of Expenses with respect
to such action, unless, as a part of such action, a court having jurisdiction
over such action determines that each of Indemnitee's material defenses to such
action was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee's address as set forth beneath Indemnitee's signature to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
-9-
<PAGE>
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
--------------------------------
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ALTIGEN COMMUNICATIONS, INC.,
a Delaware corporation
By:___________________________________
Title:________________________________
Address:______________________________
______________________________
______________________________
AGREED TO AND ACCEPTED BY:
____________________________________
Address:____________________________
____________________________
____________________________
<PAGE>
EXHIBIT 10.5
ALTIGEN COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of AltiGen Communications, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean AltiGen Communications, Inc. and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after February 1 and
August 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
July 31, 2001. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after February 1 and August 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
July 31, 2001. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without shareholder approval if such change is announced [at least
five (5) days] prior to the scheduled beginning of the first Offering Period to
be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
-3-
<PAGE>
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of
-4-
<PAGE>
shares of the Company's Common Stock determined by dividing such Employee's
payroll deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during each
Purchase Period more than 10,000 shares of the Company's Common Stock (subject
to any adjustment pursuant to Section 19), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12
hereof. The Board may, for future Offering Periods, increase or decrease, in its
absolute discretion, the maximum number of shares of the Company's Common Stock
an Employee may purchase during each Purchase Period of such Offering Period.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
-5-
<PAGE>
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be Five Hundred Thousand (500,000) shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2000 equal to
the lesser of (i) 1,000,000 shares, (ii) two percent (2%) of the outstanding
shares on such date or (iii) a lesser amount determined by the Board of
Directors.
-6-
<PAGE>
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
-7-
<PAGE>
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
--------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised
-8-
<PAGE>
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
-9-
<PAGE>
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
ALTIGEN COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the AltiGen
Communications, Inc. 1999 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me
<PAGE>
over the price which I paid for the shares. I hereby agree to notify the
-----------------------------
Company in writing within 30 days after the date of any disposition of my
-------------------------------------------------------------------------
shares and I will make adequate provision for Federal, state or other tax
-------------------------------------------------------------------------
withholding obligations, if any, which arise upon the disposition of the
-------------------------------------------------------------------------
Common Stock. The Company may, but will not be obligated to, withhold from
------------
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that such
income will be taxed as ordinary income only to the extent of an amount
equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _____________________________________________________
(First) (Middle) (Last)
__________________________ ____________________________________________
Relationship
____________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________________
Employee's Address: ____________________________________________
____________________________________________
____________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________ _____________________________________________________
Signature of Employee
_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
ALTIGEN COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the AltiGen
Communications, Inc. 1999 Employee Stock Purchase Plan which began on
____________, ______ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________________
________________________________________
________________________________________
Signature:
________________________________________
Date:___________________________________
<PAGE>
RADISYS
Exhibit 10.15
Contract Purchase Agreement
between
AltiGen Communications, Inc. & RadiSys Corp.
This Contract Purchase Agreement, effective July 31, 1998, between AltiGen
Communications, Inc. ("AltiGen"), a U.S corporation with its principal business
located at 45635 Northport Loop East, Fremont, CA 94538, and RadiSys Corporation
("RadiSys"), a U.S. corporation with its principal business located at 5445 NE
Dawson Creek Drive, Hillsboro, Oregon 97124. The parties hereby agree as
follows:
1. Intent
This agreement outlines the essential terms and conditions of the Development &
Purchase agreement being entered into by both parties. It specifies the terms
and conditions under which the algorithms will be tested, validated and
supported. This contract will remain in full force and effect until it is
superseded by another formal contract.
2. Specifications
Under this Agreement, RadiSys agrees to supply and support bit exact
implementation of TTU G.723.1 (both bit rates) and G.165 echo canceller.
3. Scope
AltiGen will be granted the right to purchase and integrate RadiSys' telecom
algorithms based on the Texas Instruments ("TI") C6x Digital Signal Processor
("DSP"). AltiGen is granted rights to integrate RadiSys' algorithms in
AltiGens's products. AltiGen holds selling rights on a non-exclusive basis,
domestic & international, of these integrated products. AltiGen does not have
any rights to sell RadiSys' algorithms as standalone components or products.
4. Product Quality and Manufacturing Standards
RadiSys' normal high level of product reliability and quality apply, as well as
its standard terms and conditions. RadiSys is certified to ISO 9001, the most
comprehensive of the ISO 9000 standards, and RadiSys' certification covers the
entire company and all products. It is RadiSys' goal to deliver a product which,
due to reliability and quality standards, can be directly assembled into
AltiGen's end product. AltiGen agrees to notify RadiSys, no later than 30 days
after receipt, of any product which fails AltiGen's incoming inspection.
Page 1 of 5
<PAGE>
RadiSys.
5. Purchase of Products
5.1 Pricing
AltiGen will issue a Purchase Order ("P.O.") immediately to RadiSys for
the software license and telecom algorithms (as outlined in Attachment
A). The P.O. will be for the amount of $135,000. The P.O. payments will
be in the form of milestone completion dates as outlined in Attachment A.
5.2 Terms of Payment
Terms of payment are net 30 days. All other milestones and payments will
be adhered to as outlined in Attachment A, or agreed to in writing by
both parties. See Attachment A, for product pricing, support and royalty
charges. All sales are subject to the prior approval of RadiSys' Credit
Department.
5.3 Deliverables and Lead Time
RadiSys will do its best to meet the schedule as outlined in Attachment
A. If RadiSys is unable to meet the deadlines due to any reasons, AltiGen
will be informed accordingly and RadiSys will work in good faith with
AltiGen to redefine the schedule. RadiSys, under no circumstances, is
liable for any consequential damages. RadiSys will also develop and make
available additional algorithms that AltiGen deems necessary for their
Phase 2 development.
6. Warranty & Support
30 days warranty after delivery of a production release of G.723.1 and G.165 EC
object code. See Attachment A, payment milestone 4, and Product Software License
Agreement for further details.
7. Mutual Non-Disclosure
In association with this Agreement, both companies agree to ensure the
confidentiality of information shared between them. The obligation of
confidentiality shall survive the termination of this Agreement for a period of
three years.
8. Patent Identification
RadiSys will defend or settle any suit or proceeding brought against AltiGen
based upon a claim that any product furnished hereunder or part thereof, alone
and not in combination with any with any other product, constitutes an
infringement of any United States patent or copyright, provided that: (1)
RadiSys is notified promptly in writing of such claim; (2) RadiSys controls the
defense or settlement of the claim; and (3) AltiGen cooperates reasonably, and
gives all necessary authority, information and assistance (at RadiSys' expense).
RadiSys will pay all damages and costs finally awarded against AltiGen, but
RadiSys will not be responsible for any costs, expenses or compromise incurred
or made by AltiGen without RadiSys' prior written consent. If the use of such
product is permanently enjoined, RadiSys will, in its sole discretion and at its
own expense, procure for AltiGen the right to continue using said product,
replace same with a non-infringing product, modify it so that it becomes non-
infringing, or, if RadiSys is unable to reasonably do any of the above, RadiSys
will credit AltiGen the sum paid to RadiSys by AltiGen for the infringing
product less any depreciation and accept its return.
Page 2 of 5
<PAGE>
RadiSys.
AltiGen will be responsible for all royalties and patents to the respective
patent holders on the algorithms that AltiGen will be purchasing from RadiSys.
9. Limitation of Liability
With the exception of its obligations to AltiGen, under Section 9 hereof; in no
event will RadiSys be liable for any loss of profits, loss of use, incidental,
consequential or special damages irrespective of whether RadiSys has advance
notice of the possibility of such damages; and in no event will RadiSys' total
liability to AltiGen exceed the sum paid to RadiSys by AltiGen for the product
sold hereunder.
10. Force Majeure
RadiSys will not be liable for any failure to perform due to unforeseen
circumstances or causes beyond RadiSys' reasonable control, including, but not
limited to, acts of God, war, riot, embargoes, acts of civil or military
authorities, fire, flood, accident, strikes, inability to secure
transportation, facilities, fuel energy, labor or materials.
11. Termination
This Agreement may be terminated by either party upon the breach of any of the
terms of this Agreement by the other party. Such termination requires 30 days
written notice by the non-breaching party. The breaching party shall have the
opportunity to remedy the breach within this 30 day period. If the breach is not
remedied then the Agreement may be terminated by the non-breaching party and
both parties agree to resolve any outstanding financial, business or delivery
obligations, as well as any outstanding invoices or purchase costs.
12. Assignment
This Agreement may not be assigned by RadiSys or AltiGen to any other party
without the prior written consent of the corresponding concern (AltiGen or
RadiSys), which consent shall not be unreasonably withheld.
13. Independent Contractors
The relationship between AltiGen and RadiSys is that of independent contractors.
This Agreement does not establish a joint venture, agency or partnership between
the parties, nor does it create an employer-employee relationship.
14. Announcements (Press or Public)
The parties agree that the existence of the relationship between them may not be
announced to the press or to the public, unless approved by both parties in
writing. AltiGen and RadiSys will both comply with their executed mutual non-
disclosure agreement accordingly.
Page 3 of 5
<PAGE>
RadiSys.
15. Entire Agreement
This Agreement may be modified at any time by written notification and the
approval of both parties by an officer of each. This Agreement and its
associated attachments constitute the entire understanding between the two
parties with respect to the subject matter hereof.
In Witness Thereof, the parties have executed this Agreement in duplicate as of
the day and year written below:
RadiSys Corporation Altigen Communications, Inc.
/s/ Arif Kareem /s/ Shirley Sun
- ----------------------------- -------------------------
Authorized Signature Authorized Signature
Arif Kareem Shirley Sun
- ----------------------------- -------------------------
Name Name
Vice President Telecom Dir. Director of IP Telephony
- ----------------------------- -------------------------
Title Title
7/31/98 July 31, 1998
- ----------------------------- -------------------------
Date Date
Page 4 of 5
<PAGE>
RadiSys.
Attachment A
Phase I -- Licenses, Royalties & Support (object code only)
- ------- ------------------------------------------------
<TABLE>
<CAPTION>
Item List Price Includes
- ---- ---------- --------
<S> <C> <C>
C6x-G.165-OBJ $ 25,000 Object code license for 32 ms. echo canceller
C6x-G.723.1-OBJ $ 45,000 Object code license for optimized G.723.1 vocoder
Royalty $ 55,000 Life-time buy-out object-code royalty payment for G.723.1 &
EC
Support $ 10,500 90 day free support ARO, 2 year support & maintenance
List Total $ 135,000
</TABLE>
<TABLE>
<CAPTION>
Payment Milestone Schedule Amount With The Delivery Of
- ----------------- -------- ------ --------------------
<S> <C> <C> <C>
1. Start of Project 07/31/98 - Receipt of P.O.
2. Delivery 1 08/15/98 - G.165 EC & Intermediate version of G.723.1
3. Payment 1 08/30/98 $70,000 30 days After Receipt of Order
4. Delivery 2 09/18/98 - Production release of G.723.1 vocoder
5. Payment 2 11/30/98 $10,500 2-year support (First 90 day free)
6. Payment 3 12/15/98 $55,000 unlimited object code target copies for G.723.1 &
EC
</TABLE>
Other Terms and Conditions:
1. For prototypes, RadiSys will offer an intermediate development license for
G.723.1 algorithm. This non-optimized intermediate version of G.723.1 is for
single channel only.
2. RadiSys' support includes support for TI's C6202 DSP.
3. AltiGen will be responsible for all royalties and patents to the respective
patent holders on the algorithms that AltiGen will be purchasing from RadiSys.
4. No run-time license lable for G.723.1 or G.165 EC needs to be affixed on the
AltiGen's product since unlimited run-time license for G.723.1 and G.165 EC
described above is granted to AltiGen by RadiSys. This overrides the lable
affixing description paragraph in the G.723.1 Run-Time Software License
Agreement and G.165 EC Run-Time Software License Agreement.
Page 4 of 5
<PAGE>
Exhibit 10.18
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of April 6 , 1999, by and
------
between AltiGen Communications, Inc., a California corporation (the "Company"),
and Tricia Chu (the "Employee").
WHEREAS, the Company desires to receive Employee's continued services, and
Employee desires to continue providing services to the Company;
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and Employee agree as follows:
1. At-Will Employment. Subject to the provisions of Paragraph 3
------------------
(Compensation), Employee's employment with the Company is for an unspecified
duration and constitutes "at-will" employment. This employment relationship may
be terminated at any time, with or without good cause or for any or no cause, at
the option either of the Company or Employee, with or without notice.
2. Confidential Information.
-------------------------
(a) Company Information. Employee agrees at all times during the term
-------------------
of her employment and thereafter, to hold in strictest confidence, and not to
use, except for the benefit of the Company, or to disclose to any person, firm
or corporation without written authorization of the Board of Directors of the
Company, any Confidential Information of the Company. Employee understands that
"Confidential Information" means any Company proprietary information, technical
data, trade secrets or know-how, including, but not limited to, research,
product plans, products, services, customer lists and customers, markets,
software, developments, inventions, processes, formulas, technology, designs,
drawings, engineering, hardware configuration information, marketing, finances
or other business information disclosed to Employee by the Company either
directly or indirectly in writing, orally or by drawings or observation of parts
or equipment. Confidential Information does not include any of the foregoing
items which has become publicly known and made generally available through no
wrongful act of Employee or of others who were under confidentiality obligations
as to the item or items involved.
(b) Former Employer Information. Employee agrees that she will not,
---------------------------
during her employment with the Company, improperly use or disclose any
proprietary information or trade secrets of any former or concurrent employer or
other person or entity and that she will not bring onto the premises of the
Company any unpublished document or proprietary information belonging to any
such employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) Third Party Information. Employee recognizes that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information
<PAGE>
subject to a duty on the Company's part to maintain the confidentiality of such
information and to use it only for certain limited purposes. Employee agrees to
hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to use
it except as necessary in carrying out her work for the Company consistent with
the Company's agreement with such third party.
3. Compensation. In consideration for her services to the Company,
------------
Employee shall be entitled to receive compensation including without limitation:
(i) a base salary to be negotiated and agreed upon: and (ii) stock options
granted in conformity with the Company's stock option plan(s) and with
applicable laws.
(a) Vesting. Any options granted to Employee in consideration for her
-------
services may be subject to a vesting schedule to be determined by the Board of
Directors of the Company pursuant to the Company's stock option plan(s) and with
applicable laws.
(b) Acceleration of Vesting Schedule. In the event that Employee is
--------------------------------
terminated by the Company without Cause, the vesting schedule for any and all
unexercised stock options granted to, and then held by, Employee shall
accelerate and, in such event, all such options shall be immediately vested, and
will be immediately exercisable by Employee, subject to the terms and conditions
of the Company's stock option plan(s), Employee's stock option agreement(s) and
applicable laws.
(c) Cause. For purposes of this Section 3, "Cause" shall mean any one
-----
or more of the following: (i) Employee's conviction by, or entry of a plea of
guilty or nolo contendre in, a court of competent and final jurisdiction for any
crime which constitutes a felony in the jurisdiction involved; (ii) Employee's
willful breaching in any material respect the terms of this or any
confidentiality or proprietary information agreement between Employee and the
Company: or (iii) a material and willful breach of a federal or state law or
regulation applicable to the business of the Company. No act, or failure to act,
by Employee shall be considered "willful" unless committed without a good faith,
reasonable belief that the act or omission was in the Company's best interest.
No compensation or benefits will be paid or provided to Employee under this
Agreement on account of a termination for Cause, or for periods following the
date when such a termination of employment is effective. In the event of
termination for Cause, Employee's rights under any applicable benefit plans
shall be determined under the provisions of those plans.
4. Board Approval. No part of this Agreement shall be effective or
--------------
binding upon the Parties unless and until approved or ratified by a majority of
the directors of the Board of Directors of the Company.
5. Successors. The Company will require any successor (whether direct or
----------
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
<PAGE>
6. Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration in San Jose,
California, in accordance with the rules of the American Arbitration Association
then in effect by an arbitrator selected by both parties within 10 days after
either party has notified the other in writing that it desires a dispute between
them to be settled by arbitration. In the event the parties cannot agree on such
arbitrator within such 10-day period, each party shall select an arbitrator and
inform the other party in writing of such arbitrator's name and address within 5
days after the end of such 10-day period and the two arbitrators so selected
shall select a third arbitrator within 15 days thereafter; provided, however,
that in the event of a failure by either party to select an arbitrator and
notify the other party of such selection within the time period provided above,
the arbitrator selected by the other party shall be the sole arbitrator of the
dispute. Each party shall pay its own expenses associated with such arbitration,
including the expense of any arbitrator selected by such party and the Company
will pay the expenses of the jointly selected arbitrator. The decision of the
arbitrator or a majority of the panel of arbitrators shall be binding upon the
parties and judgment in accordance with that decision may be entered in any
court having jurisdiction thereover. Punitive damages shall not be awarded.
7. Absence of Conflict. The Employee represents and warrants that her
-------------------
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship.
8. Assignment. This Agreement and all rights under this Agreement shall be
----------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees, successors and assigns.
This Agreement is personal in nature, and neither of the parties to this
Agreement shall, without the written consent of the other, assign or transfer
this Agreement or any right or obligation under this Agreement to any other
person or entity; except that the Company may assign this Agreement to any of
its affiliates or wholly-owned subsidiaries, provided, that such assignment will
--------
not relieve the Company of its obligations hereunder. If Employee should die
while any amounts are still payable to Employee hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Employee devisee, legatee, or other designee or, if there be
no such designee, to the Employee's estate.
9. Integration. This Agreement represents the entire agreement and
-----------
understanding between the parties as to the subject matter hereof and supersede
all prior or contemporaneous agreements whether written or oral. No waiver,
alteration, or modification of any of the provisions of this Agreement shall be
binding unless in writing and signed by duly authorized representatives of the
parties hereto.
10. Waiver. Failure or delay on the part of either party hereto to enforce
------
any right, power, or privilege hereunder shall not be deemed to constitute a
waiver thereof. Additionally, a waiver by either party or a breach of any
promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent waiver by such other party.
<PAGE>
11. Severability. Whenever possible, each provision of this Agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Headings. The headings of the paragraphs contained in this Agreement
--------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this Agreement.
13. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the internal substantive laws, and not the choice of law rules,
of the State of California.
