<PAGE>
As filed with the Securities and Exchange Commission on September 23, 1999
Registration No. 333-80037
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 4
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.
Wilson Sonsini Goodrich & Rosati Davina Kaile, Esq.
Professional Corporation Pillsbury Madison & Sutro LLP
650 Page Mill Road 2550 Hanover Street
Palo Alto, California 94304 Palo Alto, California 94304
(650) 493-9300 (650) 233-4500
Fax (650) 493-6811 Fax (650) 233-4545
</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 September 23, 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.
4,600,000 Shares
[LOGO OF ALTIGEN COMMUNICATIONS, INC.]
AltiGen Communications, Inc.
Common Stock
$ per share
- --------------------------------------------------------------------------------
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
$10.00 and $12.00 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 690,000 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]
This diagram shows how Altigen's communications system connects telephone
users to one another using both the traditional telephone network and networks
over which computers communicate.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 30
Management............................................................... 41
Principal Stockholders................................................... 49
Certain Transactions..................................................... 51
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 58
Legal Matters............................................................ 61
Experts.................................................................. 61
Where Can You Find More Information...................................... 61
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 integrated, multifunction
telecommunications systems that allow businesses to use data networks, such as
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 data networks, 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. To use these new services,
businesses have had to add hardware and software to these traditional systems.
As businesses seek capabilities beyond those of traditional telephone systems
to meet today's communication needs, they have begun to purchase integrated,
multifunction telecommunications systems in place of traditional telephone
systems. 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. Our integrated,
multifunction telecommunications systems allow small- to medium-sized
businesses to communicate over both the traditional telephone network and data
networks, such as the Internet, providing these businesses with a
telecommunications solution for the Internet era.
We are a leader in the market for integrated, multifunction telecommunications
systems that rely on general purpose computers, a market generally known as the
server-based PBX market, and have been shipping our products since July 1996.
We sell our integrated, multifunction telecommunications systems through our
network of over 400 dealers and through our 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 and expand our market position. 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 integrated, multifunction
telecommunications systems.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by AltiGen ................ 4,600,000 shares
Common stock to be outstanding after the
offering....................................... 14,171,185 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 June 30,
1999, excluding 1,769,700 shares that are issuable upon exercise of outstanding
options at a weighted average exercise price of $1.89 per share.
---------------
Except as otherwise indicated, all information in this prospectus assumes:
. no exercise of the underwriters' over-allotment option;
. the automatic conversion of each outstanding share of preferred stock into
one share of common stock immediately prior to the completion of this
offering; and
. a one-for-1.66965 split of the common stock effected prior to the
effectiveness of this offering.
Please see "Capitalization" for a more complete discussion regarding the
outstanding shares of our common stock and options to purchase common stock and
other related matters.
---------------
Summary Consolidated Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended September 30, June 30,
------------------------------------- -------------------
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 $ 2,559 $ 4,264
Gross profit (loss)..... -- (9) 339 1,370 811 2,097
Loss from operations.... $(1,101) (1,755) (3,325) (4,166) (2,947) (5,509)
Net loss................ $(1,068) $(1,631) $(3,119) $(3,920) $(2,809) $(5,234)
======= ======= ======= ======= ======= =======
Basic net loss per
share................. $ (1.77) $ (2.14) $ (3.91) $ (4.75) $ (3.47) $ (4.73)
======= ======= ======= ======= ======= =======
Shares used in comput-
ing basic net loss
per share............. 603 762 797 825 811 1,107
Unaudited pro forma ba-
sic net loss
per share............. $ (0.50) $ (0.59)
Shares used in comput-
ing unaudited
pro forma basic net
loss per share........ 7,827 8,867
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
------------------------
Pro As
Actual forma Adjusted
------- ------- --------
(Unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.............................. $ 7,961 $ 7,961 $54,019
Working capital........................................ 9,861 9,861 55,919
Total assets........................................... 13,235 13,235 59,293
Total stockholders' equity ............................ 10,790 10,790 56,848
</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 4,600,000
shares of common stock offered by this prospectus at an assumed public offering
price of $11.00 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 June 30, 1999,
we had an accumulated deficit of $15.1 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 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 market for our integrated, multifunction telecommunications systems 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 partner 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 telephone
systems. Our principal competitors that produce traditional private telephone
systems are Lucent Technologies and Nortel Networks. We also compete against
providers of multifunction telecommunications systems, 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 45% of our net revenues in the nine months ended
June 30, 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 our products 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 distributors'
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, including virtually all of our hardware products.
We order sole-sourced components using purchase orders and do not have supply
contracts for them. One sole-sourced component, a Mitel Corporation chip, is
particularly important to our business because it is included in virtually all
of our hardware products. 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. Our inability
to obtain these sole-sourced components, especially the Mitel Corporation chip,
could significantly delay shipment of our products, which 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 substantially reduce our sales and thus 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 the failure
of dealers to provide adequate customer service could cause our business to
suffer. If we do not properly 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 revenues
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
8
<PAGE>
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 by requiring us to
license technology on unfavorable terms or temporarily or permanently cease
sales of key products
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. On August 11, 1999, NetPhone filed a
motion to enjoin AltiGen from making, importing, using, offering to sell or
selling a device under the name Quantum. On September 7, 1999, we filed our
Opposition to NetPhone's motion, and countered with a Cross-Motion for Partial
Summary Judgment. NetPhone's Motion and our Cross-Motion have not yet been
decided. Although we intend to continue to litigate the lawsuit and to contest
NetPhone's Motion vigorously, litigation is subject to inherent uncertainties
and, therefore, we cannot assure you that we will prevail or that we can avoid
an adverse outcome.
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 design of some
of our products. For the first nine months of fiscal year 1999, sales of our
Quantum board constituted 84% of our revenues. Accordingly, an adverse outcome
could materially harm our business. See "Business--Legal Proceedings."
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.