14. Counterparts. This Agreement may be executed in one or more
------------
counterparts, none of which need contain the signature of more than one party
hereto, and each of which shall be deemed to be an original, and all of which
together shall constitute a single agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY
By: /s/ Gilbert Hu
---------------------------------
Title: President and CEO
------------------------------
EMPLOYEE
/s/ Tricia Chu
------------------------------------
Tricia Chu
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of June 8, 1999, by and
between AltiGen Communications, Inc., a California corporation (the "Company"),
and Philip McDermott (the "Employee").
WHEREAS, the Company desires to receive Employee's services as Chief
Financial Officer, and Employee desires to provide services to the Company;
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and Employee agree as follows:
1. At-Will Employment. Subject to the provisions of Paragraph 3
(Compensation), Employee's employment with the Company is for an unspecified
duration and constitutes "at-will" employment. This employment relationship may
be terminated at any time, with or without good cause or for any or no cause, at
the option either of the Company or Employee, with or without notice.
2. Confidential Information.
------------------------
(a) Company Information. Employee agrees at all times during the
-------------------
term of his employment and thereafter, to hold in strictest confidence, and not
to use, except for the benefit of the Company, or to disclose to any person,
firm or corporation without written authorization of the Board of Directors of
the Company, any Confidential Information of the Company. Employee understands
that "Confidential Information" means any Company proprietary information,
technical data, trade secrets or know-how, including, but not limited to,
research, product plans, products, services, customer lists and customers,
markets, software, developments, inventions, processes, formulas, technology,
designs, drawings, engineering, hardware configuration information, marketing,
finances or this business information disclosed to Employee by the Company
either directly or indirectly in writing, orally or by drawings or observation
of parts or equipment. Confidential Information does not include any of the
foregoing items which has become publicly known and made generally available
through no wrongful act of Employee or of others who were under confidentiality
obligations as to the item or items involved.
(b) Former Employer Information. Employee agrees that he will not,
---------------------------
during his employment with the Company, improperly use or disclose any
proprietary information or trade secrets of any former or concurrent employer or
other person or entity and that he will not bring onto the premises of the
Company any unpublished document or proprietary information belonging to any
such employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) Third Party Information. Employee recognizes that the Company
-----------------------
has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company's part
to maintain the confidentiality of said information and to
<PAGE>
use it only for certain limited purposes. Employee agrees to hold all such
confidential or proprietary information in the strictest confidence and not to
disclose it to any person, firm or corporation or to use it except as necessary
in carrying out his work for the Company consistent with the Company's agreement
with such third party.
3. Compensation. In consideration for his services to the Company,
------------
Employee shall be entitled to receive compensation including without limitation:
(i) a base salary to be negotiated and agreed upon; and (ii) stock options
granted in conformity with the Company's stock option plan(s) and with
applicable laws.
(a) Vesting. Any options granted to Employee in consideration for
-------
his services may be subject to a vesting schedule to be determined by the Board
of Directors of the Company pursuant to the Company's stock option plan(s) and
with applicable laws.
(b) Acceleration of Vesting Schedule. In the event there is a Change
--------------------------------
of Control of the Company immediately after which Employee no longer holds the
title and responsibilities of Chief Financial Officer (or a position of similar
title and responsibilities), the vesting schedule for any and all unexercised
stock options granted to, and then held by, Employee shall accelerate and, in
such event, all such options shall be immediately vested, and will be
immediately exercisable by Employee, subject to the terms and conditions of the
Company's stock option plan(s), Employee's stock option agreement(s) and
applicable laws.
(c) Change in Control. For purposes of this Section 3, a "Change in
-----------------
Control" shall mean the happening of any of the following:
(1) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(2) the shareholders of the Company approve an agreement for the
sale or disposition by the Company of all or substantially all the Company's
assets.
4. Board Approval. No part of this Agreement shall be effective or
--------------
binding upon the Parties unless and until approved or ratified in substantially
the same form by a majority of the directors of the Board of Directors of the
Company.
5. Successors. The Company will require any successor (whether direct or
----------
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
2
<PAGE>
6. Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration in San Jose,
California, in accordance with the rules of the American Arbitration Association
then in effect by an arbitrator selected by both parties within 10 days after
either party has notified the other in writing that it desires a dispute between
them to be settled by arbitration. In the event the parties cannot agree on such
arbitrator within such 10-day period, each party shall select an arbitrator and
inform the other party in writing of such arbitrator's name and address within 5
days after the end of such 10-day period and the two arbitrators so selected
shall select a third arbitrator within 15 days thereafter; provided, however,
that in the event of a failure by either party to select an arbitrator and
notify the other party of such selection within the time period provided above,
the arbitrator selected by the other party shall be the sole arbitrator of the
dispute. Each party shall pay its own expenses associated with such arbitration,
including the expense of any arbitrator selected by such party and the Company
will pay the expenses of the jointly selected arbitrator. The decision of the
arbitrator or a majority of the panel of arbitrators shall be binding upon the
parties and judgment in accordance with that decision may be entered in any
court having jurisdiction thereover. Punitive damages shall not be awarded.
7. Absence of Conflict. The Employee represents and warrants that his
-------------------
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship.
8. Assignment. This Agreement and all rights under this Agreement shall
----------
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees, successors and assigns.
This Agreement is personal in nature, and neither of the parties to this
Agreement shall, without the written consent of the other, assign or transfer
this Agreement or any right or obligation under this Agreement to any other
person or entity; except that the Company may assign this Agreement to any of
its affiliates or wholly-owned subsidiaries, provided, that such assignment will
not relieve the Company of its obligations hereunder. If Employee should die
while any amounts are still payable to Employee hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Employee devisee, legatee, or other designee or, if there be
no such designee, to the Employee's estate.
9. Integration. This Agreement represents the entire agreement and
-----------
understanding between the parties as to the subject matter hereof and supersede
all prior or contemporaneous agreements whether written or oral. No waiver,
alteration, or modification of any of the provisions of this Agreement shall be
binding unless in writing and signed by duly authorized representatives of the
parties hereto.
10. Waiver. Failure or delay on the part of either party hereto to enforce
------
any right, power, or privilege hereunder shall not be deemed to constitute a
waiver thereof. Additionally, a waiver by either party or a breach of any
promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent waiver by such other party.
3
<PAGE>
11. Severability. Whenever possible, each provision of this Agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Headings. The headings of the paragraphs contained in this Agreement
--------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this Agreement.
13. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the internal substantive laws, and not the choice of law rules,
of the State of California.
4
<PAGE>
14. Counterparts. This Agreement may be executed in one or more
------------
counterparts, none of which need contain the signature of more than one party
hereto, and each of which shall be deemed to be an original, and all of which
together shall constitute a single agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY
By: /s/ Gilbert Hu
------------------------------------
Title: President & CEO
----------------------------------
EMPLOYEE:
By: /s/ Philip McDermott
-------------------------------------
Philip McDermott
5
<PAGE>
EXHIBIT 10.20
Agreement # __________
COMPAQ SOLUTIONS ALLIANCE AGREEMENT
This Compaq Solutions Alliance ("CSA") Agreement is made by and between Compaq
Computer Corporation, a Delaware corporation, having it principal address at
20555 S.H. 249, Houston, Texas 77070 ("Compaq"), and AltiGen, a California
Corporation, having offices at 45635 Northport Loop East, Fremont, CA 94538
("CSA member").
1. DEFINITIONS.
(a) "Agreement" means all provisions in the body of this Compaq Solutions
Alliance Agreement, the Exhibits attached to it, the CSA Program Guide,
the ASE Program materials, the CSA Application and any other CSA Program
publications or documents referenced in this Agreement which now exist or
which may be hereafter adopted by Compaq.
(b) "Annual Fee" means the fee set forth by Compaq in the CSA Program Guide or
the Application for membership in the CSA Program for that year.
(c) "Application" means the application in the form provided by Compaq from
time to time which CSA member shall complete and submit for membership in
the CSA Program. The Application is subject to acceptance by Compaq in its
sole discretion.
(d) "ASE Program" means the requirements, policies and procedures published by
Compaq for certifying CSA member personnel as "Accredited Systems
Engineers" (ASE) for Compaq Products.
(e) "Compaq Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with Compaq. For
purposes of this definition "control" (including the related terms
"controlling" "controlled by" or "under common control with") shall mean
the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such person, whether
through the ownership of voting securities, by agreement or otherwise.
(f) "Compaq Products" means Compaq hardware and related software products sold
or licensed by authorized Compaq system resellers in the Territory.
(g) "Confidential Information" means trade secret, proprietary or confidential
business information of Compaq or CSA member, or its suppliers, provided
to the other party in connection with CSA member's membership in the CSA
Program and the performance of this Agreement.
(h) "CSA member Product or Services" means the software or hardware products
(including Compaq Products if CSA member is an authorized Compaq system
reseller in the Territory) and/or the system integration, consulting,
development, support or training services CSA member may provide to its
customers in the Territory, including such products and services provided
to customers for implementation of a Compaq Products solution.
(i) "CSA Program Guide" means the guide published by Compaq identifying
requirements for and benefits of membership in Compaq's CSA Program, which
may include requirements and benefits specific to CSA member Products or
Services.
(j) "Intellectual Property" means any patent, copyright, trade name, trade
mark, trade secret, know-how, mask work or any other intellectual property
right or proprietary information or technology, whether registered or
unregistered.
(k) "Effective Date" means the date set forth in Compaq's signature block
below.
(l) "Discount Credits" means certain credits CSA member may be eligible to
receive in accordance with the CSA Program Guide to obtain discounts on
the purchase or lease of Compaq Products for designated uses.
(m) "Territory" means the United States of America.
2. TERM AND TERMINATION.
(a) Subject to Compaq's acceptance of the Application and payment of the
Annual Fee, this Agreement will take effect on the Effective Date and
unless terminated sooner as provided below will expire at the end of the
calendar year in which it is entered into. The Agreement will
automatically renew for additional terms of one calendar year each, so
long as CSA member continues to meet all CSA Program membership
requirements under the then-current CSA Program Guide and continues to
meet its other obligations under this Agreement.
(b) Either party may terminate this Agreement at any time, with or without
cause and without intervention of the courts, upon 30-calendar days' prior
written notice. Neither party shall be liable to the other for costs and
damages resulting from such termination.
(c) Without prejudice to its other rights or remedies, a party may terminate
this Agreement upon notice to the other party if the other party commits a
material breach of its obligations under this Agreement.
(d) Upon expiration or termination of this Agreement, all right and benefits
granted to either party in this Agreement shall terminate and either party
shall immediately:
(1) cease use of the designated CSA name and logotype, all CSA member
Program materials and other materials made available to CSA member
under the CSA Program;
(2) destroy all such materials and items in its possession or under its
control; and
(3) cease holding itself out as a member of the CSA Program.
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3. APPOINTMENT AND BENEFITS.
------------------------
(a) CSA member is appointed as a member of the CSA Program in and for the
Territory.
(b) So long as CSA member meets its obligations under this Agreement it will
be eligible to receive the core CSA Program benefits set forth in the CSA
Program Guide published from time to time, such as:
(1) Listing in the CSA Web directory and solution locator area of
Compaq's "CSA Web Site"
(2) Access to the restricted CSA Web Site
(3) Use of the name and logo designated by Compaq for indicating
membership in the CSA Program
(4) Discounts on the purchase of a designated quantity of Compaq
Products
(5) Eligibility for favorable rental and lease programs for Compaq
Products
(6) Access to up to date Compaq Product solution information
(7) Receipt of the CSA Program member welcome kit and CSA Program member
newsletter
(8) Access to Compaq labs and porting centers
(9) Eligibility for the core CSA Program member education, marketing,
technical and other support programs made available to all CSA
Program members, subject to any requirements specific to the
particular support program
(10) Eligibility to attend invitational CSA events including executive
forums and developer conferences
(11) Access to sales information tools, training and support via CSA
member's 800 telephone number, subject to any prevailing
requirements and charges
(12) Opportunity to market value proposition to Compaq partners,
channels, and customers
(c) Discount Credits will be administered by Compaq or its third party
administrator. Compaq may change its administrator at any time in its sole
discretion. Neither this Agreement nor the agreement between Compaq and
its administrator confers any third party beneficiary rights on CSA
member. Discount Credits may be received and applied only in accordance
with the requirements of the CSA Program Guide. Any unapplied Discount
Credits remaining at the expiration of each annual term of this Agreement
and at the termination of this Agreement will automatically expire.
(d) CSA Program benefits are provided in accordance with the CSA Program
policies and procedures in effect when a specific benefit is requested.
CSA member understands that at Compaq's sole discretion it may revise or
end the CSA Program or revise, add or end any CSA Program benefits or
requirements. If any such change adversely affects CSA member, it may
terminate this Agreement under Section 2.(b) without any recourse against
Compaq.
(e) As a CSA Program benefit, CSA member is granted a non-exclusive, revocable
license to use the name and logotype specifically designated by Compaq in
the CSA Program Guide (or such other Compaq CSA Program publication
designated by Compaq) for referring to CSA member as a member of the CSA
Program. This restricted license is subject to the provisions of Section
5.(l) below. Apart from this use, this Agreement does not grant CSA member
any right to use any Compaq trademarks or logotypes. Use of the designated
CSA name and logotype by CSA member will inure to the benefit of Compaq.
Compaq reserves in its sole discretion the right to amend the designated
CSA name and logotype. CSA member agrees to use the name and logotype in
accordance with the provisions of Section 5.(l) below,
(f) Except as specified in this Agreement, CSA member does not grant to Compaq
any rights in or to any Intellectual Property related to the Product or to
any materials furnished hereunder. The Intellectual Property embodied in
the Product, all modifications thereto, and all Documentation thereof, are
proprietary to CSA member, and CSA member retains all right, title and
interest in and to such Intellectual Property.
4. PAYMENT.
-------
Compaq will waive the Annual Fee upon acceptance of the Application. Payment
of any other fees that may be due Compaq hereunder shall be due 30 days
after invoice.
5. CSA MEMBER AND COMPAQ OBLIGATIONS.
---------------------------------
(a) CSA member shall use its reasonable efforts to assure that each quarter 50%
of all CSA member Products installations for server system "seats" (e.g.,
number of persons authorized to access and use the product) by operating
system (e.g., Windows NT, SCO UNIX and Novell Netware) are installed for use
on Compaq Products server systems and 50% of all CSA member Products
customer installations for client system seats by operating system (e.g.,
Windows NT, SCO UNIX and Novell Netware) are installed for use on Compaq
Products client systems. If CSA member licenses CSA member Products for use
other than by number of seats (in whole or in part) it will use reasonable
best efforts to meet the same market share percentages stated above through
its other licensing arrangements for installations of CSA member Products
for use on Compaq servers and clients. Compaq and CSA member agree to
develop a joint business and marketing plan within 90 days from signing of
this Agreement. This plan will outline the business and marketing strategy,
with associated budget, that will be used to drive the 50% installation
goals referenced above. It will also include an appropriate ramp time to
reach the 50% goals. The plan, which will be an on-going working document,
will include marketing strategies, channel strategies, training and a
communications strategy. The marketing effort could consist of one or more
of the following: advertising, direct mail, channel communications, end user
communications, etc. The parties may also agree to make provision in the
plan for certain press releases or other public statements by either or both
parties that reference the other. Any such
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press releases or public statement must be approved in advance by each
party with respect to timing, audience, form, content and any other
relevant matters. If the parties are unable to agree to the plan for any
reason, then either party may terminate this Agreement under Section
2.(b). above.
(b) Compaq will use reasonable effort to work with CSA member to identify
appropriate Compaq channel partners who can deliver the joint Compaq/CSA
member solution. The channels may include distributors, value-added
resellers, corporate resellers, systems integrators, and Internet Service
Providers (ISPs)
(c) Compaq will use reasonable efforts to identify appropriate Compaq sales
and marketing contacts to assist in the effective and efficient delivery
of Compaq/CSA member solutions to joint customers.
(d) CSA member will exercise due skill and care in providing CSA member
Products or Services to customers as a CSA Program member for
implementation with Compaq Products. CSA member will not act in a manner
that could adversely affect the goodwill Compaq establishes with the CSA
Program.
(e) CSA member will use its reasonable best efforts to market its CSA member
Product and Services specifically for use with Compaq Products in such a
manner as to reasonably promote Compaq Products for use with CSA member
Products or Services.
(f) Once each calendar quarter, and subject to availability of information
from Compaq/CSA member channels to CSA member, CSA member shall provide
Compaq with a market share report containing such information as is
necessary for Compaq to evaluate CSA members success in reaching the
market share percentage targets described in Section 5.(a) above and
assessing CSA members efforts under Section 5.(c). CSA member agrees to
use such forms as Compaq may provide from time to time for the reports.
Compaq will treat the reports and the information contained within them as
Confidential Information of CSA member under this Agreement.
(g) Upon reasonable prior notice and during CSA member's normal business
hours, Compaq may schedule reviews of CSA member's relevant records
regarding the subject matter of Section 5.(a) to verify CSA member market
share reports and marketing efforts. Compaq will treat the records and the
information contained within them as Confidential Information of CSA
member under this Agreement.
(h) At Compaq's sole discretion, CSA member agrees to use good faith efforts
to cooperate with Compaq in resolving disputes with customers concerning
the delivery or performance of CSA member Products or Services for
implementation with a Compaq Products solution.
(i) CSA member will assure that at least one of its employees is and remains
certified as an ASE in accordance with the requirements of the ASE
Program.
(j) CSA member will assure that all information provided in the Application,
the sales and service reports and the records referred to above and other
information CSA member provides Compaq in connection with membership in
the CSA Program is true and accurate in all material respects, and that it
will remain so while this Agreement is in effect, unless and until CSA
promptly notifies Compaq of any change.
(k) CSA shall validate that its proprietary software (if any) runs on Compaq
products in accordance with guidelines set forth in the CSA Program Guide.
(l) In accordance with the CSA Program Guide or such other CSA publication as
Compaq may provide, CSA member shall comply with Compaq's published
trademark guidelines concerning the size, placement and use of the
specific CSA name and logotype designated by Compaq for use by CSA Program
members. CSA member shall use the appropriate trademark symbol (e.g., "TM"
or "Registered") in a superscript following the designated CSA name in all
CSA publications and circulations in any form. Compaq reserves the right
to review and approve CSA member's use of the CSA name and logotype.
6. RIGHT TO REFER TO CSA MEMBER.
----------------------------
Compaq may in its sole discretion refer to CSA member in Compaq publications,
advertisements and promotional materials in connection with the CSA Program or
the promotion and sale of Compaq Products. However, Compaq will not use CSA
member's logotype without its permission and only in accordance with CSA member
guidelines provided to Compaq.
7. RELATIONSHIP OF PARTIES.
-----------------------
The parties are independent contractors and no other relationship is intended.
Neither party shall act in a manner that expresses or implies a relationship
other than that of independent contractor, including agent. This Agreement is
not exclusive in any respect and either party may enter into similar or
different agreements with third parties.
8. NO ENDORSEMENT.
--------------
Neither party will have any right or authority to act on behalf of the other
party. CSA member will not represent that Compaq has endorsed, guaranteed or
warranted CSA member Products or Services in any way.
9. LIMITATION ON LIABILITY.
-----------------------
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IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY SPECIAL, PUNITIVE, MORAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER OR NOT FORESEEABLE, INCLUDING, BUT
NOT LIMITED TO, LOST PROFITS. ANY BENEFITS AND MATERIALS EITHER PARTY PROVIDES
EITHER PARTY UNDER THIS AGREEMENT ARE PROVIDED "AS IS", WITHOUT EXPRESS OR
IMPLIED WARRANTIES OF ANY KIND, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY WARRANTY OF NON-INFRINGEMENT.
10. CONFIDENTIAL INFORMATION.
------------------------
Each party may be provided access to Confidential Information of the other
party. The receiving party will keep all Confidential Information in confidence,
will not disclose any item of Confidential Information to any person other than
its employees, agents or contractors who need to know the same in the
performance of their duties under this Agreement and will use Confidential
Information only as authorized to fulfill its obligations under this Agreement.
The receiving party will protect and maintain the confidentiality of all
Confidential Information with the same degree of care it employs to protect its
own Confidential Information, but at least with a reasonable degree of care,
including binding employees, agents and contractors to confidentiality
provisions substantially the same in all material respects as the provisions of
this Section. The receiving party will be liable to the disclosing party for any
non-compliance by its agents or contractors to the same extent it would be
liable for non-compliance by its employees. Confidential Information does not
include any data or information which (a) was in the receiving party's lawful
possession prior to the submission thereof by the disclosing party, (b) is later
lawfully obtained by the receiving party from a third party under no obligation
of secrecy, (c) is independently developed by the receiving party, or (iv) is,
or later becomes, available to the public through no act or failure to act by
the receiving party. Confidential Information must be marked or clearly
designated as such in writing by the disclosing party.
11. EXPORT CONTROLS.
---------------
CSA member acknowledges that the Compaq Products and related Confidential
Information and technical documents and materials are subject to export controls
under the U.S. Export Administration Regulations and related U.S. laws. CSA
member will (a) comply with all legal requirements established under these
controls, (b) cooperate fully with Compaq in any official or unofficial audit or
inspection that relates to these controls and (c) not export, re-export, divert,
transfer or disclose, directly or indirectly, any Compaq Products, or related
Confidential Information or technical documents or materials, to any country (or
to any national or resident thereof) which the U.S. Government determines from
time to time is a country (or end-user) to which such export, re-export,
diversion, transfer or disclosure is restricted, without obtaining the prior
written authorization of Compaq and the applicable U.S. Government agency.
12. NOTICES.
-------
Any notice, request or consent under this Agreement will be given in writing and
will be sent by confirmed telefax, personal delivery, overnight courier service
or registered or certified mail, postage prepaid, to the address for each party
stated on the first page of this Agreement, or to such other address as such
party may designate by notice in accordance with the provisions of this Section.
Notices to either party will be directed to its signatory to this Agreement or
as otherwise designated by such party. Any notice delivered by personal delivery
will be deemed to have been received the day it is sent. Any notice sent by
telefax or overnight courier service, with confirmed receipt, shall be deemed to
have been received the day after it is sent. Any notice sent by registered or
certified mail will be deemed to have been received on the 5th business day
after its date of posting.
13. ESCALATION.
----------
Any dispute between the parties relating to this Agreement will first be
submitted in writing to a designated senior executive of Compaq and CSA member
who will meet and confer in an effort to resolve such dispute. Any mutual
written decision of the executives will be final and binding on the parties. In
the event the executives are unable to resolve any dispute within 30 calendar
days after submission to them, either party may refer any dispute to a court of
competent jurisdiction or, if both parties agree, to arbitration.
14. MISCELLANEOUS PROVISIONS.
------------------------
Any holding that a provision of this Agreement is invalid or unenforceable will
not affect the validity or enforceability of the other provisions of this
Agreement. This Agreement is the parties' entire agreement relating to the
subject matter described within it and supersedes all prior or contemporaneous
oral or written communications, proposals and representations concerning that
subject matter. Modifications to this Agreement must be in writing and signed by
an authorized representative of each party. Any waiver of any provision of this
Agreement, or a delay by either party in the enforcement of any right hereunder,
shall neither be construed as a continuing waiver nor create an expectation of
non-enforcement of that or any other provision or right. Neither party may
assign or delegate this Agreement or any of its rights or obligations without
prior consent from the other party and any attempt to do so will be void,
provided that Compaq may assign the Agreement, or any of its rights and
obligations thereunder, to a Compaq Affiliate. This Agreement will be governed
by and interpreted in accordance with the laws of the State of Texas. The terms
and limitations contained in this Agreement that by their sense and context are
intended to survive the term shall so survive, including, without limitation,
its confidentiality and export control provisions, and the limitation on
liability and miscellaneous provisions with respect to the interpretation,
construction and enforcement of the surviving provisions. The use of the word
"include" or "including" in this Agreement is not meant to be limiting.
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IN WITNESS WHEREOF, each party has the legal and other authority to execute
and perform under this Agreement and has caused this Agreement to be signed
by its authorized representative on its behalf.
ALTIGEN COMMUNICATIONS INC. COMPAQ COMPUTER CORPORATION
"CSA Member" "Compaq"
By: /s/ Michele Shannon By: /s/ Andreas Kudephi
------------------------------- -------------------------------
Name: Michele Shannon Name: Andreas Kudephi
----------------------------- -----------------------------
Title: Vice President of Sales Title: Director, NA Enterprise
---------------------------- Solutions & Partners
----------------------------
Date: 12/9 , 1998 Effective Date: 1-18 , 1999
----------------------- - ------------- -
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EXHIBIT 10.21
[LOGO] [LOGO]Covision [LOGO]HEWLETT
ALTIGEN Internet Solutions PACKARD
Memorandum of Understanding (MOU) between Hewlett-Packard
Covision Internet Solutions Program ("HP") and AltiGen, Inc. ("AltiGen")
This memorandum of understanding is by and between:
- --------------------------------------------------------------------------------
AltiGen, Inc. Hewlett-Packard Company
- --------------------------------------------------------------------------------
45635 Northport Loop East Covision Internet Solutions
Fremont, CA 94538 5301 Stevens Creek Blvd
Santa Clara, CA 95051
- --------------------------------------------------------------------------------
The purpose of this MOU is to record the intentions of HP and AltiGen with
regard to each party's effort, on a non-exclusive basis, to jointly and
cooperatively pursue mutually beneficial customer opportunities. The term of
this MOU shall be one (1) year, but may be terminated by either party on
thirty-(30) day's prior written notice.
HP agrees to the following:
- ---------------------------
Business Planning
. HP will supply AltiGen with a planning template, which AltiGen will use
to develop the HP Covision/AltiGen Business Plan. The Business Plan, which
will be an ongoing working document, will include marketing strategies,
channel strategies, a communications strategy, and will specify target
revenue goals to be realized by both HP and AltiGen as a result of the
alliance. The marketing effort could consist of one or more of the
following: joint press releases, advertising, direct mail, channel
communications, end user communications, etc. HP agrees to review and add
HP-specific components of the Business Plan within 7 days of receiving it
from AltiGen.
. HP agrees to work with AltiGen to regularly monitor the progress of the
relationship and to identify areas of opportunity and concern.
. HP will introduce AltiGen to other Covision partners who could be valuable
to a joint HP/AltiGen solution.
Sales and Marketing
. HP will work with AltiGen to identify appropriate channel partners who can
deliver the joint HP/AltiGen solution. The channel includes distributors,
value-added resellers, corporate resellers, systems integrators, and
Internet Service Providers (ISPs).
. HP will identify appropriate HP sales and marketing contacts to ensure the
effective and efficient delivery of HP/AltiGen solutions to joint
customers.
Page 1 of 5
<PAGE>
[LOGO] [LOGO]Covision [LOGO]HEWLETT
ALTIGEN Internet Solutions PACKARD
Memorandum of Understanding (MOU) between Hewlett-Packard
Covision Internet Solutions Program ("HP") and AltiGen, Inc. ("AltiGen")
Technology and Services
. AltiGen may be eligible to receive a loan of one Hewlett-Packard NetServer
to be used for software development, compatibility testing, benchmark
testing and/or demonstration purposes. This server would be loaned at no
charge to AltiGen for six months. After the six-month loan period, AltiGen
will have the opportunity to purchase the equipment at a discount, or
return the equipment to HP. Loan equipment must be deployed at a location
in the U.S.; equipment arrangements for other geographic regions will be
made on a case-by-case basis according to local policies. HP will provide
assistance to AltiGen for the configuration, installation, and support of
the loaned computer technology at no charge to AltiGen.
Internal Promotion and Coordination
. HP will feature AltiGen at a "AltiGen Spotlight" meeting within HP to
introduce HP internal groups to AltiGen executives and products.
. HP will assist with the identification and qualification of opportunities
within Hewlett-Packard for the sales and implementation of AltiGen
technology, and will highlight already existing AltiGen implementations at
HP as proof of the success of the joint solution.
. HP will work with AltiGen to identify potential opportunities to integrate
AltiGen technology into HP products.
Public Relations and Communication
. HP will publicize and promote the relationship between AltiGen and HP as
part of the HP Covision Internet Solutions Program.
. AltiGen and HP agree to use and promote each other's technology through
mutually agreed upon channels of marketing communications.
. HP will include AltiGen in all possible communications, including the HP
reseller mailing list, on a consistent basis.
. HP and AltiGen will meet with market analysts and the press to review and
promote the strategic relationship.
Page 2 of 5
<PAGE>
[LOGO] [LOGO]Covision [LOGO]HEWLETT
ALTIGEN Internet Solutions PACKARD
Memorandum of Understanding (MOU) between Hewlett-Packard
Covision Internet Solutions Program ("HP") and AltiGen, Inc. ("AltiGen")
AltiGen agrees to the following:
- --------------------------------
Business Planning and Reporting
. AltiGen will take the lead in developing a Business Plan for the next
12-18 months that documents marketing, sales, and channel strategies and
tactics, and specifies target revenue goals to be realized by both HP and
AltiGen as a result of the partnership. AltiGen agrees to complete the
Business Plan within 90 days of signing the MOU.
. AltiGen agrees to work with HP and regularly monitor the progress of the
relationship, and to identify areas of opportunity and concern.
. AltiGen will introduce HP to other companies who could be valuable to the
AltiGen/HP relationship and/or market space.
. Subject to availability of information from HP/AltiGen channels to
AltiGen, AltiGen will report revenue generated as a result of the
HP/AltiGen partnership to HP on a quarterly basis. This information will
include HP technology (servers, software, etc) sold as part of the joint
HP/AltiGen solution.
Sales and Marketing
. AltiGen will work with HP to develop a channel strategy to market its
products optimized for HP hardware through selected resellers.
. AltiGen will communicate points of contact in AltiGen's organization to
ensure the effective and efficient delivery of HP/AltiGen solutions to
joint customers.
. AltiGen will report revenue generated by the HP/AltiGen solution on a
quarterly basis subject to availability of information from HP/AltiGen
channels to AltiGen. This revenue information will include information on
HP technology leveraged as part of the HP/AltiGen solution.
Technology and Services
. AltiGen will optimize the operation of its products on HP technology
platforms in exchange for HP computer technology provided to AltiGen.
. AltiGen will provide one set of AltiGen product(s) to be used internal to
the HP Covision Internet Solutions Program. These products will be
provided at no charge to HP.
. AltiGen agrees to give HP reasonable access to any technology loaned to
AltiGen by HP, and to the technology resources responsible for this
technology.
. AltiGen agrees to register for and maintain membership in HP's Solution
Provider Program (SPP) Premier Plan, assuming AltiGen meets the program's
eligibility requirements. The SPP provides valuable technical information,
resources, tools, consulting and equipment programs. The annual cost of
the SPP Premier Plan is $850 (subject to change). Certain programs or
features may not be
Page 3 of 5
<PAGE>
[LOGO] [LOGO]Covision [LOGO]HEWLETT
ALTIGEN Internet Solutions PACKARD
Memorandum of Understanding (MOU) between Hewlett-Packard
Covision Internet Solutions Program ("HP") and AltiGen, Inc. ("AltiGen")
available in some countries. Information about the Solution Provider
Program, eligibility requirements, and registration instructions can be
found at www.com/go/partners.
-------------------
Public Relations and Communication
. AltiGen agrees that the public announcement of a AltiGen/HP Covision
relationship will occur only after a Business Plan has been completed and
an HP Covision channel has been identified to deliver the joint solution.
Both HP and AltiGen will agree upon timing of the announcement.
. AltiGen, when publicly announced, will include the HP Covision logo and
link to the Covision Internet site (www.hpcovision.com) on AltiGen's
------------------
Internet site. HP will include AltiGen logo and link to the AltiGen
Internet Site (www.altigen.com).
. AltiGen will aggressively promote the HP Covision Internet Solutions
Program and the relationship between HP and AltiGen worldwide (press
releases, analysts, magazines, web site mentions, inclusion in literature,
etc).
. AltiGen and HP agree to use and promote each other's technology through
mutually agreed upon channels of marketing communications.
. AltiGen agrees to explore with HP how HP platforms could be promoted as
the "preferred" platform for AltiGen products.
. AltiGen will permit HP to publicize and promote this relationship as part
of the HP Covision Internet Solutions Program.
Page 4 of 5
<PAGE>
[LOGO] [LOGO]Covision [LOGO]HEWLETT
ALTIGEN Internet Solutions PACKARD
Memorandum of Understanding (MOU) between Hewlett-Packard
Covision Internet Solutions Program ("HP") and AltiGen, Inc. ("AltiGen")
AltiGen and HP agree that neither will act as a reseller or agent or otherwise
represent the other, unless both parties have signed mutually agreeable terms
and conditions. In addition, there shall be no fees paid or received by or from
one party to the other and there shall be no guarantees, warranties,
indemnities, or liabilities except as may pertain to the protection of
confidential information as indicated in a signed Confidentiality Agreement.
- --------------------------------------------------------------------------------
AltiGen, Inc. Hewlett-Packard Company
- --------------------------------------------------------------------------------
By: /s/ [ILLEGIBLE] By: /s/ Greg Mihran
---------------------------- ---------------------------------
Greg Mihran
- --------------------------------------------------------------------------------
Title:VP of Sales Title: Director,
---------------------------- Internet Business Development
- --------------------------------------------------------------------------------
Date: 11/9/98 Date: 11/9/98
---------------------------- ---------------------------------
- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT 10.22
ALTIGEN COMMUNICATIONS INC.
ORIGINAL EQUIPMENT MANUFACTURE PRIVATE LABEL AGREEMENT
THIS ORIGINAL EQUIPMENT MANUFACTURE (OEM) AGREEMENT ("Agreement") is made and
entered into as of this 2/th/ day of February, 1999, (the "Effective Date") by
---------------------------
and between ALTIGEN COMMUNICATIONS INC., a California corporation, with
principal offices at 47247 Fremont Blvd., Fremont, CA 94538 ("AltiGen") and
Nitsuko Corporation, with principal offices at 2-6-1 Kitamikata, Takatsu-ku,
- -------------------
Kawasaki, 213-8511 Japan, ("OEM").
In consideration of the mutual covenants contained herein, the parties agree as
follows:
1. DEFINITIONS
1.1 Effective Date means the date this agreement is signed and goes into effect.
1.2 Dealer means any individual or entity which acquires the Products for the
express purpose of resale to others, whether such resale is of the Product as a
stand-alone product, as bundled and sold with other software or hardware
products, as integrated with other software or hardware products or as sold with
associated services.
1.3 End User means a licensee who acquires Products for Internal Use (rather
than Original Equipment Manufacture or resale) in accordance with the terms of
an End-User License Agreement substantially in the form of the End-User License
Agreement attached hereto as Exhibit A (the "End-User Agreement").
1.4 Internal Use means use for purposes which do not directly produce revenue
for the End User. "Internal Use" does not include timesharing.
1.5 Intellectual Property means any patent, copyright, trade name, trade mark,
trade secret, know-how, mask work or any other intellectual property right or
proprietary information or technology, whether registered or unregistered.
1.6 Product means software program packages and physical computer hardware,
including (1) a program code, in object code form only, on diskette(s) or CD-ROM
(the "Program"); (2) physical computer hardware including computer boards,
computer power supply, computer cables (the "PC Hardware"); (3) instruction
booklets and other information prepared for End-Users concerning the use of the
program and computer hardware ("Documentation"); (4) an End-User Agreement. The
Products include only those listed by title and functional description on the
"Product and Price List" attached hereto as Exhibit B.
1.7 Purchase Objectives means the minimum quantity of each Product which OEM
commits to purchase quarterly during the term of this Agreement, as mutually
agreed upon and set forth in Exhibit C attached hereto.
1.8 Territory means: collectively "the Primary Territory" and "the Second
Territory" as defined below. "Primary Territory" means Japan "Secondary
Territory" means world wide. Specific region within the Secondary Territory
shall be mutually determined by both parties.
1.9 Grant of Original Equipment Manufacture Right Subject to the terms and
conditions set forth in this Agreement, AltiGen hereby grants to OEM a
non-exclusive, non-transferable right to (a) market and distribute the Products
solely to Dealers and end users located in the Territory and (b) use the
Products for those purposes set forth in the Agreement. OEM shall not, directly
or indirectly, solicit sales of Products outside of the Territory without the
prior written consent of AltiGen. AltiGen retains the right to sell the Products
directly to other parties in the Territory,
* Some material in this Exhibit has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
1
<PAGE>
including, by way of illustration but not limitation, OEMs, Distributors,
Dealers, and original equipment manufacturers. OEM shall have no right to modify
the Product without the prior written approval of AltiGen. OEM agrees not to (a)
reverse engineer, decompile, disassemble or otherwise reduce the Product to
human-perceivable form, or to encourage or assist third parties in doing so. All
rights not expressly granted herein are retained by AltiGen. OEM shall have no
right to grant a Dealer the right to make copies from a golden master absent
further agreement between AltiGen and the OEM.