9
<PAGE>
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; if we cannot sell our products in these countries, our results of
operations may be seriously harmed
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 result in our losing market share, thus seriously harming 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 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 and sales and marketing capabilities.
We may not be able to hire the management, staff or other personnel required to
do so.
10
<PAGE>
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.
Lead times for materials and components used in the assembly of our products
vary significantly, and depend on factors such as the 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.
Our planned expansion in international markets will involve new risks that our
previous domestic operations have not prepared us to address; our failure to
address these risks could harm our business, financial condition and results of
operations
For the nine months ended June 30, 1999, approximately 10% 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:
. tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers, such as import or export licensing 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; and
. conflicting regulatory requirements in different countries that may
require us to invest significant resources customizing our products for
each country.
We need additional qualified personnel to maintain and expand our business; our
failure to promptly attract and retain qualified personnel may seriously harm
our business, financial condition and results of operations
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; any such damage could seriously or completely impair our business
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 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 losses against fires, floods, earthquakes and general
business interruptions.
11
<PAGE>
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. Our
manufacturing and assembly operations are discussed in greater detail in
"Business--Manufacturing and Assembly."
We face year 2000 risks that, if realized, could disrupt our business
operations, resulting in harm to our business, financial condition and results
of operation
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
whom 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 Industry
Integrated, multifunction telecommunications systems may not achieve widespread
acceptance, and our fixed costs in the short run could cause our operating
results and business to suffer
The market for integrated, multifunction telecommunications systems is
relatively new and rapidly evolving. Businesses have invested substantial
resources in the existing telecommunications infrastructure, including
traditional private telephone systems, and may be unwilling to replace these
systems in the near term or at all. Businesses may also be reluctant to adopt
integrated, multifunction telecommunications systems because of
12
<PAGE>
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. We incur many fixed costs in anticipation of a certain level
of revenues. If businesses defer purchasing or decide not to purchase
integrated, multifunction 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 because we
will be unable to reduce fixed costs in the short term to offset the reduced
revenues.
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 integrated, multifunction telecommunications 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.
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 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 to obtain the rights 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
13
<PAGE>
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 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
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 of Directors 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 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 $6.99 in the book value per
share of common stock from the price you pay. This calculation assumes you
purchase the common stock for $11.00 per share. See "Dilution."
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
14
<PAGE>
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
14,171,185 outstanding shares of common stock. All of the shares sold in this
offering will be immediately and freely tradeable. 9,547,228 of the remaining
shares are subject to lock-up arrangements between the stockholders and us or
the underwriters. At least 8,877,449 shares of common stock outstanding after
this offering will be eligible for sale in the public market 180 days following
the date of this prospectus.
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 27.2%
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," and "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.
16
<PAGE>
Use of Proceeds
We estimate that the net proceeds from the sale of the shares of common stock
we are offering will be approximately $46,058,000. If the underwriters fully
exercise the over-allotment option, the net proceeds of the shares we sell will
be $53,116,700. 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 $11.00 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.
17
<PAGE>
Capitalization
The following table shows:
. The capitalization of AltiGen on June 30, 1999, as a Delaware corporation.
. The capitalization of AltiGen on June 30, 1999, assuming the completion of
the offering at an assumed initial public offering price of $11.00 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>
June 30, 1999
------------------
As
Actual Adjusted
-------- --------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.001 par value; 11,978,558 shares
authorized, 8,146,270 shares issued and outstanding,
actual; 5,000,000 shares authorized, no shares issued
and outstanding, as adjusted.......................... $ 8 $ --
Common stock, $.001 par value; 23,957,117 shares
authorized, 1,424,915 shares issued and outstanding,
actual; 50,000,000 shares authorized, 14,171,185
shares issued and outstanding, as adjusted............ 1 14
Additional paid-in capital............................. 28,991 75,044
Deferred stock compensation............................ (3,150) (3,150)
Accumulated deficit.................................... (15,060) (15,060)
-------- --------
Total stockholders' equity............................ 10,790 56,848
-------- --------
Total capitalization................................ $ 10,790 $ 56,848
======== ========
</TABLE>
This table excludes 1,769,700 shares of common stock issuable upon exercise of
outstanding options as of June 30, 1999, at a weighted average exercise price
of $1.89 per share.
18
<PAGE>
Dilution
AltiGen's unaudited pro forma net tangible book value on June 30, 1999 was
approximately $10,790,000 or $1.13 per share of common stock. Pro forma net
tangible book value is total assets minus the sum of liabilities and intangible
assets. Pro forma net tangible book value per share is net tangible book value
divided by the total number of shares outstanding before the offering and after
giving effect to the conversion of all outstanding shares of our preferred
stock upon the closing of this offering.
After giving effect to adjustments relating to the offering, AltiGen's
unaudited pro forma, as adjusted net tangible book value on June 30, 1999,
would have been $56,848,000 or $4.01 per share. The adjustments made to
determine pro forma as adjusted 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 $11.00 per share.
. The addition of the number of shares offered by this prospectus to the
number of common shares outstanding.
The following illustrates the pro forma increase in net tangible book value of
$2.88 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................ $11.00
Pro forma net tangible book value per share as of June 30,
1999.......................................................... $1.13
Increase per share attributable to the offering................ 2.88
-----
Pro forma as adjusted net tangible book value per share after
giving
effect to the offering........................................ 4.01
------
Dilution per share to new investors............................ $ 6.99
======
</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 $11.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 9,571,185 67.5% $25,041,624 33.1% $ 2.62
New investors.......... 4,600,000 32.5 50,600,000 66.9 11.00
---------- ----- ----------- -----
Total................ 14,171,185 100.0% $75,641,624 100.0%
========== ===== =========== =====
</TABLE>
The total consideration from existing stockholders includes 197,026 shares of
stock issued as payment on notes issued for professional services. As of June
30, 1999, there were options outstanding to purchase 1,769,700 shares of common
stock at the weighted average exercise price of $1.89 per share. To the extent
any of these options are exercised, there will be further dilution to
investors. The table above assumes no exercise of any stock options outstanding
as of June 30, 1999. See "Capitalization," "Management--Employee Benefit Plan,"
"Description of Capital Stock" and Note 5 of Notes to Consolidated Financial
Statements.