1.10 OEM agrees that it will not use AltiGen products except as authorized
herein and that it will not make, have made, or permit to be made any copies of
AltiGen products except for use on the designated equipment at the designated
site (including backup and archival copies necessary in connection with such
use), and will not make and distribute any copy of AltiGen products for OEM
except in accordance with this Agreement each such copy shall contain any
copyright notice, proprietary notice or notice giving credit to another
developer, which appears on or in the AltiGen products for OEM being copied.
2. OWNERSHIP
Except as specified in this Agreement, AltiGen does not grant to the OEM
any rights in or to any Intellectual Property related to the Product or to
any materials furnished hereunder. The Intellectual Property embodied in
the Product, all modifications thereto, and all Documentation thereof, are
proprietary to AltiGen, and AltiGen retains all right, title and interest
in and to such Intellectual Property.
3. PRICES AND PAYMENTS
3.1 Prices. OEM shall pay AltiGen, for each Product and upgrade, the OEM list
price for the Product as set forth on Exhibit B. Both the AltiGen standard list
price and the OEM's discount levels are subject to change by AltiGen
Communications from time to time in its sole discretion upon thirty (30) days
written notice to OEM. Orders requesting delivery after receipt of notice of a
price or discount change will be charged at the new price or discount level.
[*]. Further, this [*] as expressed above, will continue throughout the duration
of the Agreement.
3.2 OEM Pricing. OEM is free to determine its own resale prices for the
Products. Although AltiGen may publish suggested list prices, these are
suggestions only and are not binding in any way.
3.3 Dealer Pricing. OEM shall inform each of its Dealers that it is free to
determine its own retail prices and that, although AltiGen may publish suggested
retail price lists, they are suggestions only and are not binding in any way.
3.4 Initial Order. Within [*] of the Effective Date, OEM shall deliver to
AltiGen Communications a purchase order for an aggregate price of [*] with the
exception of Primary territory.
3.5 Payment. Upon approval of credit by AltiGen, payment for additional orders
shall be due and payable within [*] following receipt of invoice or on such
terms as may be otherwise specified in AltiGen Communications' invoice. Invoices
not paid when due shall accrue interest on an annual basis from the date due
until paid of [*] on any outstanding balance; or the maximum legal rate allowed
by law, whichever is less. AltiGen reserves the right to vary, change,
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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or limit the amount or duration of credit to be allowed to OEM, either generally
or with respect to a particular order. In the event AltiGen does not extend
credit to OEM, payment for all purchases hereunder shall be made in advance of
shipment or, at AltiGens' option, C.O.D.
3.6 Price Protection.
(a) OEM Price Protection. AltiGen shall notify OEM of the effective date of a
[*] for any of the Products covered herein. Inventory acquired by OEM from
AltiGen less than [*] before the effective date of the [*] and not yet sold or
under a contract for sale will be granted price protection as set forth herein.
[*] To obtain price protection, within [*] of receipt of AltiGens' notice of the
[*], OEM shall provide to AltiGen a written inventory report showing by part
number the quantity of each AltiGen Product in the OEM's inventory as of the
effective date of the [*]. Price protection will not be granted in the case of a
temporary [*] or special promotion.
(b) Dealer Price Protection. To obtain price protection for its Dealers, OEM (i)
shall provide to AltiGen a written shipment report showing by part number the
quantity of each AltiGen Product shipped to a Dealer less than [*] before the
effective date of this [*] including the identity of each Dealer, the Products
sold, and the date of shipment and (ii) shall provide, or require its Dealers to
provide, a written Dealer inventory report showing by part number the quantity
of each AltiGen Product in Dealer's inventory as of the effective date of the
[*]. If OEM provides such reports to AltiGen within [*] of OEM's receipt of
AltiGens' notice of a [*], AltiGen shall credit the OEM's account for the [*],
[*]
3.7 Stock Rotation.
(a) Inventory Balancing. Provided that the OEM issue a simultaneous offsetting
purchase order, OEM may, once during each quarter return for credit Product
purchased in excess of the quarterly Purchase Objectives for up to a maximum of
[*] dollar sales invoiced by AltiGen during the immediately preceding quarter.
The credit issued for the returned inventory will be based on the [*] at which
the Products were available to OEM during the period commencing with the date on
which the Product was purchased and ending on the date the Product was returned,
and may be used on a dollar-for-dollar basis solely to purchase additional
Product pursuant to the offsetting purchase order. The right to balance
inventory granted herein must be exercised by the last day of the second month
of the quarter. OEM shall submit a request for Return Materials Authorization
(RMA) to return Product for inventory balancing which shall state the quantity
of Product to be returned. Upon receipt of such request, AltiGen shall issue a
return of materials authorization number. Inventory returned under this section
must be accompanied by a RMA number assigned by AltiGen and (i) in merchantable
condition, in its factory-sealed packaging, or (ii) if the returned Product is
returned because defective by virtue of being in breach of the warranty provided
for in the End User Agreement, returned with the entire contents of such Product
package. All Product returned under this subsection (a) shall be returned within
forty five (45) days of the date of AltiGen's issuance of the
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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RMA number AltiGen shall strive to send replacement under RMA [*] of issuance of
RMA number. OEM shall pay for the shipping of returned Products to AltiGen and
AltiGen shall pay for the shipping of replacement Product sent to OEM.
(b) Product Refresh. AltiGen Communications may, at its sole discretion, modify
the Products, and will be sure to notify OEM of these modifications. For
purposes of this Agreement, AltiGen shall have sole discretion as to whether a
Product is deemed to be a new version of an existing Product to be provided to
OEM under the terms of this Agreement or a new product requiring execution of an
appendix to this Agreement prior to Original Equipment Manufacture. Once a new
version of a Product covered by this Agreement begins shipping, OEM shall have,
sixty (60) days from the first AltiGen shipment date of the new version to OEM,
or from written notification by AltiGen of the new version, whichever is later,
(i) to submit an offsetting purchase order for an equal dollar-for-dollar value
of the new version of the Product and (ii) to return Product from the prior
release from OEM's inventory that was shipped by AltiGen to OEM within the
previous ninety (90) days. AltiGen shall strive to send Product Refresh products
within [*] of (i) or (ii), above. Such returns shall be shipped at OEM's
expense. Returned Product will be exchanged by AltiGen on a dollar for dollar
basis, proportional with any price increase or decrease with the new version of
the Product and shipped to OEM at AltiGen expense. Product returned under this
provision must be in merchantable condition and in its original factory-sealed
packaging. The right to refresh Product under this subsection (b) shall be in
addition to OEM's inventory-balancing right under subsection (a) above.
(c) Product Discontinuation. AltiGen shall provide OEM with one-hundred eighty
(180) days written notice prior to AltiGens' discontinuation of any Product.
Upon receipt of such notice, OEM shall have the right to return all discontinued
Products purchased [*] of the notice of discontinuation for a credit to OEM's
account of the Product's purchase price less any discounts or credits previously
received. Credits granted hereunder can only be used for future purchases of
Products. The right to return discontinued Product under this subsection (c)
shall be in addition to OEM's inventory-balancing right under subsection (a)
above.
3.8 OEM Financial Condition. OEM represents and warrants that it is and at all
times during the term of this Agreement shall remain in good financial
condition, solvent and able to pay its bills when due. OEM further represents
and warrants that it has and at all times during the term of this Agreement
shall retain the ability to order and pay for all Product OEM is obliged to
purchase under Exhibit C below. From time to time, on reasonable notice by
AltiGen, OEM shall furnish financial reports as necessary to determine OEM's
financial condition.
3.9 Taxes. Prices calculated in accordance with Exhibit B are exclusive of all
applicable taxes. OEM shall be exclusively responsible of the collection and
payment of all taxes, tariffs and duties (including without limitation sales,
use, value, added, and customs duties of all types, but excluding Japanese
withholding tax on AltiGen's income) arising from licenses or sublicense of the
Licensed Programs. If claiming a tax exemption, OEM must provide AltiGen with
valid tax exemption certificates at the time of invoicing.
4. PRODUCT CHANGES
4.1 Standard Products - AltiGen shall have the right, in its sole discretion,
without liability to OEM, to (a) change the Products available on the Product
List, (b) change the design, or discontinue developing, producing, licensing or
distributing any of the Products covered by this Agreement, and (c) announce new
products to which the terms and conditions of this Agreement do not apply.
AltiGen will make every effect to inform OEM of any changes in a-c, above, as
well
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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in advance as possible and will ensure that lines of communication are open. The
parties agree that additional Products may be added to the Agreement by
execution of an appendix to this Agreement setting forth any special terms,
conditions, modifications or deletions necessary for the additional Products.
Additional Products shall be deemed to be added to this Agreement to the extent
AltiGen accepts any purchase orders for Products not otherwise listed on the
Product List.
4.2 OEM Modifications - OEM is free to change selected system prompts and system
administration screens in AltiWare(TM) that identify AltiServ(TM), AltiMail(TM)
and other AltiGen related names, to names selected and requested by OEM. OEM
assumes full responsibility for selecting, researching usability of, and
protecting future use of such names.
5. ORDERS
5.1 Procedure. All orders for Products placed by OEM shall be in writing, or if
placed orally, shall be confirmed in writing within ten (10) business days after
such oral order.
5.2 Acceptance of Orders. All orders for Products by OEM shall be subject to
acceptance by AltiGen and shall not be binding on AltiGen until the earlier of
written confirmation or shipment, and, in the case of acceptance by shipment,
only as to the portion of the order actually shipped.
5.3 Controlling Terms. The terms and conditions of this Agreement and of the
applicable AltiGen order confirmation pursuant to Section 5.2 ("Acceptance of
Orders") above, shall apply to each order accepted or shipped by AltiGen
hereunder. Any terms or conditions appearing on the face or reverse side of any
purchase order, acknowledgment, or confirmation other than confirmation pursuant
to Section 5.2 above that are different from or in addition to those required
hereunder shall not be binding on the parties, even if signed and returned,
unless both parties hereto expressly agree in a separate writing to be bound by
such separate or additional terms and conditions.
5.4 AltiGen Order Cancellation. AltiGen reserves the right to cancel or suspend
any orders placed by OEM and accepted by AltiGen, or to refuse or delay shipment
thereof, if OEM (a) fails to make any payment as provided herein or in any
invoice, (b) fails to meet credit or financial requirements established by
AltiGen, or (c) otherwise fails to comply with the terms and conditions of this
Agreement.
5.5 OEM Order Cancellation. Orders accepted by AltiGen may be canceled without
penalty if written notice of cancellation is given to AltiGen and the notice is
received by AltiGen at least [*] prior to the scheduled shipment date. Orders
canceled less than [*] prior to the scheduled shipment date will be subject to a
cancellation payment of [*] of the invoice value of the canceled order. In no
event may OEM cancel any order or any portion of an order after shipment.
5.6 Product Availability. AltiGen will use reasonable efforts to fill orders for
Products and meet requests for shipment dates subject to Product availability
and AltiGen production and supply schedules. Should orders for Products exceed
AltiGens' available inventory, AltiGen will allocate its available inventory and
make deliveries on a basis AltiGen deems equitable, in its sole discretion, and
without liability to OEM on account of the method of allocation chosen or its
implementation. AltiGen shall not be liable to OEM or any third party for any
damages due to AltiGens' failure to fill any orders or for any delay in delivery
or error in filing any orders for any reason whatsoever.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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5.7 Obligation to Ship in Presence of Breach. Even where AltiGen accepts a
purchase order, AltiGen Communications shall not be obligated to ship Products
if OEM is in arrears on payments owing to AltiGen or otherwise in breach of the
Agreement at the time of the scheduled shipment.
5.8 Delivery. AltiGen will ship FOB Destination, unless otherwise agreed in
writing, to OEM's designated location or freight forwarder via ground transport.
OEM has designated the following companies for the Primary territory to issue
purchase orders, handle invoicing and payments and coordinate export and other
shipping and logistical matters: Sumisho Electronics, Inc. located at Tsuruya
Bldg., 2-23 Shimomiyabi-cho, Shinjuku-ku, Tokyo 162 Japan; and Sumitronics,
Inc., located at 2900 Patrick Henry Dr., Santa Clara, CA 95054. Notwithstanding
section 5.10 below ("Risk of Loss"), OEM shall be responsible for and shall pay
all shipping, freight, and insurance charges.
5.9 BUSINESS DEVELOPMENT LIAISON FOR THE PRIMARY TERRITORY. Both parties hereby
recognize Sumisho Electronics, Inc. and Sumitronics, Inc. in their role in this
business development and liasion associated herewith. That shall include, but
not be limited to the following: (1) formulating the MOU, OEM and Joint
Development Agreements, (2) coordination of logistics including purchase orders,
payments and shipping. In addition, Sumisho Electronics shall serve as one of
Nitsuko's designated resellers of the OEM product in Japan upon completion of
the Joint Development project.
5.10 Risk of Loss. In the case of shipments to shipping destinations within the
United States, title to the Products, exclusive of the rights retained under the
Agreement in trademarks, patents, copyrights, trade names, trade secrets and
intellectual property, and all risk of loss or damage for any Product shall pass
to OEM upon delivery by AltiGen to the OEM designated location.
In the case of shipments to shipping designations outside the United
States, OEM and AltiGen expressly agree that beneficial and legal title
to, ownership of, right to possession of, control over, and risks of loss
and damage to, the products shall remain with AltiGen until the shipment
physically arrives at the port of entry in the importing country (or at a
bonded warehouse within the jurisdictional boundaries of Canada or Mexico
if OEM requests shipment to those countries). The time of payment, whether
before or after shipment, the place or medium of payment, the method of
shipment, the manner of consignment, whether to AltiGen, or its agent, to
OEM or OEM's agent, or any agent for both, or any document in relation to
any sale under the Agreement, shall in no way limit or modify the right of
AltiGen as the legal and beneficial owner of the products, its right to
control and its right to possession of such goods until they physically
arrive at the port of entry of the importing country (or at a bonded
warehouse within the jurisdictional boundaries of Canada or Mexico if OEM
requests shipment to those countries). Any use of the term "C.P.T." in the
Agreement shall apply only to price and not to title. It is expressly
understood that the foregoing shall not be construed to mean that AltiGen
has merely retained bare legal title for security purposes, but rather
retains legal title and full beneficial ownership until the shipment
arrives at the port of entry in the country of destination (or at a bonded
warehouse within the jurisdictional boundaries of Canada or Mexico if OEM
requests shipment to those countries.) If OEM insures the shipment,
insurance policies will protect the interest of AltiGen as the legal owner
of the merchandise until title transfers as set forth above.
5.11 Security Interest. In the event that AltiGen extends credit to the OEM for
Product purchases, OEM grants AltiGen, as security for OEM's obligations
hereunder, a purchase money security interest in (i) the Products to be acquired
from AltiGen under the Agreement or any extension of the Agreement and (ii) the
proceeds of such Products. Upon AltiGens' request, OEM
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agrees to execute and cause to be filed all instruments or documents (including
without limitation financing statements) necessary to perfect any such security
interest and further agree that, in any event, AltiGen may file a copy of the
Agreement as a financing statement for such purpose.
6. ORIGINAL EQUIPMENT MANUFACTURE OBLIGATIONS
6.1 Dealer License Agreements. For each Dealer to which OEM distributes or
markets Products, OEM shall execute a Dealer license agreement ("Dealer License
Agreement") that contains terms and conditions consistent with the provisions of
this Agreement, that is at least as restrictive as this Agreement and that
requires the Dealer to cause each copy of the Product distributed to End-Users
by such Dealer to be subject to an End-User Agreement. Upon AltiGen request,
from time to time OEM shall provide to AltiGen a copy of the then current
version of the Dealer License Agreement.
6.2 Business Plan. Within thirty (30) days of the Effective Date, OEM shall
provide to AltiGen Communications a business plan setting forth OEM's plans for
promoting the Products. OEM agrees to provide an updated business plan in
accordance with the schedule for updating such as specified by AltiGen At least
twice each year, AltiGen may conduct reviews to gain a clearer understanding of
OEM's overall plans and sales/marketing strategy so as to work together to
expand overall performance. OEM acknowledges that AltiGen may terminate the
Agreement for OEM's failure to fulfill the performance objectives set forth in
the business plan.
6.3 Purchase Objectives. OEM and AltiGen Communications shall agree upon
quarterly Purchase Objectives. The initial Purchase Objectives are stated in
Exhibit C. OEM acknowledges that AltiGen Communications may terminate the
Agreement for failure to order and pay for the quantity of Product set forth in
the Purchase Objectives each and every quarter.
6.4 Failure to Achieve Purchase Objectives. OEM acknowledges that AltiGen: (1)
after discussion with OEM, may terminate the Agreement for failure to order and
pay for the quantity of Product set forth in the Purchase Objectives each and
every quarter, and (2) if at the end of any calendar year (OEM) has not paid
payments to AltiGen equal to or greater than the annual Purchase Objectives for
that calendar year, the Discount Rates which shall apply for the subsequent
calendar year of this project statement may be changed to reflect the Discount
Rates associated with the actual payments made by (OEM) to AltiGen.
6.5 Inventory As a part of meeting its Purchase Objectives, OEM shall maintain
an inventory of Products and warehousing facilities sufficient to serve
adequately the demands of Dealers and end users on a reasonably timely basis. If
such inventory equals or exceeds the quantity of Products necessary to meet
reasonably anticipated demands of Dealers for a period of at least 60 days, OEM
shall be deemed to have fulfilled its inventory requirements hereunder (as
distinct from its Purchase Objectives).
a. Incremental Business (OEM) acknowledges chat the purchase objectives and
discounts specified are based upon (OEM's) and AltiGen's shared
expectations that (OEM's) sales of Licensed Works:
1. will substantially increase the overall worldwide market demand for
the Licensed Works on a unit basis;
2. will result in significant incremental uses of Licensed Works for
High Availability System Units; and
3. will be based upon a value added approach. (OEM) agrees to add value
through hardware enhancements, software drivers, utilities,
applications, toolkits, ease of installation, ease of use, ease of
operations, increased dependability, and/or integration
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of the parties products and services.
6.6 Forecasts. (OEM) agrees to provide AltiGen within thirty (30) days of the
Effective Date, an annual forecast showing the expected sales based upon (OEM)
fiscal year, and a quarterly forecast, based upon (OEM) fiscal quarters. Each
year thereafter, (OEM) shall provide annual forecasts and quarterly forecasts in
the fourth quarter of the previous year. AltiGen agrees to provide to (OEM)
product type, user mix, media format and gross geographic segmentation
information in order to assist (OEM) in accurately determining its annual and
fiscal forecasts.
6.7 Point of Sale Reports. During the term of this Agreement, OEM shall provide
to AltiGen a monthly report which list the licensed software, licensed or sold
directly by (OEM) to acquiring entities containing the following information:
(i) the destination company's (Dealer's or end user's) name, (ii) date of sale
or distribution. Such report, with respect to a calendar month, shall be
delivered to AltiGen no later than by the end of the following calendar month.
6.8 Customer Satisfaction. OEM agrees that the Products marketed under this
Agreement are technically complex and require high-quality, individualized
pre-marketing and post-marketing support. This support is necessary to achieve
and maintain high customer satisfaction. Therefore, OEM agrees that high
customer satisfaction is a condition of Original Equipment Manufacture
authorization by AltiGen. The Original Equipment Manufacture channels
established by AltiGen, and the obligations placed on OEMs, exist to ensure high
customer satisfaction. OEM agrees to market the Products only in accordance with
this Agreement. In addition, in order to assure high customer satisfaction, OEM
agrees to:
. report to AltiGen promptly and in writing all suspected and actual
problems with any Product;
. maintain a shipment report identifying for each Dealer, the Products
sold, the date of sale, and each Product's serial number;
. retain all shipment reports for five years after the date of sale, and
assist AltiGen, upon request, in tracing a Product to a Dealer, in
order to distribute critical Product information, locate a Product for
safety reasons, or discover unauthorized marketing or infringing acts;
. conduct business in a manner which reflects favorably at all times on
the Products, goodwill and reputation of AltiGen Communications;
. avoid deceptive, misleading or unethical practices which are or might
be detrimental to AltiGen or its products;
. refrain from making any false or misleading representations with
regard to AltiGen or its products; and
. refrain from making any representations, warranties or guarantees to
customers or to the trade with respect to the specifications, features
or capabilities of the Products that are inconsistent with the
literature distributed by AltiGen.
6.9 Promotional Efforts. OEM shall use its best efforts to market and
distribute the Products to Dealers in the Territory. OEM may advertise the
Products in advertising media of OEM's choice, provided that the primary
audience or circulation is located in the Territory. OEM shall make full use of
all promotional material supplied by AltiGen and make available literature and
other information that AltiGen requires to be transmitted to such Dealers. In
all advertising and
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promotion of the Products, OEM shall comply with AltiGen standard cooperative
advertising policies as specified from time to time by AltiGen.
6.10 Demonstration System. OEM shall maintain a demonstration system capable of
supporting the most technically advanced Products. OEM shall use such
demonstration system both to facilitate its ability to fulfill its Dealer
support obligations, and to support its sales efforts.
7. Training.
7.1 To assist OEM with the sales and support of the Products, AltiGen may
provide training to OEM for any new Product releases during the term of this
Agreement, upon AltiGen reasonable request and at OEM's facility, and OEM shall
use best efforts to have OEM's inside and outside sales or technical force
present for such training sessions.
7.2 Initial Training. AltiGen will provide five person-days of technical and
engineering training for up to four (OEM) personnel. AltiGen will conduct the
training at the AltiGen offices. The training will include hardware and software
orientation, marketing and sales information, and technical support training.
(OEM) will pay all travel and living expenses incurred by (OEM) personnel
attending the training.
7.3 Additional Training. For 90 days after the Effective Date, AltiGen will
make available to (OEM) additional training. (OEM) will request additional
training in writing at least 30 days prior to the requested training date.
AltiGen will provide this training and technical support at AltiGen's offices
selected by AltiGen.
7.4 OEM Personnel. OEM shall train and maintain a sufficient number of capable
technical and sales personnel to serve the demands of Dealers and end-users for
the Products, for service and support of the Products, call on all Dealers with
reasonable frequency and answer promptly all Dealer inquiries or requests for
information regarding the Products. OEM and its staff shall develop and maintain
sufficient knowledge of the industry, the Products, and competitive offerings
(including specifications, features, and functions) so as to be able to
demonstrate and support the Products for Dealers. OEM shall provide all Dealers
with technical support and other assistance appropriate for the promotion,
marketing, and Original Equipment Manufacture of the Products. OEM shall attend
AltiGen Communications Original Equipment Manufacture meetings.
8. Support And Maintenance
8.1 AltiGen shall provide central site support to OEM (but not its dealers,
and not end users) with the support and maintenance described in Development
Support section during the term of this agreement. AltiGen agrees to correct all
errors, defects and malfunctions in Altigen products and isolated thereto, and
in the user documentation arising during the term of the agreement. AltiGen may
provide dealers and end users with support and maintenance under a separate
agreement.
8.2 (OEM) will assume responsibility for repairing, maintaining, and
supporting the (OEM) Products. This support will include competent technical
advice to end users. AltiGen will continue to offer repair and maintenance
services. Exhibit B.
8.3 Development Support.
(a) AltiGen, upon execution of the Agreement, shall deliver to OEM the current
release of AltiGen products and related technical and user documentation.
AltiGen products shall only be used by OEM to create, maintain and support OEM's
AltiGen products. AltiGen shall provide any
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Improvement, Enhancement, Modification or Release of AltiGen products to OEM
within thirty (30) days of the completion and testing of any such Improvement,
Enhancement Modification or Release.
(b) OEM shall assume full responsibility for creating AltiGen software products
for OEM using AltiGen products. AltiGen, in connection with OEM's development
efforts hereunder, will make available to OEM 10 man hours per week of
--
engineering support during the first 3 months of the Agreement. Thereafter,
-
AltiGen, at the request of OEM will make engineering support available to OEM at
AltiGen's standard charge for such support.
(c) Prior to releasing OEM's AltiGen products to customers, OEM shall deliver a
reasonable number of copies of such to AltiGen for testing. AltiGen shall test
such copies for compatibility with AltiGen products within thirty (30) days of
receipt. OEM shall not release any AltiGen products based product to customers
without the prior written approval of AltiGen, which shall not be unreasonably
withheld.
(d) AltiGen and OEM each shall designate in writing one individual to serve as
its Technical Coordinator, which individual (the "AltiGen Technical Coordinator"
or "OEM Technical Coordinator," as appropriate) shall be deemed to have
authority to issues, execute, rain or Provide any approvals, requests, notices
contract amendments or other communications required hereunder or requested by
the other party hereto, AND relating to the development of AltiGen products.
AltiGen hereby designates En-Kuang Lung as the AltiGen Technical Coordinator and
-------------
OEM hereby designates NITSUKO (TOYOSHIGE MURAKAMI) as the OEM Technical
---------------------------
Coordinator.
8.4 (OEM) Products Identification. (OEM)'s packaging (containers) and any
advertisements or materials relating to the distribution of the (OEM) Products
will clearly identify (OEM) as the manufacturer of the (OEM) Products. All (OEM)
Products must contain a serial number assigned under a serialization plan that
differs substantially from the serialization method adopted by AltiGen.
8.5 Documentation. AltiGen shall provide to OEM the applicable product
literature, training materials, technical documentation and the end-user manuals
for AltiGen products formatted in the version of Adobe FrameMaker or Microsoft
Word used to generate said documents by AltiGen at the time of delivering
products and each subsequent Release thereof. AltiGen hereby grants to OEM, and
OEM accepts, a non-exclusive, royalty-free license under AltiGen's pre-existing
copyrights in the AltiGen products End User documentation to edit reformat,
rewrite and reissue the documentation as a necessary in connection with OEM's
marketing and distribution of AltiGen products for OEM and AltiGen products.
Except as otherwise provided herein, the responsibility for and expense
associated with any publishing or distribution of End User documentation shall
be assumed by OEM.
9. Trademarks And Confidential Information
9.1 Trademarks. AltiGen Communications shall have and retain sole ownership of
AltiGen's logo, trade names and trademarks ("Trademarks"), including the
goodwill pertaining thereto. AltiGen Communications hereby grants to OEM the
right to use and display the Trademarks solely in connection with and solely to
the extent reasonably necessary for the marketing, Original Equipment
Manufacture, and support of the Products within the Territory in accordance with
the terms and conditions of this Agreement. OEM shall not do or suffer to be
done any act or thing that would impair AltiGen's rights in its Trademarks or
damage the reputation for quality inherent in the Trademarks. AltiGen's has the
right to take all action which it deems necessary to ensure that the advertising
and promotional materials related to the Products utilized by OEM are consistent
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with the reputation and prestige of the Trademarks. OEM shall market,
distribute, and support the Products only under the Trademarks, and not any
other trademark or logo. OEM shall not use the Trademarks or any other
trademarks or trade names of AltiGen or any word, symbol, or design confusingly
similar thereto, as part of its corporate name, or as part of the name of any
product of OEM. OEM shall not (i) remove, alter or overprint the Products'
copyright notices, trademarks, and logos, or packaging, (ii) attach any
additional trademarks to the Products without AltiGen's prior written consent or
(iii) affix any of the Trademarks to any non-AltiGen products. OEM agrees that
any goodwill which accrues because of OEM's use of the Trademarks shall become
AltiGen's property. OEM further agrees not to contest AltiGen's Trademarks or
tradenames, or to make application for registration of any AltiGen Trademarks or
tradenames. OEM shall incorporate the following copyright notice on AltiGen
products for OEM or derivative works thereof, used, duplicated or sublicensed by
OEM:
[OEM's Software trade name] Is a OEM version of AltiGen products (Circle R)
(c) Copyright AltiGen, Inc I"3. M, 1998, IM
All Rights Reserved
OEM agrees to incorporate all AltiGen copyright, trademark and proprietary
notices to manuals documentation, and diskette labels of the AltiGen
products for OEM, and to make any changes reasonably required to protect
AltiGen's intellectual property rights. OEM reserves the right to rename
AltiGen products for OEM according to OEM's marketing needs and strategy;
however, AltiGen's copyright and proprietary notices shall be conspicuously
displayed.
9.2 Confidential Information. During the term of this Agreement, and for a
period of three (3) years thereafter, OEM will maintain in confidence any
confidential or proprietary information of AltiGen disclosed to it by AltiGen
including, without limitation, any information regarding scientific,
engineering, manufacturing, marketing, business plan, financial or personnel
matter relating to AltiGen, whether in oral, written, graphic or electronic form
("Confidential Information"). OEM will not use, disclose or grant use of such
Confidential Information except as expressly authorized by AltiGen. To the
extent that disclosure is authorized by AltiGen, OEM will obtain prior agreement
from its employees, agents or consultants to whom disclosure is to be made to
hold in confidence and not make use of such information for any purpose other
than those permitted by AltiGen. OEM will use at least the same standard of care
as it uses to protect its own Confidential Information to ensure that such
employees, agents or consultants do not disclose or make any unauthorized use of
such Confidential Information. OEM will promptly notify AltiGen upon discovery
of any unauthorized use or disclosure of the Confidential Information.
9.3 Exceptions. The obligations of confidentiality contained in Section 9.2
will not apply to the extent that it can be established by OEM by competent
proof that such Confidential Information:
(a) was already known to OEM, other than under an obligation of
confidentiality, at the time of disclosure by AltiGen Communications;
(b) was generally available to the public or otherwise part of the public
domain at the time of its disclosure to OEM;
(c) became generally available to the public or otherwise part of the public
domain after its disclosure and other than through any act or omission of OEM in
breach of this Agreement;
(d) was disclosed to OEM, other than under an obligation of confidentiality, by
a third party who had no obligation to the disclosing party not to disclose such
information to others.
11
<PAGE>
10. Indemnification
10.1 AltiGen Indemnity. Subject to the limitations set forth herein below,
AltiGen shall defend OEM with respect to any claim, suit or proceeding brought
against OEM to the extent it is based upon a claim that any Product sold
pursuant to this Agreement infringes upon any U.S. patent, U.S. trademark, U.S.
copyright or U.S. trade secret of any third party; provided, however, that OEM
(i) promptly notifies AltiGen in writing of such claim, suit or proceeding; (ii)
gives AltiGen the right to control and direct investigation, preparation,
defense and settlement of any claim, suit or proceeding; and (iii) gives
assistance and full cooperation for the defense of same, and, further provided,
that AltiGen's liability with respect to portions of Products provided by or
licensed from third parties will be limited to the extent AltiGen is indemnified
by such third parties. AltiGen shall pay any resulting damages, costs and
expenses finally awarded to a third party, but AltiGen shall not be liable for
such amounts, or for settlements incurred by OEM, without AltiGen's prior
written authorization. If a Product is, or in AltiGen's opinion might be, held
to infringe as set forth above, AltiGen may, at its option, replace or modify
such Product so as to avoid infringement, or procure the right for OEM to
continue the use and resale of such Product. If neither of such alternatives is,
in AltiGen's opinion, reasonably possible, the infringing Product shall be
returned to AltiGen and AltiGen's sole liability, in addition to its obligation
to reimburse any awarded damages, costs and expenses set forth above, shall be
to refund the purchase price paid for such Products by OEM.
10.2 Exclusions. The provisions of the foregoing indemnity shall not apply with
respect to any instances of alleged infringement based upon or arising out of
the use of such Products in any manner for which the Products were not designed,
or for use of Products other than the uses and Original Equipment Manufactures
designated by AltiGen, for use of any Product that has been modified by OEM or
any third party, or for use of any Product in connection with or in combination
with any equipment, devices or software that have not been supplied by AltiGen
Notwithstanding any other provisions hereof, the foregoing indemnity shall not
apply with respect to any infringement based on OEM's activities occurring
subsequent to its receipt of notice of any claimed infringement unless AltiGen
shall have given OEM written permission to continue to market and distribute the
allegedly infringing Product.
10.3 Entire Liability and Limitation. THE FOREGOING SECTIONS 10.1 AND 10.2 STATE
THE SOLE AND EXCLUSIVE REMEDY OF OEM AND THE ENTIRE LIABILITY AND OBLIGATION OF
ALTIGEN WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY PATENT,
COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE PRODUCTS OR
ANY PART THEREOF. IN NO EVENT SHALL ALTIGEN'S LIABILITY UNDER SECTION 10.1 FOR
INDEMNITY OF OEM WITH RESPECT TO INFRINGEMENT OF A PATENT, COPYRIGHT, TRADEMARK
OR TRADE SECRET EXCEED THE AMOUNTS PAID TO ALTIGEN BY OEM UNDER THIS AGREEMENT
IN THE PREVIOUS CALENDAR YEAR--FOR THE PRODUCTS DISTRIBUTED BY OEM PURSUANT TO
THIS AGREEMENT.
10.4 INDEMNITY BY OEM. OEM AGREES TO INDEMNIFY AND HOLD ALTIGEN HARMLESS FROM
ANY CLAIMS, SUITS, PROCEEDINGS, LOSSES, LIABILITIES, DAMAGES, COSTS AND EXPENSES
(INCLUSIVE OF ALTIGEN'S REASONABLE ATTORNEYS' FEES) MADE AGAINST OR INCURRED BY
ALTIGEN AS A RESULT OF NEGLIGENCE, MISREPRESENTATION, OR ERROR OR OMISSION ON
THE PART OF OEM OR REPRESENTATIVE OF OEM. OEM SHALL BE SOLELY RESPONSIBLE FOR,
AND SHALL INDEMNIFY AND HOLD ALTIGEN HARMLESS FROM, ANY CLAIMS,
12
<PAGE>
WARRANTIES OR REPRESENTATIONS MADE BY OEM OR OEM'S EMPLOYEES OR AGENTS WHICH
DIFFER FROM THE WARRANTY PROVIDED BY ALTIGEN IN ITS END USER AGREEMENT.
11. Warranty
11.1 Defective Clause. AltiGen warrants to OEM that the Products shall be free
from defects in workmanship and materials for a period fifteen (15) months
beginning the date of the shipment arrives at the port of entry in Japan. OEM's
exclusive remedy and AltiGen's sole obligation shall be that AltiGen will
either (1) accept the return to AltiGen's designated factory or depot of any
defective Products, test it and, at AltiGen's option, promptly either repair or
replace the defective Products and return it to OEM for installation by OEM, or,
(2) if AltiGen is unable to repair or replace such Products within a reasonable
period, refund the purchase price of the affected Products upon its return to
Altigen. All replaced Products shall become the property of AltiGen. OEM shall
pay for the cost of shipping and insuring returned component to AltiGen, and
AltiGen shall pay the cost of shipping and insuring repaired or replaced
components to OEM.
11.2 Limitation and Disclaimer. EXCEPT FOR THE EXPRESS WARRANTY SET FORCE IN
DEFECTIVE CLAUSE, ALTIGEN EXPRESSLY DISCLAIMS ALL WARRANTIES EXPRESSED OR
IMPLIED RELATING TO THE PRODUCTS, AND FURTHER EXPRESSLY EXCUDES ANY WARRANTY OF
NON-INFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR MERCHANATABILITY.
11.3 NO PERSON IS AUTHORISED TO MAKE ANY OTHER WARRANTY OR REPRESENTATION
CONCERNING THE PERFORMANCE OF THE PRODUCTS OTHER THAN AS PROVIDED IN DEFECTIVE
CLAUSE. OEM SHALL MAKE NO OTHER WARRANTY, EXPRESS OR IMPLIED, OR BEHALF OF
ALTIGEN.
11.4 OEM's Warranty. OEM hereby represents and warrants to AltiGen that neither
this Agreement (or any term hereof) nor the performance of or exercise of rights
under this Agreement, is restricted by, contrary to, in conflict with,
ineffective under, requires registration or approval or tax withholding under,
or affects AltiGen's intellectual property rights (or the duration thereof)
under, or will require any compulsory licensing under, any law or regulation of
any organization, country, group of countries or political or governmental
entity to which OEM is subject.
12. Limitation on Liability
12.1 Waiver of Consequential Damages. IN NO EVENT WILL ALTIGEN BE LIABLE TO OEM
OR ANY THIRD PARTY FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING
WITHOUT LIMITATION ANY LOSS OF INCOME, LOSS OF PROFITS OR LOSS OF DATA, EVEN IF
ALTIGEN HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING OUT OF OR
IN CONNECTION WITH THE GRANT OF THE LICENSE HEREUNDER.