19
<PAGE>
Selected Consolidated Financial Data
This section presents selected historical financial data of AltiGen as a
Delaware corporation. You should read carefully the consolidated financial
statements included in this prospectus, including the notes to the consolidated
financial statements. The selected data in this section are not intended to
replace the consolidated financial statements.
AltiGen derived the consolidated statement of operations data for the years
ended September 30, 1995 and 1994 and consolidated balance sheet data as of
September 30, 1995 and 1994 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 for the nine months ended June 30, 1999, and
consolidated balance sheet data as of September 30, 1997 and 1998 and June 30,
1999 from the audited consolidated financial statements in this prospectus.
Those consolidated 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 nine months ended June 30, 1998, from the
unaudited consolidated financial statements included in this prospectus.
AltiGen's management believes that the unaudited historical consolidated
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 nine months ended June
30, 1999 are not necessarily indicative of the results for the year or for any
future period.
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended September 30, Ended June 30,
------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues, net........... -- -- $ 229 $ 1,379 $ 3,890 $ 2,559 $ 4,264
Cost of revenues........ -- -- 238 1,040 2,520 1,748 2,167
------- ------- ------- ------- ------- ------- -------
Gross profit (loss).... -- -- (9) 339 1,370 811 2,097
Operating expenses:
Research and develop-
ment.................. $ 44 $ 700 753 1,498 1,927 1,347 3,005
Sales and marketing.... -- 72 446 1,448 2,770 1,826 2,827
General and administra-
tive.................. 44 329 547 718 675 502 1,196
Deferred stock compen-
sation ............... -- -- -- -- 164 83 578
------- ------- ------- ------- ------- ------- -------
Total operating ex-
penses............... 88 1,101 1,746 3,664 5,536 3,758 7,606
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (88) (1,101) (1,755) (3,325) (4,166) (2,947) (5,509)
------- ------- ------- ------- ------- ------- -------
Interest and other in-
come, net.............. -- 33 124 206 246 138 275
------- ------- ------- ------- ------- ------- -------
Net loss................ $ (88) $(1,068) $(1,631) $(3,119) $(3,920) $(2,809) $(5,234)
======= ======= ======= ======= ======= ======= =======
Basic net loss per
share................. $(0.50) $ (1.77) $ (2.14) $ (3.91) $ (4.75) $ (3.47) $ (4.73)
======= ======= ======= ======= ======= ======= =======
Shares used in comput-
ing basic net loss per
share................. 175 603 762 797 825 811 1,107
</TABLE>
<TABLE>
<CAPTION>
September 30,
---------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
---- ------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
short-term
investments............... $553 $ 1,768 $ 3,152 $ 3,093 $ 8,057 $ 7,961
Working capital............ 553 1,948 3,501 3,535 8,698 9,861
Total assets............... 596 2,076 3,762 4,714 11,102 13,235
Convertible preferred
stock..................... 1 3 5 6 8 8
Accumulated deficit........ (88) (1,156) (2,787) (5,906) (9,826) (15,060)
Total stockholders' equity
(deficit)................. 596 2,020 3,763 3,787 9,251 10,790
</TABLE>
20
<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 integrated, multifunction 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, $3.9 million in fiscal year 1998 and $4.3 million for the nine
months ended June 30, 1999. As of June 30, 1999, we had an accumulated deficit
of $15.1 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. 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 they 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.
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.
21
<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>
Fiscal Year Ended Nine Months Ended
September 30, June 30,
------------------------ ------------------
1996 1997 1998 1998 1999
------ ------ ------ ----------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues, net............. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......... 104.1 75.4 64.8 68.3 50.8
------ ------ ------ ------ ------
Gross profit (loss)...... (4.1) 24.6 35.2 31.7 49.2
Operating expenses:
Research and develop-
ment.................... 328.5 108.7 49.6 52.7 70.5
Sales and marketing...... 194.3 105.0 71.2 71.4 66.3
General and administra-
tive.................... 238.5 52.1 17.3 19.6 28.0
Deferred stock compensa-
tion.................... -- -- 4.2 3.2 13.6
------ ------ ------ ------ ------
Total operating ex-
penses................. 761.3 265.8 142.3 146.9 178.4
------ ------ ------ ------ ------
Loss from operations...... (765.4) (241.2) (107.1) (115.2) (129.2)
Interest and other income,
net...................... 54.0 15.0 6.3 5.4 6.4
------ ------ ------ ------ ------
Net loss.................. (711.4)% (226.2)% (100.8)% (109.8)% (122.8)%
====== ====== ====== ====== ======
</TABLE>
Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30, 1998
Revenues, net. Revenues consist of sales to end users (including dealers) and
to distributors. Net revenues increased to $4.3 million in the first nine
months of fiscal year 1999 from $2.6 million in the first nine months of fiscal
year 1998, representing an increase of 66.6%. This change resulted primarily
from increased sales of our AltiServ systems. In the first nine months of
fiscal year 1999, sales to Tech Data accounted for 24.7% of net revenues and
sales to Ingram Micro accounted for 20.2% of net revenues. In the first nine
months of fiscal year 1999, sales of our Quantum boards represented 84.0% of
our net revenues.
Cost of revenues. Cost of revenues in the first nine months of fiscal year 1999
increased to $2.2 million from approximately $1.7 million in the first nine
months of fiscal year 1998. 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 nine
months of fiscal year 1999 compared to the first nine months of fiscal year
1998. This decrease was primarily 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 nine months of fiscal year 1998 includes a
provision for excess and obsolete inventory of $361,000 related primarily to
the impact of design changes to our Quantum product. As a result, gross profit
increased to $2.1 million in the first nine months of fiscal year 1999 from
$811,000 in the first nine months of fiscal year 1998.
Research and development expenses. Research and development expenses increased
to $3.0 million in the first nine months of fiscal year 1999 from $1.3 million
in the first nine 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
22
<PAGE>
increase research and development expenses in absolute dollars in the
forseeable future to allow us to develop new products and features. Until these
new products and features are introduced, we expect this increase in expenses
to increase our net loss (or to reduce any net profit that we may have).
Sales and marketing expenses. Sales and marketing expenses increased to $2.8
million in the first nine months of fiscal year 1999 from $1.8 million in the
first nine months of fiscal year 1998, representing an increase of 54.8%. 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. We expect these increased
expenses to increase the amount of our net losses (or reduce the amount of any
net profits that we may have).
General and administrative expenses. General and administrative expenses
increased to $1.2 million in the first nine months of fiscal year 1999 from
$502,000 in the first nine 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. We expect these increased expenses to increase the
amount of our net losses (or reduce the amount of any net profits that we may
have).
Deferred stock compensation expenses. Deferred stock compensation expenses were
$578,000 in the first nine months of fiscal year 1999 as compared to $82,000
for the first nine months of fiscal year 1998. Deferred stock compensation
expense 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 $770,000 of this deferred stock
compensation in fiscal year 1999, $973,000 in fiscal year 2000, $973,000 in
fiscal year 2001, $809,000 in fiscal year 2002 and $203,000 in fiscal year 2003
and doing so will decrease our net income.
Interest and other income, net. Net interest and other income increased to
$275,000 in the first nine months of fiscal year 1999 from $138,000 in the
first nine 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 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.
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<PAGE>
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.
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
expense of $164,000 during fiscal year 1998. We did not record any deferred
stock compensation expenses in fiscal year 1997 or prior periods 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.
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 seven quarters ended June 30, 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, June 30,
1997 1998 1998 1998 1998 1999 1999
------------ --------- -------- ------------- ------------ --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues, net........... $ 581 $ 929 $1,049 $ 1,331 $ 917 $ 1,439 $ 1,908
Cost of revenues........ 670 517 561 772 478 746 943
------- ----- ------ ------- ------- ------- -------
Gross profit (loss).... (89) 412 488 559 439 693 965
Operating expenses:
Research and
development........... 371 428 548 580 858 1,179 968
Sales and marketing.... 477 629 720 944 685 1,066 1,076
General and
administrative........ 166 173 163 173 314 415 467
Deferred stock
compensation.......... 11 17 55 81 192 193 193
------- ----- ------ ------- ------- ------- -------
Total operating
expenses............. 1,025 1,247 1,486 1,778 2,049 2,853 2,704
------- ----- ------ ------- ------- ------- -------
Loss from operations.... (1,114) (835) (998) (1,219) (1,610) (2,160) (1,739)
Interest and other
income, net............ 49 40 49 108 93 106 76
------- ----- ------ ------- ------- ------- -------
Net loss................ $(1,065) $(795) $ (949) $(1,111) $(1,517) $(2,054) $(1,663)
======= ===== ====== ======= ======= ======= =======
As a Percentage of Total
Revenues:
Revenues, net........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 115.3 55.7 53.5 58.0 52.1 51.8 49.4
------- ----- ------ ------- ------- ------- -------
Gross profit (loss).... (15.3) 44.3 46.5 42.0 47.9 48.2 50.6
Operating expenses:
Research and
development........... 63.9 46.1 52.3 43.6 93.6 81.9 50.7
Sales and marketing.... 82.1 67.7 68.6 70.9 74.7 74.1 56.4
General and
administrative........ 28.6 18.6 15.6 13.0 34.2 28.9 24.5
Deferred stock
compensation.......... 1.8 1.8 5.2 6.1 20.9 13.4 10.1
------- ----- ------ ------- ------- ------- -------
Total operating
expenses............. 176.4 134.2 141.7 133.6 223.4 198.3 141.7
------- ----- ------ ------- ------- ------- -------
Loss from operations.... (191.7) (89.9) (95.2) (91.6) (175.5) (150.1) (91.1)
Interest and other
income, net............ 8.4 4.3 4.7 8.1 10.1 7.4 3.9
------- ----- ------ ------- ------- ------- -------
Net loss................ (183.3)% (85.6)% (90.5)% (83.5)% (165.4)% (142.7)% (87.2)%
======= ===== ====== ======= ======= ======= =======
</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 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 except for the third quarter of fiscal year 1999, 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 the
development of our products. Research and
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<PAGE>
development expense in the third quarter of fiscal year 1999 decreased in
absolute dollars and as a percentage of net revenues due to the completion of
the development of the Triton board in the second quarter of fiscal year 1999.
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. As of June 30, 1999, we have raised an aggregate of
$24.7 million, net of offering expenses, through the sale of preferred and
common stock. As of June 30, 1999, we had cash and cash equivalents of $8.0
million.
Net cash used in our operating activities was $5.3 million for the nine months
ended June 30, 1999, $3.8 million for fiscal year 1998, $3.1 million for fiscal
year 1997, and $1.8 million for fiscal year 1996. Net cash used in operating
activities primarily reflected the impact of the net loss for each of the
periods.
Net cash provided by investing activities was $452,000 for the nine months
ended June 30, 1999, which was primarily a result of redemption of short-term
investments. Our purchases of short-term investments and property and equipment
exceeded the proceeds from the sale of short-term investments by $388,000 in
fiscal year 1998 and by $1.0 million in fiscal year 1997. Our proceeds from the
sale of 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 $5.8 million for the nine months
ended June 30, 1999. Cash provided by 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 as compared to fiscal year 1997 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. Cash provided by
financing activities for the nine months ended June 30, 1999 reflects the
issuance of additional 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.