12.2 Limitation of Liability. ALTIGEN'S TOTAL LIABILITY TO OEM OR ANY THIRD
PARTY HEREUNDER SHALL NOT EXCEED THE AMOUNT PAID FOR THE PRODUCTS DURING THE
TWELVE MONTH PERIOD IMMEDIATELY PRECEDING THE DATE ON WHICH THE CLAIM GIVING
RISE TO SUCH LIABILITY AROSE.
12.3 Third Party Claims. AltiGen shall not be liable for any claim by OEM based
on any third party claim, except as stated in Section 10 of the Agreement.
13
<PAGE>
13. Term and Termination
13.1 Term. Subject to the provisions of Sections 13.2 and 13.3 below, this
Agreement is valid for a term of one year and shall be renewed automatically for
additional one year terms provided that each party shall have the right to
terminate this Agreement for convenience upon ninety (90) days written notice
prior to the end of the initial term or any subsequent term of the Agreement.
13.2 Termination for Cause. AltiGen may terminate the Agreement for cause if OEM
fails to meet its payment obligations under the Agreement and such failure
continues for ten (10) days following receipt of written notice from AltiGen. In
addition, either party may terminate this Agreement for cause upon thirty (30)
days written notice to the other party if such other party materially breaches
this Agreement and such material breach is not cured within the thirty (30) day
period following delivery of notice. Either party shall have the right to
terminate this Agreement immediately in the event the other party terminates its
business, or becomes subject to any bankruptcy or insolvency proceeding under
Federal or State statute, and such petition is not dismissed within sixty (60)
days.
13.3 Effect of Termination. For a period of sixty (60) days following
termination of this Agreement, OEM may distribute any Products in OEM's
possession at the time of termination, provided, however, that if AltiGen has
terminated the Agreement pursuant to Section 13.2, OEM's right to distribute the
Products shall immediately terminate. Following any permitted Original Equipment
Manufacture, OEM shall return to AltiGen or, at AltiGen's request, destroy the
copies of the Products and Documentation then in its possession. In addition,
OEM shall be entitled to retain one (1) copy of the Product following
termination solely for the purposes of providing support to Dealers and End
Users. AltiGen shall apply the value of any returned Products to any outstanding
credit balance in OEM's account, but shall not otherwise be required to refund
OEM for the value of the returned Products. The termination of this Agreement
shall not act to terminate the licenses granted to Dealers or End Users pursuant
to this Agreement.
13.4 Acceleration of Payment. Upon termination of the Agreement by AltiGen for
cause, the due dates of all outstanding invoices for Products will automatically
be accelerated so that they become due and payable on the effective date of
termination, even if longer terms had been provided previously. All orders or
portions of orders remaining un-shipped as of the effective date of such
termination shall automatically be canceled.
14. Miscellaneous
14.1 Nonexclusivity. AltiGen retains the right to market, distribute, and
support the Products in the Territory directly to or through any
person or entity on any terms deemed desirable by AltiGen in its sole
discretion.
14.2 Modification and Amendment. Except with respect to Exhibit B hereof,
this Agreement may be modified or amended only in writing by the
consent of both parties.
14.3 Survival. Sections 9.2, 9.3, 10, 11, 12, 13.3, 13.4 and 14 shall
survive termination of this Agreement for three (3) years.
14.4 Governing Law. This Agreement is made in accordance with and shall be
governed and construed under the laws of the State of California, as
applied to agreements executed and performed entirely in California
by California residents. OEM agrees to submit to the jurisdiction of
the Northern District of California, San Jose Division, or
14
<PAGE>
EXHIBIT 10.22
the Santa Clara County Superior Court, as appropriate, and hereby waives
any objections to the jurisdiction and venue of such courts.
14.5 Toll Fraud. OEM is forbidden from stating or implying that AltiGen
Products provide immunity from fraudulent intrusion (Toll Fraud). OEM must
use this language on all sales materials and contract involving AltiGen
Products.
14.6 Notices. All notices, demands, or consents required or permitted under
this Agreement shall be in writing and shall be delivered personally or
sent by a national overnight courier service or by registered or
certified, return receipt requested mail to the other party at the
addresses first set forth above. All notices, demands, or consents shall
be deemed effective upon personal delivery or five(5) days following
dispatch via first class mail or three(3) business day following deposit
with any national overnight courier service in accordance with this
section.
14.7 No Partnership of Joint Venture. No agency, employment, partnership, joint
venture, or other joint relationship is created hereby, it being
understood that OEM and AltiGen are independent contractors vis-a-vis one
another and that neither has any authority to bind the other in any
respect whatsoever.
14.8 Force Majeure. Neither party shall be deemed to be in default of or to
have breached any provision of this Agreement as a result of any delay,
failure in performance, or interruption of service resulting directly or
indirectly from acts of God, acts of civil or military authority, civil
disturbance, war, strikes or other labor disputes, fires, transportation
contingencies, laws, regulations, acts or orders of any government agency
or official thereof, other catastrophes or any other circumstances beyond
the party's reasonable control.
14.9 Export Control. The parties acknowledge that the Products may be subject
to the export control laws of the United States of America, including the
U.S. Bureau of Export Administration regulations, and hereby agree to obey
any and all such laws. The parties agree to comply with the U.S. Foreign
Corrupt Practices Act of 1977, as amended, and with all applicable foreign
laws relating to the use, importation, licensing or Original Equipment
Manufacture of the Products.
14.10 Assignment. Neither party may assign this Agreement or any of its rights,
duties or obligations under this Agreement to any third party without the
other party's prior written consent, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, either party may
assign its rights and delegate its obligations under this Agreement
without the consent of the other party to a purchaser of all or
substantially
15
<PAGE>
all of its voting stock or capital assets or to an entity with which
such party merges or is consolidated.
14.11 Severability and Waiver. In the event any provision of this Agreement is
held to be invalid or unenforceable, the valid or enforceable portion
thereof and the remaining provisions of this Agreement will remain in full
force and effect. Any waiver (express or implied) by any party of any
default or breach of this Agreement shall not constitute a waiver of any
other or subsequent default or breach.
14.12 Entire Agreement. This Agreement and all Exhibits referred to herein
embody the entire understanding of the parties with respect to the subject
matter hereof and shall supersede all previous communications,
representations or understandings, either oral or written, between the
parties relating to the subject matter hereof.
14.13 Readings. The section headings appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any such section nor in any way affect
this Agreement.
14.14 Parties Advised by Counsel. This Agreement has been negotiated between
unrelated parties who are sophisticated and knowledgeable in the matters
contained in this Agreement and who have acted in their own self interest.
In addition, each party has been represented by legal counsel. The
provisions of this Agreement shall be interpreted in a reasonable manner
to effect the purpose of the parties, and this Agreement shall not be
interpreted or construed against any party to this Agreement because that
party or any attorney or representative for that party drafted this
Agreement or participated in the drafting of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
including the Exhibits hereto, and incorporated herein by reference, as of the
date first above written above.
16
<PAGE>
ALTIGEN COMMUNICATIONS NITSUKO CORPORATION (OEM)
By: /s/ Gilbert Hu By: /s/ Toshio Kita
-------------------------------- -------------------------------------
Name: Gilbert Hu Name: Toshio Kita
------------------------------ -----------------------------------
Title: President & CEO Title: Vice President
----------------------------- ----------------------------------
SUMISHO ELECTRONICS, INC./SUMITRONICS,
INC. (BUSINESS DEVELOPMENT LIAISON FOR
THE PRIMARY TERRITORY)
By:____________________________________
Name:__________________________________
Title:_________________________________
17
<PAGE>
[Translation]
EXHIBIT A
SOFTWARE PRODUCT LICENSE AGREEMENT
Nitsuko Corporation ("Nitsuko") hereby grants to you a non-transferable,
non-exclusive right to use the software products furnished along with this
Agreement (the "Licensed Program") only within Japan subject to the following
terms and conditions, and you hereby agree to the following terms and
conditions. Any rights related to the Licensed Program and any copies thereof
will be retained by Nitsuko in accordance with their contents.
1. License
(1) You may install and use the machine-readable Licensed Program only within
Japan and only on one (1) computer. If you use the Licensed Program on any
computers exceeding the number permitted in this Agreement, it shall be
necessary separately to acquire from Nitsuko the right to use the Licensed
Program per each additional computer.
(2) You may not cause third parties to use or have access to the Licensed
Program by granting a license, transferring, distributing, leasing or in
any other manner.
(3) You may not modify, convert, decompile or dissemble all or any part of the
Licensed Program, or allow third parties to do so.
2. Copy of Licensed Program
You shall not copy the Licensed Program in any manner; provided, however, that
one copy thereof may be made only if necessary for backup.
3. Limitation and Disclaimer of Warranty
(1) If the Licensed Program fails to operate substantially in accordance with
the operating manual attached thereto or if any physical defects are found
in the medium of the Licensed Program or its attachment packed along
therewith, Nitsuko's sole obligation shall be that Nitsuko will either
replace the defective products or refund the purchase price of the
Licensed Program.
(2) Nitsuko will not be liable for your choice, introduction, use and results
of the Licensed Program made for the purpose of achieving certain expected
results.
(3) In no event will Nitsuko be liable for any indirect or direct loss,
damages, etc., arising out of or in connection with the use of the
Licensed Program or for any dispute arising between you and third parties
resulting from or in connection with the use thereof.
<PAGE>
4. Exportation
You may not directly or indirectly export all or any part of the Licensed
Program in any manner.
[5]. Term
(1) This Agreement shall be valid when you unwrap the package of the Licensed
Program.
(2) This Agreement shall be terminated when you discontinue using the Licensed
Program. Upon discontinuing use of the Licensed Program, you shall destroy
the Licensed Program and any copies and attachment thereto.
(3) Nitsuko may immediately terminate this Agreement if you breach any of the
provisions of this Agreement.
(4) This Agreement shall remain valid until terminated due to any event
prescribed above in the item (1), (2) or (3).
Please read the "Software Product License Agreement" set forth in the
operating manual before breaking the seal of the products.
After breaking the seal, you are considered to have agreed to the
contents of the "Software Products License Agreement" in the operating
manual.
<PAGE>
EXHIBIT B
PRODUCT LIST
and
DISCOUNT SCHEDULE
15. HARDWARE
Alti-CDOO12UD 0 X 12 CID Quantum Platform [*]
Alti-CDO4O8UD-J 4 X 8 CID Quantum Platform [*]
(J-version)
ISDN Board (4BRI,T-interface) [*]
ISDN Board (4BRI,U-interface) [*]
Triton Board [*]
16. Software
ALTIWARE 0E3.OS/W(HELIOSS/W) [*]
Aid Console License [*]
OEM have the right to copy the original Software defined by the above item 2.
Article 3.9 (taxes) shall be applied for the above item 2.
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
19
<PAGE>
EXHIBIT C
PURCHASE OBJECTIVES
OEM commits to the following Purchase Objectives: [*], commencing from the
acceptance of the Products (excepted in April '99)
The first [*] from the date the acceptance of the Products shall be
the channel training period. For the next [*] after the said
period, the volume commitment (Purchase Objectives) for both the Primary and
Secondary Territories representing the worldwide Nitsuko organization [*]
systems.**
**Typical Definition of a System:
1 Quantum Board; 1 Triton DSP Board; 1 ISDN BRI (T or U) Board
1 Helios SW; 1 Attendant Console SW
Quarterly Purchase Objectives:
Q3 Q4
April, May, June'99 July, Aug, Sept'99
[*] [*]
- ----------------------------------- ----------------------------------------
(Systems) (Systems)
Q1 Q2
Oct., Nov., Dec'00. Jan., Feb., March'00
[*] [*]
- ----------------------------------- ----------------------------------------
(Systems) (Systems)
Q3 Q4
April, May, June'00 July, Aug, Sept'00.
[*] [*]
- ----------------------------------- ----------------------------------------
(Systems) (Systems)
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
20
<PAGE>
EXHIBIT 10.23
Joint Development Agreement
Between
AltiGen Communications, Inc.
and
Nitsuko Corporation
and
Sumisho Electronics Co., Ltd.
* Some material in this Exhibit has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
Joint Development Agreement
---------------------------
This Joint Development Agreement ("this Agreement") is made and entered into as
of the last day written below by and between AltiGen Communications Inc., a
California corporation, with principal offices at 46635 Northport Loop East,
Fremont, CA 94538 ("AltiGen") and Nitsuko Corporation, a Japanese corporation,
with principal offices at 2-6-1 Kitamikata, Takatsu-ku, Kawasaki, 213 Japan
("Nitsuko") and Sumisho Electronics Co. Ltd., a Japanese corporation, with its
principal office is located at 2-23 Shimomiyabi-cho, Shinjuku-ku, Tokyo,
162-8580 Japan ("Sumisho").
WHEREAS, AltiGen is the owner of certain proprietary hardware and software
products that AltiGen distributes and sublicense; and
WHEREAS, Nitsuko as in business of design and manufacturing, marketing,
distributing and supporting telephone and computer systems worldwide; and
WHEREAS, Sumisho has an extensive expertise and experience in marketing of
hardware and software products in Japan, and
WHEREAS, AltiGen, Nitsuko and Sumisho wish to form a partnership of mutual
cooperation to work together to develop, market and distribute a Japanese
version of AltiServ for Nitsuko's telecom server platform in the Territory as
defined below.
NOW, THEREFORE, the parties mutually agree as follows,
1. DEFINITIONS
- --------------
1.1 "Effective Date" means the later of the dates this Agreement is accepted
----------------
and executed by a proper officer of each party.
1.2 "License" means the licenses granted pursuant to the Paragraphs 4 of this
---------
Agreement.
1.3 "Licensed Programs" means the proprietary computer software programs of
-------------------
AltiGen and Nitsuko licensed under this Agreement as are from time to time
specified in Exhibit D by mutual agreement of AltiGen and Nitsuko, consisting of
a series instruction in object code form and source code form as amended or
revised from time to time to add enhancements.
1.4 "Licensed Materials" means any user manuals, diagrams, listings, handbooks
--------------------
and other written materials, without limitation, the written materials of the
Licensed Programs that are from time to time specified in Exhibit B by mutual
agreement of AltiGen and Nitsuko for use in conjunction with the Licensed
Programs.
1.5 "Licensed Products" means the Licensed Materials and the Licensed Programs.
-------------------
1.6 "End Hardware" means the proprietary hardware products of AltiGen and
--------------
Nitsuko that result from the development modification and adaptation by AltiGen
and Nitsuko specified in Exhibit B.
1.7 "End Programs" means a computer software program that results from the
--------------
modification, adaptation and translation by Nitsuko of the Licensed Programs
granted by AltiGen to Nitsuko pursuant to Paragraph 4. The End Programs are
intended to be derivative works of the Licensed Programs.
1.8 "End Materials" means any user manuals, handbooks and other written
---------------
materials that result from the transition, modification and adoption by Nitsuko
and are provided by Nitsuko to End Users as defined below for use in conjunction
with the End Programs. The End Materials are intended to be derivative works of
the Licensed Materials.
1.9 "End Products" consist of the End Hardware, the End Programs and the End
--------------
Materials.
1.10 "End Users" means any person or entity that is granted a license by Nitsuko
-----------
pursuant to the authority granted under this Agreement, to use a sublicense.
<PAGE>
1.11 "Dealers" means any person or entity that is granted a license by Nitsuko,
---------
pursuant to the authority granted under this Agreement, to resell the End
Products.
1.12 "Design Defect" means a defect in the design of the Licensed Programs that
---------------
results in the Licensed Programs failing to perform substantially as described
in the applicable documentation specified in Exhibit B for use in conjunction
with the Licensed Programs.
1.13 "Enhancements" means an updated version of the Licensed Programs.
--------------
1.14 "Development Cost" means the costs by AltiGen incurred in development of
------------------
any item of derivative works of the Licensed Materials and the Licensed Programs
including, without limitation, the End Materials and the End Programs, or any
work-in-process created in connection with AltiGen's efforts to develop the
Licensed Software.
1.15 "Phase I" means the development of the End Products specified in Exhibit A.
---------
1.16 "Phase II" means an enhancement of the End Products developed in Phase I.
----------
1.17 "Development Schedule" means the milestone of the development of Phase I
----------------------
which shall be mutually determined and agreed by both parties.
1.18 "Specifications" means the hardware specifications and the software
----------------
specifications of the Products to be developed an Phase I.
1.19 "Territory" means collectively 'the Primary Territory' and 'the Secondary
-----------
Territory' as defined below.
1.20 "Primary Territory" means Japan.
-------------------
1.21 "Secondary Territory" means worldwide. Specific regions within the
---------------------
Secondary Territory shall be mutually determined by both parties.
1.22 "OEM Agreement" means a separate agreement to be signed by and between the
---------------
parties for the marketing and the distribution of the End Products In the
Territory.
1.23 "Liaison" means strategic business partners that AltiGen and Nitsuko
---------
designate. Sumisho and its US representative, Sumitronics, Inc. with its
principal office located at 2900 Patrick Henry Drive, Santa Clara, CA 95054
("Sumitronics") shall act as a Liaison between the parties.
1.24 "System" means one (1) ISDN board, one (1) Quantum board and one (1)
AltiWare OE.
2. DEVELOPMENT
- --------------
2.1 AltiGen and Nitsuko agree to undertake and complete the development of the
End Products.
2.2 AltiGen and Nitsuko will provide each other with consultative design
assistance as required in a prompt and expeditious manner.
2.3 If either party proposes a change to Exhibit A, B and C, the other party
will reasonably and in good faith consider and discuss with the proposing party
the proposed change.
2.4 AltiGen agrees to negotiate in good faith on any future development efforts
or requests from Nitsuko to enhance the design for future AltiServ based Nitsuko
telecom server platforms.
3. OEM AGREEMENT
- ----------------
3.1 AltiGen and Nitsuko shall formalize and sign the OEM Agreement by October
31, 1998.
3.2 Nitsuko shall license AltiGen's End Products through the auspices of the
OEM Agreement.
<PAGE>
3.3 Subject to the terms and conditions set forth in the OEM Agreement, AltiGen
shall grant Nitsuko a non-exclusive, non-transferable right to (a) market and
distribute the End Products solely to the Dealers and the End Users located in
the Territory, or to specific vendors to be mutually agreed upon in writing, and
(b) use the End Products for those purposes set forth in the Agreement.