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
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<PAGE>
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 to
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 need to be modified, upgraded or replaced to
minimize the possibility of a material disruption to our business. We have
begun 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 may 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 June 30, 1999 and expensed to date. 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
27
<PAGE>
parties to timely resolve year 2000 issues with either their products sold to
us or their internal 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.
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 we adopted 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. We do not have any items of other comprehensive
income and are, 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, which we adopted beginning on October 1, 1997,
establishes standards for disclosures about operating segments, products and
services, geographic areas and major customers. We are organized and operate as
one operating segment. We operate 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
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<PAGE>
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. We adopted SOP NO. 98-5 in fiscal 1999. The adoption did not have a
material impact on our 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.
29
<PAGE>
Business
AltiGen designs, manufactures and markets integrated, multifunction
telecommunications systems that allow businesses to use data networks, such as
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 data networks, 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 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. To use these new services,
businesses have had to add hardware and software to these traditional systems.
As businesses seek capabilities beyond those of traditional telephone systems
to meet today's communications needs, they have begun to purchase integrated,
multifunction telecommunications systems in place of traditional telephone
systems. 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. Our telecommunications
systems allow small- to medium-sized businesses to communicate over both the
traditional telephone network and data 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. Many factors are driving the growth of
the Internet, including:
. improvements in the design and construction of computer systems and
networks;
. the emergence of technologies which facilitate the buying and selling of
goods and services on the Internet, which is referred to as online
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. The first has been the traditional telephone
network, which relies on a technology called "circuit- switching." A circuit-
switched network establishes and maintains a dedicated (i.e. not shared) line
between calling parties for the duration of a call. The second type of network
on which businesses have traditionally relied is a data or "packet-switched"
network, such as the Internet. 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 than the traditional telephone
network 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
convergence of voice and data to a single integrated packet-based network that
can support both voice and data using Internet Protocol.
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<PAGE>
A growing number of businesses have recognized data networks such as the
Internet as a valuable and economical medium for internal and public
communications. These businesses seek to reduce their telecommunications costs
by moving their voice communications to packet-switched networks, such as
corporate intranets and the Internet. Although packet-switched networks can
offer more efficiency and value to businesses, the traditional telephone
network remains the standard for voice communications 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-switched 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 outdated systems that
continue to be used because the costs of replacing them outweigh their
shortcomings, and can more quickly take advantage of new technological trends.
Most of these businesses today use a traditional private telephone network as
the backbone of their connection to the voice network, and maintain a separate
data network.
Today's traditional private telephone network remains an expensive,
proprietary solution. These systems require skilled personnel to physically
prepare the installation site and to install the equipment and can be
difficult to install, upgrade and maintain. For example, adding voice mail to
a traditional private telephone network system requires personnel to configure
and connect a separate server to the system. Thus, after adding a number of
features such as voice mail, a traditional private telephone network may
resemble the figure below:
[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
the diversity of its hardware components, as well as the number and complexity
of connections between those components. Administering this system thus may
become prohibitively expensive for small- to medium-sized businesses with
limited resources.
In recent years, a new generation of integrated, multifunction
telecommunications systems has emerged to address the challenges and
inadequacies associated with traditional private telephone systems. Frost &
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<PAGE>
Sullivan estimates that the market for integrated, multifunction
telecommunications systems that rely on general-purpose computers, which it
terms the "server-based PBX systems market" was $41.8 million in 1998 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 integrated,
multifunction telecommunications systems that rely on data networks that use
the same communications format as the Internet, which it refers to as
"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 telecommunications systems do not address the needs of
businesses that wish to transmit voice communications over both the
traditional telephone network and data networks. For example, businesses may
wish to route internal calls over their existing voice network and route calls
between offices over data networks, such as 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 integrated, multifunction telecommunications systems
using the Internet as well as the traditional telephone network.
The AltiGen Solution
We design, manufacture and market next generation, integrated, multifunction
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 private telephone systems. AltiServ,
our Windows NT-based system, interfaces with the traditional telephone network
and data 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
multifunction telecommunications systems. An example of our system is
illustrated below:
[GRAPHIC OF ALTIGEN'S ALTISERV SYSTEM]
[This graphic illustrates that AltiGen's server-based PBX system contains PBX,
voice messaging, 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 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 data 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 data networks,
including the Internet, our systems eliminate toll charges associated with
long-distance calls. Using our products,
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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.
AltiGen's AltiServ system has typical call handling and routing functions,
as well as specialized 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, e-mail
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 traditional private telephone
systems, 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
integrated, multifunction telecommunications systems market and expand our
current position in the market for telecommunications systems that facilitate
carrying voice communications over the Internet.
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
target 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 market for integrated,
multifunction telecommunications systems that rely on general-purpose
computers. 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.
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<PAGE>
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 system is a complete
communications system capable of coordinating different types of
communications, including e-mail and voice mail. The AltiServ system answers
incoming phone calls, transfers calls to individual extensions 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 when no
attendants are available. Our software is designed for easy installation and
maintenance.
The AltiServ system functions over packet-switched networks including corporate
intranets and the Internet. AltiServ supports combining multiple forms of
communication such as voice mail and data files into a single e-mail message.
The AltiServ system forwards e-mail and voice mail messages over data networks
to other mail service systems. The AltiServ system also provides remote
employees access to their voice mail messages over the Internet.
The AltiServ system allows a business to connect multiple branch offices using
AltiServ systems such that calls between these locations can be carried over
low-cost data 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 same communication
format as the Internet.
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 the same communication format as the Internet. 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
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<PAGE>
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 screen, such as a list of voice messages left
for the user, and allows the user to listen to the messages on his or her
personal computer. AltiView also supports special software messages that allow
it to work with Microsoft's Outlook product.