3.4 Pricing of the End Product shall be determined in the OEM Agreement. The
price of the End Products shall be reviewed every six (6) months after the OEM
Agreement is executed. The price of the End Products as of The Effective Date
shall be specified in Exhibit C.
3.5 A definitive Volume Commitment shall be provided by Nitsuko as specified in
Exhibit C and shall be included in the OEM Agreement. An Initial open purchase
order for the total dollar amount of the Volume Commitment shall be issued by
Nitsuko to AltiGen three months prior to the official End Products release.
Specific purchase orders and shipments may be placed at different intervals
based on actual business requirements, however shipments for the total Volume
Commitment must be made within the twelve (12) month period following the
channel training period.
3.6 Payment terms for the Products shall be set forth in the OEM Agreement.
3.7 Nitsuko shall provide the first level of support AltiGen shall provide
Nitsuko with second level support. (Interactions will be limited to working with
Nitsuko rather than directly with the customer).
3.8 The warranty of the End Hardware shall be for a period of eighteen (18)
months from the date of shipment from providing party.
3.9 AltiGen agrees that Sumisho shall serve as one of Nitsuko's designated
Dealers of the End Product in the Primary Territory upon completion of Phase I.
4. LICENSE GRANTED
- ------------------
4.1 Subject to all terms of this Agreement, AltiGen grants to Nitsuko rights
(i) to use, reproduce, modify and adapt the software provided by AltiGen to
Nitsuko internally and solely In conjunction with Nitsuko's development
obligations pursuant to Paragraph 7 of this Agreement, (ii) to reproduce the
Licensed Products for the purpose of the distribution, and (iii) to license the
Licensed Product to end users within the Territory.
4.2 Subject to all terms of this Agreement, Nitsuko grants to AltiGen rights to
use, reproduce, modify and adapt the software provided by Nitsuko to AltiGen
internally and solely in conjunction with AltiGen's development obligations
pursuant to Paragraph X of the Agreement.
4.3 Except as may specifically be provided herein, Nitsuko shall have no right
to reproduce or distribute any product developed by AltiGen unless authorized by
AltiGen in writing.
4.4 Notwithstanding anything in this Agreement or elsewhere to the contrary,
(i) Nitsuko shall have no right to license, sublicense or otherwise distribute,
in either object code form or source code form, the Licensed Products or the End
Products for use outside of the Territory.
4.5 AltiGen hereby grants to Nitsuko a non-exclusive, non-transferable license
to use the Licensed Materials and the End Materials and, in object code form
only, the Licensed Programs and the End Programs solely for Nitsuko's use and
solely within the Territory.
4.6 AltiGen hereby grants to Nitsuko, a non-exclusive, non-transferable license
to translate the Licensed Materials and to modify and adapt the Licensed
Materials to develop the End Product. Nitsuko's right to modify the Licensed
Programs is Limited to such translation, modification and adaptation as may be
required in connection with the translation of the user screens to Kanji and the
adaptation of the Licensed Programs to operate on Japanese computer systems
without any change in the functioning or the internal logic, structure or
programming techniques of the Licensed program. Nitsuko shall have no authority
to develop or distribute any modifications to the Licensed Program or the End
programs other than as permitted under the preceding sentence.
4.7 AltiGen hereby grants to Nitsuko an exclusive in the Primary Territory,
non-transferable license to sublicense the use of the Licensed Materials for
resell purpose and, in object code form only, the Licensed programs solely to
persons and entitles within the Primary Territory, provided that each such
sublicense (i) is
<PAGE>
pursuant to a written software license agreement in form and substance approved
by AltiGen: (ii) use the Licensed Materials and, in object code form only, the
Licensed Programs solely for Nitsuko's internal use in the Territory solely in
connection with (a) the support of End Users and (b) the marketing and
promotion of the Licensed Products to prospective End Users solely on a computer
that is owned or leased and under the sole control of Nitsuko.
4.8 Nitsuko hereby grants to AltiGen a non-exclusive, non-transferable license
to use the Licensed Materials and End Materials and, in object code form only,
the Licensed Programs and the End Programs solely for Nitsuko's use and solely
within the Territory.
4.9 Nitsuko hereby grants to AltiGen, a non-exclusive, non-transferable license
to translate the Licensed Materials and to modify and adapt the Licensed
Materials to develop the End Products. AltiGen's right to modify the Licensed
Programs is limited to such translation, modification and adaptation as may be
required in this Agreement.
4.10 Except as may specifically be provided herein, AltiGen shall have no right
to reproduce or distribute any product developed by Nitsuko unless authorized by
Nitsuko in writing.
5. DEVELOPMENT COST
- -------------------
5.1 In consideration of the Product Development by AltiGen, Nitsuko agrees to
pay to AltiGen a non-refundable development cost of [*] for the Phase I
Development Cost as below.
a) Nitsuko agrees to pay AltiGen [*] of the Phase I Development Cost within
[*] of the Effective Date of this Agreement.
b) Nitsuko agrees to pay AltiGen the remaining [*] of the Phase I
Development Cost within [*] of the acceptance of the End Products to be
developed by AltiGen defined in Exhibit A.
5.2 Except as stated above there will be no additional charge for
documentation, licenses or any royalties for the Phase I Development, services
or rights to the End Products.
5.3 The development cost of Phase II shall be agreed and determined by AltiGen
and Nitsuko after the completion of Phase I.
5.4 Nitsuko shall have the rights to sell the ISDN Board on a non-exclusive
basis and the CSIU Board and the NIC Router Board on an exclusive basis in the
Primary Territory. AltiGen shall have the right to freely sell the said boards
in all other territories. AltiGen shall have the right to sell the ISDN Board in
the Primary Territory provided that AltiGen and Nitsuko shall enter into a
separate agreement which gives Nitsuko the right to sell the following analog
boards in the Primary Territory. In such separate agreement, AltiGen shall
assure that the analog boards work with the software jointly developed by
AltiGen and Nitsuko in this Agreement. In the event that such agreement will not
be agreed between the parties, Nitsuko's right to sell ISDN Board in the Primary
Territory shall be exclusive and AltiGen shall have no right to sell the said
board in the Primary Territory.
a) The J-Version Analog Board: Quantum Board Rev. D 408 [*]
b) The J-Version Analog Board: Quantum Board Rev. D 804 [*]
5.5 Nitsuko grants to AltiGen a non-exclusive right to distribute NIC Router
Board an the Territories except the Primary Territory.
6. Responsibility and Obligation of AltiGen
- -------------------------------------------
6.1 AltiGen shall supply Nitsuko with the followings:
a) one (1) copy in source code form of each Licensed Program listed in
Exhibit A and Exhibit B.
b) one (1) copy in object code form of each of the Licensed Programs listed
in Exhibit A and Exhibit B, and
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
c) one (1) machine readable copy of the Licensed Materials listed in
Exhibit A and Exhibit B provided that Licensed Materials which are not
available in machine readable form may be provided in hard copy form.
6.2 AltiGen shall safeguard and keep confidential all confidential information
of Nitsuko and shall return all confidential information of Nitsuko within
thirty (30) days of the termination of this agreement. AltiGen agrees to treat
any such proprietary information received from Nitsuko with the same care with
which Nitsuko treats its own proprietary information.
6.3 AltiGen will supply Nitsuko with one (1) demonstration copy of the Licensed
Materials and one (1) demonstration copy of such other documentation and
technical information as exists and as may be reasonably required by Nitsuko to
provide End Users with the installation, maintenance and support services
required by this Agreement. Such copies of the Licensed Materials and other
documentation and technical information shall be delivered by AltiGen to Nitsuko
within thirty (30) business days after the Effective Date of this Agreement. The
Licensed Materials and other documentation and technical information shall be
used by Nitsuko only in connection with the provision by Nitsuko of such
installation, maintenance and support services and in connection with the
marketing and promotion by Nitsuko of Licensed Products and the End Products to
prospective End Users.
6.4 AltiGen may provide Nitsuko with a description of proposed enhancements and
proposed licensed products, which description shall be provided by AltiGen to
solicit Nitsuko's opinion of the marketability of such proposed enhancements and
proposed licensed products.
6.5 AltiGen shall provide Nitsuko with assistance by telephone (only during
AltiGen's normal business hours at its offices in Fremont, California) and/or
facsimile and/or e-mail regarding the installation, use, maintenance and support
of the Licensed Programs.
6.6 If Nitsuko provides AltiGen with prompt written notice of a Design Defect
after receipt of notice from Nitsuko of such Design Defect, AltiGen shall, at
its expense, use diligent good faith efforts to correct such Design Defect
within [*] of receipt of notice thereof. AltiGen agrees (i) that it will begin
its efforts to correct such alleged design defect within [*] of notice thereof
from Nitsuko, and (ii) that, if determined by AltiGen to be necessary, AltiGen
shall, at its expense, send a member of AltiGen technical staff to Nitsuko's
principal office to correct or circumvent such alleged Design Defect within the
prescribed time period. Notwithstanding the foregoing, in the case of a Design
Defect that does not adversely affect the utility of the Licensed Programs to
material extent, AltiGen will not be obligated to pursue correction efforts in
accordance with the foregoing sentence. In such a case, AltiGen may, if it deems
appropriate, (a) include a correction to such design defect in a subsequent
release of the licensed program, and (b) pending such inclusion, supply Nitsuko
with a workaround for use by its customers.
6.7 AltiGen shall provide Nitsuko at free of charge with copies of such other
materials and documentation as may be from time to time specified in Exhibit A
and B by mutual agreement of AltiGen and Nitsuko.
6.8 AltiGen shall, at its expense, procure and be responsible for obtaining all
licenses or permits that may be required under the United States Export control
laws. Nitsuko shall, at its own expense, procure and be responsible for
obtaining all licenses or permits and paying all duties which may be required
under the import laws and regulations of any country in the Territory.
6.9 AltiGen shall supply Nitsuko the documentation in a mutually agreed
electronic format to facilitate customization by Nitsuko.
6.10 AltiGen will provide at least the minimum training to Nitsuko so that
Nitsuko personnel become proficient in the areas concerning the End Products as
follows:
a) Use/Configuration
b) Management/Interface
c) Troubleshooting Guidelines
6.11 AltiGen shall be responsible for all travel and living expenses incurred by
AltiGen.
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
7. RESPONSIBILITY AND OBLIGATION OF NITSUKO
- -------------------------------------------
7.1 Nitsuko shall supply AltiGen with the followings;
a) one (1) copy in source code form of each the Licensed Programs listed an
Exhibit A and Exhibit B.
b) one (1) copy in object code form of each of the Licensed Programs listed
in Exhibit A and Exhibit B, and
c) one (1) machine readable copy of the Licensed Materials listed in
Exhibit A and Exhibit B provided that Licensed Materials which are not
available in machine readable form may be provided in hard copy form.
7.2 Nitsuko shall be exclusively responsible of the collection and payment of
all taxes, tariffs and duties (including without limitation sales, use, value,
added, and excise taxes and customs duties of all types, but excluding Japanese
withholding tax on AltiGen's income) arising from licenses or sublicenses of the
Licensed Programs.
7.3 Nitsuko hereby agrees that the Licensed Programs and Licensed Materials are
confidential information and valuable trade secrets of AltiGen and, subject to
Nitsuko's right to license the Licensed Programs as provided herein, Nitsuko
hereby agrees to safeguard such information using measures that are equal to the
standard of performance used by Nitsuko to safeguard its valuable trade secrets.
Without limitation of the foregoing, (a) Nitsuko shall not make or retain more
than two (2) copies of the source code of the Licensed Programs and related
systems and programming documentation (collectively, the 'source code'), (b)
Nitsuko shall retain all copies of the source code in a secure place at all
times, and (c) Nitsuko shall provide access to the source code only to such of
its employees who have need to know such information in connection with
Nitsuko's activities authorized under this agreement and who have executed
confidentiality agreements by which they agree to maintain the confidentiality
of the source code and not to use is for any purpose not authorized under this
agreement. Nitsuko's possession and use of the source code shall also be subject
to Paragraph 4.
7.4 Nitsuko shall promptly advise AltiGen of any observed or reported problems
with the Licensed Programs.
7.5 Nitsuko will use its diligent best effort to develop the derivative works
of the Licensed Materials and the Licensed Programs as per Development Schedule.
7.6 Nitsuko shall safeguard and keep confidential all confidential information
of AltiGen and shall return all confidential information of AltiGen within
thirty (30) days of the termination of this Agreement. Nitsuko agrees to treat
any such proprietary information received from AltiGen with the same care with
which Nitsuko treats its own proprietary information.
7.7 Nitsuko shall promptly fulfill the payment and other obligations of Nitsuko
under that Agreement.
7.8 Nitsuko shall be solely responsible for paying, all of the travel and
living expenses incurred by personnel or representatives of Nitsuko in
connection with this Agreement.
8. RESPONSIBILITY AND OBLIGATION OF LIAISON
- -------------------------------------------
8.1 The Liaison shall coordinate logistics including purchase orders, payments
and shipping.
8.2 The Liaison shall safeguard and keep confidential all confidential
information of AltiGen and Nitsuko, shall not disclose such confidential
information to any person without authorization from AltiGen and Nitsuko, shall
not use such confidential information for any purpose other than in connection
with the exercise of the Liaison's responsibility and obligations of this
Agreement, and upon termination or expiration of this agreement shall return all
confidential information of AltiGen and/or Nitsuko to AltiGen and/or Nitsuko
within thirty (30) days of such termination or expiration.
8.3 The Liaison will use its diligent best efforts to assist AltiGen and
Nitsuko to develop the derivative works of the Licensed Materials and the
licensed Programs as per Development Schedule.
9. MEETINGS
- -----------
<PAGE>
AltiGen and Nitsuko shall have meetings during the development period to discuss
and approve the progress of the development by each party. Time, date and place
for such meeting shall be arranged by the Liaison and as provided by mutual
agreement of AltiGen and Nitsuko.
10. ACCEPTANCE
- --------------
10.1 AltiGen and Nitsuko agree that the parties will share testing and
integration as defined in Exhibit B. The parties will provide each other with
consultative design assistance as required in a prompt and expeditious manner.
10.2 The Acceptance of the End Products shall occur when the receiving party
determines, in accordance with a mutually agreed test plan for the End Products,
that the End Products meets the specifications set forth in Exhibit B.
10.3 AltiGen may accept or reject the End Products within thirty (30) days of
delivery by Nitsuko. AltiGen may reject the End Products if it materially fails
to meet the requirements therefor except normal bugs or if it is otherwise
reasonably unacceptable. If AltiGen rejects the End Products, Nitsuko promptly
correct the failures specified by AltiGen in a rejection notice. When Nitsuko
believes it has made the necessary corrections, Nitsuko will again deliver the
Product to AltiGen and the above acceptance/rejection/correction provisions
shall be reapplied until the End Products are accepted provided, however, that
upon the third rejection, AltiGen may terminate this Agreement by thirty (30)
days written notice.
10.4 Nitsuko may accept or reject the End Products within thirty (30) days of
delivery by AltiGen. Nitsuko may reject the End Products if it materially fails
to meet the requirements therefor except normal bugs or if it is otherwise
reasonably unacceptable. If Nitsuko rejects the End Products, AltiGen promptly
correct the failures specified by Nitsuko in a rejection notice. When AltiGen
believe it has made the necessary corrections, AltiGen will again deliver the
End Products to Nitsuko and the above acceptance/rejection/correction provisions
shall be reapplied until the End Products are accepted provided, however, that
upon the third rejection, Nitsuko may terminate this Agreement by thirty (30)
days written notice.
11. JOINT MARKETING
- -------------------
AltiGen and Nitsuko agree to a joint announcement to publicize the formation of
the relationship between the parties and to announce and promote the End
Products. Neither party may make a public announcement regarding this
relationship without the written consent of the other. The parties agree that
permission shall not be unreasonably withheld.
12. TERM AND TERMINATION
- ------------------------
12.1 The term of this Agreement shall be one (1) year commencing on the
Effective Date and shall be automatically renewed for further and successive
period of one (1) year each unless terminated earlier as provided herein.
12.2 If Nitsuko shall default in making any payment required under this
agreement, AltiGen may give written notice of its intention to terminate this
Agreement, describing in reasonable detail the funds not paid when due. If
Nitsuko upon receiving such notice fails to pay such funds within thirty (30)
days, then AltiGen may, while such failure continues, terminate this Agreement
upon written notice.
12.3 If Nitsuko shall breach any of the provisions of this Agreement, then
AltiGen may terminate this Agreement, provided that Nitsuko shall have thirty
(30) days from written notice by AltiGen to correct the infraction.
12.4 If AltiGen shall breach any of the provisions of this Agreement, then
Nitsuko may terminate the Agreement, provided that AltiGen shall have thirty
(30) days from written notice by AltiGen to correct the infraction.
12.5 Either party shall be entitled forthwith to terminate this Agreement by
giving written notice of not less than one hundred and eighty (180) days to the
other without any reason.
<PAGE>
12.6 Either party shall be entitled forthwith to terminate the Agreement by
giving written notice of not less than thirty (30) days to the other if:
a) other party fails to pay or perform when due any obligation owed to the
other or breaches any material provision of this Agreement;
b) an encumbrance takes possession or a receiver is appointed over any of
the property or assets of that other party;
c) other party becomes subject to an involuntary bankruptcy proceeding or
makes any voluntary arrangement with its creditors;
d) other party goes into liquidation (except for the purposes of
amalgamation or reconstruction and in such manner that the company
resulting therefrom effectively agrees to be bound by or assumes the
obligations imposed on that other party under this Agreement);
e) anything analogous to any of the foregoing under the law of any
jurisdiction occurs in relation to that other party; or
f) other party ceases, or threatens to cease, to carry on business.
12.7. Any waiver by either party of a breach of any provision of this Agreement
shall not be considered as a waiver of any subsequent breach of the same or any
other provision of this Agreement.
12.8. Termination is not the sole remedy under this Agreement and whether or
not termination is effected, all other remedies will remain available.
13. EFFECT OF TERMINATION OR EXPIRATION.
- ----------------------------------------
13.1 Upon termination of the term of this Agreement, the following shall have
effect:
a) All rights and licenses granted to Nitsuko under this Agreement will
immediately cease and terminate;
b) All outstanding unpaid invoices and other accrued but unpaid amounts
owing by Nitsuko to AltiGen will become payable immediately in place
of the payment terms previously agreed between the parties;
c) All rights and licenses granted to AltiGen under this Agreement will
immediately cease and terminate;
d) All outstanding unpaid invoices and other accrued but unpaid amounts
owing by AltiGen to Nitsuko will become payable immediately in place of
the payment terms previously agreed between the parties.
13.2 Neither party hereto will be liable to the other party for damages, losses,
costs or expenses of any kind or character whatsoever on account of the
termination of this Agreement, whether such damages, losses, costs or expenses
arise from the loss of prospective distributions, or expenses incurred or
investments made in connection with the establishment, development or
maintenance of AltiGen's or Nitsuko's business, or any other resort whatsoever;
provided, however, that notwithstanding anything to the contrary contained
herein, such termination shall not affect any claim, demand or liability of
AltiGen or Nitsuko arising pursuant to this Agreement prior to the termination
hereof.
14. INTELLECTUAL PROPERTY RIGHTS.
- ---------------------------------
14.1 AltiGen shall retain ownership of (i) all intellectual property rights in
and to the AltiServ product (ii) all intellectual property rights in and to
AltiGen's client Software and (iii) any and all AltiGen confidential or
proprietary information provided hereunder.
14.2 AltiGen shall retain ownership of all intellectual property rights of all
technology developed by AltiGen pertaining to this Agreement.
<PAGE>
14.3 Nitsuko shall retain ownership of all intellectual property rights of all
technology developed by Nitsuko pertaining to this Agreement.
14.4 Cross licensing of the intellectual property rights of the technology
developed by AltiGen and the intellectual property rights of the technology
developed by Nitsuko shall be made possible.
14.5 Dual ownership of the intellectual property rights shall be determined on
a case-by-case basis in instances where there is a high degree of joint
technology development.
14.6 Excepting instances where dual ownership has been determined, both parties
shall retain sole ownership of all components developed by their given
organization in this joint development.
15. CONFIDENTIALITY
- --------------------
15.1 Neither party shall, without the prior written consent of the other party,
disclose any confidential information of the other party.
15.2 Neither party shall use any confidential information of the other party
for any purpose except to implement its obligations under this Agreement.
16. PATENT AND COPYRIGHT INDEMNIFICATION
- -----------------------------------------
16.1 AltiGen shall defend or settle, at its own expense, any action brought
against Nitsuko and the Liaison to the extent that it is based on a claim that
any of the Products as provided by AltiGen pursuant to this Agreement infringe
any patent, copyright, trademark or trade secret and AltiGen will pay reasonable
expenses of Nitsuko and all costs, damages and attorneys fees awarded against
Nitsuko and the Liaison in any such action attributable to any such claim.
Nitsuko agrees to notify AltiGen within 30 days in writing of any such claims or
of its obtaining knowledge of any possible such claim that AltiGen shall have
the sole control of the defense and settlement of such claims, and that Nitsuko
shall cooperate with AltiGen in a reasonable way to facilitate the settlement or
defense of any such claim.
16.2 Nitsuko shall defend or settle, at its own expense, any claim brought
against AltiGen to the extent that it is based on a claim that any of the End
Products infringe any patent, copyright, trademark or trade secret and Nitsuko
will pay reasonable expenses of AltiGen and all costs, damages and attorneys
fees awarded against AltiGen in any such action attributable to any such claim.
AltiGen agrees to notify Nitsuko within 30 days in writing of any such claims or
of its obtaining knowledge of any possible such claim, that Nitsuko shall have
the sole control of the defense of any action on such claim and of all
negotiations for its settlement or compromise, and that AltiGen shall cooperate
with Nitsuko in a reasonable way to facilitate the settlement or defense of any
such claim.
17. LIMITED WARRANTY
- ---------------------
17.1 For [*] from the date of delivery, AltiGen warrants that each Licensed
Program (when property installed and used) will perform as documented by AltiGen
in the Licensed Materials supplied by AltiGen as in effect from time to time for
the version distributed. If during this [*] period a Licensed Program fails to
perform as warranted due to causes other than a Design Defect, AltiGen will
replace it with the most recent maintenance release, which will include all
enhancements for such licensed programs. In the case of a Design Defect, AltiGen
shall, at its expense, use its best efforts to correct such Design Defect within
[*] of receipt of notice thereof subject to all the provisions of Paragraph 6.6.
17.2 All other warranties, express or implied, are hereby disclaimed and
AltiGen specifically disclaims any express or implied warranty of fitness for a
particular purpose and any express or implied warranty of merchantability.
AltiGen makes no warranty pursuant to this agreement of any kind respecting the
licensed products to anyone other than Nitsuko.
17.3 For [*] from the date of delivery, Nitsuko warrants that each Licensed
Program (when property installed and used) will perform as documented by Nitsuko
in the Licensed Materials supplied by Nitsuko as in effect from time to time for
the version distributed. If during this [*] period a Licensed Program fails to
perform as warranted due to causes other than a Design Defect, Nitsuko will
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
replace it with the most recent maintenance release, which will include all
enhancements for such Licensed Programs. In the case of a design defect, Nitsuko
shall, at its expense, use its best efforts to correct such Design Defect [*] of
receipt of notice thereof subject to all the provisions of Paragraph 7.6.
17.4 All other warranties, express or implied, are hereby disclaimed and
Nitsuko specifically disclaims any express or implied warranty of fitness for a
particular purpose and any express or implied warranty of merchantability.
Nitsuko makes no warranty pursuant to this agreement of any kind respecting the
licensed products to anyone other than AltiGen.
17.5 The warranty of the End Products shall be defined in the OEM Agreement.
18. LIMITATION OF LIABILITY
- ----------------------------
18.1 AltiGen's sole liability and obligation in connection with any defects or
other problems in programs licensed under this agreement or maintenance services
provided by AltiGen with respect to such programs shall be to correct any
licensed programs which fail to conform to the warranty stated in Paragraph 17.
AltiGen shall not be liable to Nitsuko or to any other person for money damages
for any matter arising out or related to any such defects or maintenance
services, whether in tort, contract or otherwise. In any event, AltiGen's
liability for all matters arising hereunder (except for the indemnity
obligations set forth in Paragraph 16) shall not exceed the total amount of
payments made by Nitsuko to AltiGen under this agreement in the most recent
period of twelve months. Without limitation of the forgoing, AltiGen shall not
be liable to Nitsuko or any third party for any loss of profits, loss of
business, loss of use or of data, interruption of business, nor for indirect,
special, incidental or consequential damages of any kind whether under this
agreement or otherwise, even if AltiGen has been advised of the possibility of
such loss.
18.2 Nitsuko's sole liability and obligation in connection with any defects or
other problems in programs licensed under this agreement or maintenance services
provided by Nitsuko with respect to such programs shall be to correct any
licensed programs which fail to conform to the warranty stated in Paragraph 17.
Nitsuko shall not be liable to Nitsuko or to any other person for money damages
for any matter arising out or related to any such defects or maintenance
services, whether in tort, contract or otherwise. In any event, Nitsuko's
liability for all matters arising hereunder (except for the indemnity
obligations set forth in Paragraph 16) shall not exceed the total amount of
payments made by AltiGen to Nitsuko under this Agreement in the most recent
period of twelve months. Without limitation of the forgoing, Nitsuko shall not
be liable to AltiGen or any third party for any loss of profits, loss of
business, loss of use or of data, interruption of business, nor for indirect,
special, incidental or consequential damages of any kind whether under this
agreement or otherwise, even if Nitsuko has been advised of the possibility of
such loss.
19. MISCELLANEOUS
- ------------------
19.1 Modification and Amendment
This Agreement may be modified or amended only in writing by the consent of the
parties.
19.2 Survival
Paragraph 6.2, 7.6 and 15 shall survive termination of this Agreement for three
(3) years.
19.3 Governing Law
This Agreement is made in accordance with and shall be governed and construed
under the laws of the State of California, as applied to agreements executed and
performed entirely in California by California residents. Nitsuko agrees to
submit to the jurisdiction of the Northern District of California, San Jose
Division, or the Santa Clara County Superior Court, as appropriate, and hereby
waives any objections to the jurisdiction and venue of such courts.
19.4 Notices
All notices, demands, or consents required or permitted under this Agreement
shall be in writing and shall be delivered personally or sent by a national
overnight courier service or by registered or certified, return receipt
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
requested mail to the other party at the addresses first set forth above. All
notices, demands, or consents shall be deemed effective upon personal delivery
or three (3) days following dispatch via first class mall or one (1) business
day following deposit with any national overnight courier service in accordance
with this section.
19.5 Force Majeure
Neither party shall be deemed to be in default of or to have breached any
provision of this Agreement as a result of any delay, failure in performance, or
interruption of service resulting directly or indirectly from acts of God, acts
of civil or military authority, civil disturbance, war, strikes or other labor
disputes, fires, transportation contingencies, laws, regulations, acts or orders
of any government agency or official thereof, other catastrophes or any other
circumstances beyond the party's reasonable control.
19.6 Export Control.
The parties acknowledge that the Products may be subject to the export control
laws of the United States of America, including the U.S. Bureau of Export
Administration regulations, and hereby agree to obey any and all such laws. The
parties agree to comply with the U.S. Foreign Corrupt Practices Act of 1977, as
amended, and with all applicable foreign laws relating to the use, importation,
licensing or Original Equipment Manufacture of the Products.
19.7 Assignment
Neither party may assign this Agreement or any of its rights, duties or
obligations under this Agreement to any third party without the other party's
prior written consent, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, either party may assign its rights and delegate
its obligations under this Agreement without the consent of the other party to a
purchaser of all or substantially all of its voting stock or capital assets or
to an entity with which such party merges or is consolidated.
19.8 Severability
In the event any provision of this Agreement is held to be invalid or
unenforceable, the valid or enforceable portion thereof and the remaining
provisions of this Agreement will remain in full force and effect.
19.9 Waiver
Any waiver (express or implied) by any party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent default or
breach. No waiver shall be effective unless in writing signed by the waiving
party.
19.10 Entire Agreement
This Agreement, together with the exhibits hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
shall supersede all agreements, proposals, oral or written, all negotiations,
conversations or discussions between the parties relating to this Agreement or
the subject matter hereof. This agreement shall be binding upon AltiGen's and
Nitsuko's permitted successors or assigns.
19.11 Headings
The section headings appearing in this Agreement are inserted only as a matter
of convenience and in no way define, limit, construe or describe the scope or
intent of any such section nor in any way affect this Agreement.
In witness whereof, the parties hereto have duly executed the Agreement,
including the Exhibits hereto, and
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incorporated herein by reference, as of the date first written above.
AltiGen Communications, Inc. Nitsuko Corporation
By: /s/ Gilbert Hu By: /s/ Toshio Kita
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Name: Gilbert Hu Name: Toshio Kita
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Title: President Title: Vice President
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G.H. I.T. Division
Date: 7/14/98 Date: July 14. 98
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Sumisho Electronics, Co., Ltd.
By: /s/ K. Inomata
Name: K. Inomata
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Title: GENERAL MANAGER, BS-1
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Date: Jul. 14, 1998
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EXHIBIT A
END PRODUCTS
A. Phase I Products
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1. Hardware
1-1. ISDN Board (to be developed by AltiGen)
1-2. Japanese DSU Option (to be developed by AltiGen)
1-3. FAX Modem Option Expansion Slot (to be developed by AltiGen)
1-4. CSIU PHS Interface (to be developed by Nitsuko)
1-5. Ethernet NIC Router Function (to be developed by Nitsuko)
2. Software
2-1. CSIU PHS interface (to be developed by AltiGen)
2-2. BRI interface (to be developed by AltiGen)
2-3. Data Routing (to be developed jointly by AltiGen and Nitsuko)
2-4. J-Version AltiWare (to be developed jointly by AltiGen and Nitsuko)
B. Phase II Products
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1. Hardware
1-1 FAX Modem Option (to be developed by AltiGen)
2. Software
2-1 PRI Interface
2-2 Voice Over IP (VIP)
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EXHIBIT B
SPECIFICATIONS
PHASE 1 REQUIREMENT SPECIFICATIONS (Draft 1.0 as of March 26, 1998)
1. GENERAL
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AltiGen and Nitsuko shall work together to develop a Japanese version of
AltiServ for Nitsuko's telecom server platform. This version will be based on
the upcoming Helios architecture being defined by AltiGen. This document details
the requirements for this product.
2. PRODUCT DEVELOPMENT
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This product will consist of several hardware and software improvements on the
existing version of AltiWare. These new components are listed below:
Hardware
ISDN Board ISDN Call control main board
T-Point Interface Board
Japanese U-Point interface Board
DSP resource Expansion Slot
CSIU Board PHS Interface
ROUTER Board 16 channel PPP/PIAFS Router
10M/100M Ether NIC Interface
Software
CSIU PHS CSIU Service Provider/Device Driver that will
plug in to the AltiConnect middleware.
ISDN I/F BRI Service Provider/Device Driver that will plug in
to the AltiConnect middleware.
Data Routing Router Service Provider/Device Driver that will
plug in to the AltiConnect middleware.
NIC Driver to integrate with NT's networking
module.
Localize Translate GUI and Voice Prompt to Japanese
Application The AltiWare application will have to be modified
to accommodate the new types of boards and their functionality.
3. HARDWARE REQUIREMENTS
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3.1 ISDN BRI BOARD
A PCI based ISDN BRI board with MVIP connector will be developed by AltiGen and
it will contain the components described in the following subsections.
3.1.1 ISDN Call Control main board
This board controls ISDN protocol Layer-2 and Layer-3 by firmware. This
boards specification will be built based on ITU-T recommendation.
3.1.2 T-Point Interface Board
T-Point Interface is needed to use external Japanese DSU equipment. This
board's specification will be based on ITU-T recommendation Layer-1 and JATE
approval specification.
3.1.3 U-Point Interface Board
U-Point Interface is needed to connect Japanese INS64 exchange line
directly. This board's specification will be based on JT-___(TBD) and JATE
approval specification.
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3.1.4 Resource Expansion Slot
Expansion Slots will be provided on ISDN main board. It may be used for
FAX modem or DATA modem.
3.2 CSIU BOARD
A PCI based CSIU board with MVIP connector will be developed by Nitsuko. Up to
three CSIU boards can be installed in a single system. It will contain the
components described in the following subsections.
3.2.1 PHS Interface
This board is used to connect four of Nitsuko's standard CS unit. One CS
handles three simultaneous calls. This board will be designed and developed by
Nitsuko.
3.3 ROUTER/NIC BOARD
A PCI based Router/NIC board with MVIP connector will be developed by
Nitsuko and it will contain the components described in the following
subsections.
3.3.1 16 channel PPP/PIAFS Router
This board has ISDN routing facility to interface MVIP and NIC board.
Router will have the capability to terminate 16 channel PPP/PIAFS protocol. This
board will be designed and developed by Nitsuko including firmware on this
board.
3.3.2 10M/100M Ether NIC
This board has 10M/100M switchable Ethernet NIC interface. This circuit
will be connected to the router function and PCI bus directly. This board will
be designed and developed by Nitsuko.
4 SOFTWARE REQUIREMENTS
AltiGen will provide AltiConnect Service Provider Interface to integrate the new
hardware. Software requirements include the development of new modules to
support these additional hardware resources and modifications to the existing
software to accommodate the introduction of the new hardware resources.
4.1 CSIU PHS INTERFACE
4.1.1 CSIU Service Provider/Device Driver
Nitsuko will design and develop a service provider based on AltiConnect SPI
to encapsulate the CSIU boards. AltiGen will supply the details of AltiConnect
SPI information. This service provider will include the device drivers needed to
support the CSIU boards.
4.2 ISDN I/F
4.2.1 BRI Service Provider/Device Driver
AltiGen will design and develop a service provider based on AltiConnect SPI
to encapsulate the ISDN boards. This service provider will include the device
drivers needed to support the ISDN boards. Any special Interfaces between the
BRI board and CSIU or Router board will be discussed during the course of the
project.
4.3 DATA ROUTING
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4.3.1 Router Service Provider/Device Driver
Nitsuko will design and develop a service provider based on AltiConnect SPI
to encapsulate the Router boards. AltiGen will supply the details of AltiConnect
SPI information. This service provider will include the device drivers needed to
support the Router boards.
4.3.2 NIC Driver
Nitsuko will design and develop a standard NDIS driver for the NIC board.
4.4 Compatibility
The actual system configuration shall consists of one or more Quantum boards to
provide both wired analog telephone sets as well as voice processing resources.
4.5 Resource Sharing
AltiGen will enable the sharing of DSP resources via the MVIP bus. Voice
Processing resources on the Quantum boards shall be shared with the ISDN BRI
board to service trunk calls, and with the CSIU boards to service the attached
PHS handsets.
4.6 LOCALIZE
4.6.1 Translate GUI and Voice Prompts to Japanese
This work will be done in Nitsuko at the final stage of development.
AltiGen will supply GUI resource files separated with the object files. AltiGen
will also supply source code and header files for CGI script and JAVA source
code.
4.7 Application Changes (We'll expand this section after receiving your call
scenarios.)
The AltiWare application software will be modified to accommodate the new types
of hardware resources. These changes include:
# Accommodate the additional parameters that will be needed by the ISDN
and CSIU boards for initiating and receiving calls.
# Distinguish between Data and Voice calls.
# Support for CSIU specific messages like RING_ACK and RING_NACK.
# Necessary modifications to support Router function.
# Facility for configuration of different hardware resources.
SOFTWARE PRODUCT SPECIFICATIONS
1. AltiGen to Nitsuko
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a) BRI Service Provider / Device Driver
b) Part of AltiGen OE required for localization
2. Nitsuko to AltiGen
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a) Data Routing Service Provider / Device Driver
b) CSIU Service Provider / Device Driver
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EXHIBIT C
PRICING AND VOLUME COMMITMENT
1. Price of the Products
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a) Hardware
ISDN Board (4 BRI ports) [*]
Quantum Analog Board (D012) [*]
b) Software
AltiWare OE License [*]
AltiConsole License [*]
2. Volume Commitment
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For the first [*] from the date of the official release of the End Product shall
be the channel training period. For the next [*] after the said period, the
volume commitment for both the Primary and Secondary Territories representing
the worldwide Nitsuko organization shall be defined as below
Volume Commitment [*]
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
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ARTHUR ANDERSEN LLP
San Jose, California
July 15, 1999