AltiWare OE. AltiWare Open Edition (OE) is a software program that enables
computers to provide the same services as traditional private telephone
systems, 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, to record and manage voice messages left by
callers reaching a busy phone and to receive e-mail communications. Unlike
traditional private telephone systems, AltiWare OE also supports sharing caller
information and exchanging voice messages and e-mail 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 same communications format as the Internet. 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
that support the H.323 standard, such as the AltiServ system. 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 voice mail services such as recording and playing voice mail
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 voice mail or auto attendant services. The Quantum board
can receive caller identification information from the public telephone
carriers, and can pass on this information to AltiView or directly to
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.
When used 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 a computer built on to the
circuit board which can run special, high-speed software
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<PAGE>
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 or ISDN communication circuit board or a circuit board
supporting the same communication format as the Internet with simple changes in
on-board software and, in some cases, new chips.
This modular design not only allows AltiGen to provide new capabilities, but
also allows AltiGen's products to achieve a high degree of 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 and firmware above. The service provider
layer of software is composed of 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 and 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, thus saving money;
. New hardware and software features can be added easily and rapidly; and
. Changing one component in the system 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 our distributors, dealers, original equipment manufacturers and
strategic partners, 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.
Specifically, 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 revenues 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 calls from end users and refers new leads to a qualified
dealer near each end user's location.
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<PAGE>
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 Corporation and
Nitsuko Corporation abroad. Sales through Ingram Micro and Tech Data accounted
for approximately 3% and 24%, respectively, of our revenues in fiscal year
1998, and approximately 20% and 25%, respectively, of our revenues in the nine
months ended June 30, 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 to supplement 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 June 30, 1999, we employed 30
individuals in engineering, research and development and support.
Competition
The markets for our products are intensely competitive, continually evolving
and subject to changing technologies. We currently compete with companies
providing traditional telephone systems, principally Lucent Technologies and
Nortel Networks. We also compete against companies providing multifunction
telecommunications systems, including Picazo Communications, Inc. and Artisoft,
Inc. We face potential 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, that may provide higher performance
or additional features or that may 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;
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<PAGE>
. quality of service and technical support;
. sales and distribution capabilities; and
. strength of brand name.
We believe that our principal competitive advantages include:
. established brand-name recognition;
. a 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 and computer
telephony. 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.
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.
We attempt to avoid infringing known proprietary rights of third parties in our
product and service development efforts. We have not, however, conducted and do
not conduct comprehensive patent searches to determine whether the technology
used in our products infringes patents held by third parties. In addition, it
is difficult to proceed with certainty in a rapidly evolving technological
environment in which there may be numerous patent applications pending, many of
which are confidential when filed, with regard to similar technologies. If we
were to discover that our products violate third-party proprietary rights, we
might not be able to obtain licenses to continue offering these products
without substantial reengineering. Efforts to undertake this reengineering
might not be successful, licenses might be unavailable on commercially
reasonable terms, if at all, and litigation might not be avoided or settled
without substantial expense and damage awards.
Legal Proceedings
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. On August 11, 1999, NetPhone filed a motion
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<PAGE>
for preliminary injunction. On September 7, 1999, we filed our Opposition to
NetPhone's motion, and countered with a Cross-Motion for Partial Summary
Judgment. NetPhone's Motion and our Cross-Motion have not yet been decided.
Based upon advice of our patent prosecution counsel, we believe that the claims
of NetPhone's patent are invalid or not infringed by our Quantum board product.
Accordingly, we intend to continue to litigate the lawsuit and to contest
NetPhone's Motion vigorously, and we do not believe that the ultimate outcome
of this matter will have a material impact on our business. However, litigation
is subject to inherent uncertainties and, therefore, we cannot assure you that
we will prevail in this litigation, or that an adverse outcome would not
adversely affect our business or financial condition.
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 our products. Not all licenses to 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.
Manufacturing and Assembly
Our manufacturing operations consist of purchasing, receiving, inspecting,
testing, packaging and shipping. We depend on three suppliers that provide us
with about 75% of our hardware product components. We put these components 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 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. We incorporate the following sole-sourced components in our
products:
. A Mitel Corporation 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 Incorporated's 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
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.
Employees
As of June 30, 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 we 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.
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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 and a Director 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, Operations 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 July 1984 to June 1997, Mr. Chouldjian was the founder and Vice
President of Engineering of Luxcom, Inc., a manufacturer of communication hub
equipment. Mr. Chouldjian has held supervisory and project leader 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.
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
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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 and manufacturer of 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 Application Engineering and, in February 1997, was named as our
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 over two 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 Arts 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 networking products, 3Com
Corporation, Network Systems Corporation, a manufacturer of secure networking
and provider of intranet solutions, and the 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, a producer of construction 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.
42
<PAGE>
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. Since April 1998, Mr. Tai also has served as the chairman
of DigiTimes Publication, Inc., a daily electronic newspaper reporting on
technology issues in Taiwan. 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 in Business Administration from Tamkang
University in Taiwan.
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.
43
<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 our
financial statements.
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 each
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>
44
<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
fiscal year 1998 are based on an aggregate of 856,738 options granted by us
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)........... 299,464 34.9% $0.14 10/30/07 $ $
Simon Chouldjian(3)..... 47,914 5.5 0.14 10/30/07
Michele Shannon......... 1,431 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.
45
<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.............. -- -- 618,872 -- $ $
Simon Chouldjian........ -- -- 14,973 32,941
Michele Shannon......... 22,460 $15,000 6,239 32,625
</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. As of June 30, 1999,
2,096,246 shares of common stock have been exercised or 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 1,573,802 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 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.
46
<PAGE>
Generally, options granted under our 1994 Stock Option Plan vest and become
exercisable over a 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 15,452 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. 2,096,246 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:
. 1,796,784 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 195,898 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.
47
<PAGE>
Our Board's Compensation Committee determines the term of each option granted
under our 1999 Stock Option Plan; provided 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, which will be effective upon the completion
of this offering. Initially, 299,464 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:
. 598,928 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
5,989 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.
48
<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 9,571,185 shares of common stock
outstanding as of June 30, 1999 and 14,171,185 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, assume no exercise of the underwriters' overallotment option and
do not include shares issuable upon conversion of options outstanding as of
June 30, 1999.
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)(9)....... 1,429,461 14.0% 9.7%
Kenneth Tai(3)......... 900,388 9.4 6.3
Wen-Huang (Simon)
Chang(4)(9)........... 599,406 6.3 4.2
Thomas Shao(5)......... 211,496 2.2 1.5
Masaharu Shinya........ 119,786 1.2 *
Simon Chouldjian(6).... 45,532 * *
Michele Shannon(7)..... 46,074 * *
Philip McDermott....... -- -- --
Richard Black.......... -- -- --
All directors and
executive officers as
a group (9 persons)... 3,352,143 39.4 27.2
5% Stockholders
Technology Associates
Corporation(8)........ 942,817 9.8 6.6
11F 201, Chien Kuo
South Road,
Section 2, Taipei,
Taiwan R.O.C.
Shing-Kao (Jerry)
Liao.................. 496,739 5.2 3.5
</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 11,979 shares registered in the name of Mr. Hu's wife May Kuei-
Rong Hu, 99,841 registered in the name of his daughter Michelle Hu, and
99,841 shares registered in the name of his daughter Stephanie Hu. Also
includes vested, but unexercised, options held by Mr. Hu to purchase
618,872 shares.
49
<PAGE>
(3) Includes shares held by the following affiliated entities: 598,928 shares
registered in the name of InveStar Burgeon Venture Capital, Inc.; 99,822
shares registered in the name of InveStar Dayspring Venture Group, Inc.;
99,822 shares registered in the name of InveStar Excelsus Venture Capital
(Int'l) Inc., LDC; and 99,821 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
1,996 shares.
(4) Includes 149,732 shares registered in the name of Mr. Chang's wife, Hsiang-
Li Chang Hu, and 143,743 shares registered in the name of his daughter Ya-
Ting Chang. Also includes vested, but unexercised, options held by Mr.
Chang to purchase 1,996 shares.
(5) Includes 179,678 shares registered in the name of Techgains Corporation, of
which Mr. Shao is managing director, and 17,968 shares registered in the
name of TSS Enterprises. Also includes 11,854 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 1,996 shares.
(6) Includes vested, but unexercised, options held by Mr. Chouldjian to
purchase 25,953 shares.
(7) Includes vested, but unexercised, options held by Ms. Shannon to purchase
20,620 shares.
(8) Includes 140,309 shares registered in the name of affiliated entity Tech
Alliance Corporation.
(9) Mr. Hu and Mr. Chang are brothers-in-law.
50
<PAGE>
Certain Transactions
Equity Investment Transactions
Series B Preferred Stock. In August 1995 and January 1996, we sold 1,494,496
shares of our series B preferred stock for $1.17 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)...................................... 119,786
Shing-Kao (Jerry) Liao............................. 118,396
Gilbert Hu(2)...................................... 79,837
Hsiang-Li Chang Hu(3).............................. 52,006
Ya-Ting Chang(3)................................... 52,006
Nicholas Shih(4)................................... 29,946
Diana Shih(4)...................................... 29,946
En-Kuang Lung...................................... 23,957
Chang-Hou Lin...................................... 23,679
</TABLE>
- -------------------
(1) Of the 119,786 series B shares purchased by Ms. Chu, 30,000 were
subsequently transferred to other individuals.
(2) Mr. Hu subsequently transferred all 79,837 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.
Series C Preferred Stock. From June 1996 to December 1997, we sold 3,593,565
shares of our series C preferred stock at a weighted average price of $2.19 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)................................... 598,928
Entities affiliated with InveStar Capital,
Inc.(2).......................................... 598,928
Entities affiliated with Techgains Corpora-
tion(3).......................................... 335,400
Shing-Kao (Jerry) Liao............................ 158,716
Masaharu Shinya................................... 119,786
Wen-Huang (Simon) Chang(4)........................ 64,364
Hsiang-Li Chang Hu(4)............................. 61,791
Ya-Ting Chang(4).................................. 43,823
Chin-Tzu Lin Wu(5)................................ 47,914
May Kuei-Rong Hu(6)............................... 11,979
Simon Chouldjian.................................. 5,989
Michele Shannon................................... 2,995
</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.
51
<PAGE>
Series D Preferred Stock. In April, August and September 1998 and May 1999, we
sold a total of 1,423,222 shares of our series D preferred stock at a weighted
average price of $9.57 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)................................... 343,889
Entities affiliated with InveStar Capital,
Inc.(2).......................................... 299,464
Entities affiliated with Kanematsu Corpora-
tion(3).......................................... 128,304
Wen-Huang (Simon) Chang........................... 83,850
</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.
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
(pre-split) shares of our preferred stock at the price of our 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.
52
<PAGE>
Description of Capital Stock
Authorized Shares
Immediately following the closing of this offering, our authorized capital
stock will consist of 50,000,000 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 that will
occur upon the closing of this offering, there were outstanding 9,571,185
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 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 8,146,270 shares of common
stock will be entitled to rights with respect to the registration of those
shares under the Securities Act of 1933. 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 of 1933, 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 of 1933 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.
53
<PAGE>
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; and
. 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.
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.
In addition to the indemnification provided for in our bylaws, we have entered
into agreements to indemnify our directors and executive officers. These
agreements, among other things, indemnify each of our directors and executive
officers for all expenses, including attorneys' fees, judgments, fines and
approved settlement amounts, incurred in any action or proceeding arising from
the fact that the individual; is or was serving as a director, officer,
employee, agent or fiduciary of us, of one of our subsidiaries or, if at our
request, of another company or enterprise. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
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.
54
<PAGE>
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 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 EquiServe L.P. Its
address is 150 Royall Street, Canton, Massachusetts 02021. Its telephone number
at this location is (781) 575-3010.
55
<PAGE>
Shares Eligible for Future Sale
Shares Eligible for Future Sale
When this offering is completed, we will have a total of 14,171,185 shares of
common stock outstanding, assuming no exercise of outstanding options. The
4,600,000 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 9,571,185 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.
Under Rule 144, Rule 701 and subject to certain volume limitations, none of the
9,571,185 restricted shares are expected to be immediately eligible for sale
upon consummation of this offering, 8,877,450 of the restricted shares will be
eligible for sale beginning the 91st day after the date of this offering, and
693,735 will become saleable after April 2000. However, 9,547,228 shares
eligible for sale under Rule 144 are subject to 180-day "lock-ups."
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. 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 4,507,412 shares. Such
56
<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 9,547,228 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.
57
<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...................................................... 4,600,000
=========
</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 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 690,000 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 $58,190,000, and the total proceeds to AltiGen will be
$53,116,700. 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........... $0.77 $3,542,000 $4,073,300
</TABLE>
58
<PAGE>
AltiGen estimates that its total expenses of the offering, excluding the
underwriting discount, will be approximately $1,000,000.
AltiGen has agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933 and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
AltiGen, its officers and directors, and holders of approximately 9,547,228
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 representatives to exceed five percent of the shares offered by
this prospectus.
The underwriters have reserved for sale up to 322,000 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.
59
<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.
60
<PAGE>
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 selected 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.
61
<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 Stockholders' 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 Delaware corporation) and subsidiary as of September
30, 1997 and 1998 and June 30, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1998 and for the nine months ended June 30,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 June 30, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1998 and for the nine month period ended June
30, 1999 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
-------------------------------------
Arthur Andersen LLP
San Jose, California
July 19, 1999
F-2
<PAGE>
AltiGen Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
------------------------ June 30,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 1,987,869 $ 7,003,569 $ 7,960,700
Short-term investments................. 1,105,538 1,053,060 --
Accounts receivable, net of allowances
of $41,000, $133,000 and $200,000,
respectively.......................... 438,015 1,022,991 1,338,331
Inventories............................ 846,178 1,294,080 2,268,340
Prepaid expenses and other current
assets................................ 85,199 175,248 738,829
----------- ----------- -----------
Total current assets.................. 4,462,799 10,548,948 12,306,200
----------- ----------- -----------
Property and equipment:
Furniture and equipment................ 305,291 528,448 932,309
Computer software...................... 78,211 295,947 492,668
----------- ----------- -----------
383,502 824,395 1,424,977
Less: Accumulated depreciation......... (131,830) (271,241) (495,914)
----------- ----------- -----------
Net property and equipment............ 251,672 553,154 929,063
----------- ----------- -----------
$ 4,714,471 $11,102,102 $13,235,263
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 188,016 $ 441,457 $ 791,160
Notes payable.......................... 278,573 365,687 --
Accrued liabilities:
Payroll and related benefits.......... 47,807 91,160 179,369
Warranty.............................. 139,000 474,410 828,551
Other................................. 92,362 187,722 131,374
Deferred revenue....................... 182,168 290,778 514,867
----------- ----------- -----------
Total current liabilities............. 927,926 1,851,214 2,445,321
----------- ----------- -----------
Commitments (Note 4)
Stockholders' equity:
Convertible preferred stock, $.001 par
value; aggregate liquidation
preference of $20,990,757 at June 30,
1999; Authorized--11,978,558 shares;
Outstanding (Series A, B, C and D)
6,479,009 shares at September 30,
1997, 7,649,561 shares at September
30, 1998 and 8,146,270 shares at June
30, 1999.............................. 6,479 7,650 8,146
Common stock, $.001 par value
Authorized--23,957,117 shares
Outstanding--801,827 shares at
September 30, 1997, 871,327 shares at
September 30, 1998, 1,424,915 shares
at June 30, 1999..................... 802 871 1,425
Additional paid-in capital............. 9,685,673 20,357,168 28,991,066
Deferred stock compensation............ -- (1,288,333) (3,150,234)
Accumulated deficit.................... (5,906,409) (9,826,468) (15,060,461)
----------- ----------- -----------
Total stockholders' equity............ 3,786,545 9,250,888 10,789,942
----------- ----------- -----------
$ 4,714,471 $11,102,102 $13,235,263
=========== =========== ===========
</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>
Nine Months
Fiscal Year Ended September 30, Ended June 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues, net........... $ 229,277 $ 1,378,528 $ 3,889,336 $ 2,558,498 $4,263,379
Cost of revenues........ 238,697 1,039,721 2,519,794 1,747,732 2,166,687
----------- ----------- ----------- ----------- -----------
Gross profit (loss).... (9,420) 338,807 1,369,542 810,766 2,096,692
Operating expenses:
Research and develop-
ment.................. 753,160 1,497,860 1,927,433 1,347,408 3,005,308
Sales and marketing.... 445,442 1,447,905 2,770,090 1,825,703 2,827,055
General and administra-
tive.................. 546,838 718,139 674,626 502,364 1,195,480
Deferred stock compen-
sation................ -- -- 163,858 82,098 577,770
----------- ----------- ----------- ----------- -----------
Total operating ex-
penses............... 1,745,440 3,663,904 5,536,007 3,757,573 7,605,613
----------- ----------- ----------- ----------- -----------
Loss from operations.... (1,754,860) (3,325,097) (4,166,465) (2,946,807) (5,508,921)
Interest and other in-
come, net.............. 123,700 206,315 246,406 138,250 274,928
----------- ----------- ----------- ----------- -----------
Net loss................ $(1,631,160) $(3,118,782) $(3,920,059) $(2,808,557) $(5,233,993)
=========== =========== =========== =========== ===========
Basic net loss per
share................. $ (2.14) $ (3.91) $ (4.75) $ (3.47) $ (4.73)
=========== =========== =========== =========== ===========
Shares used in comput-
ing basic net loss per
share................. 761,860 796,680 825,334 810,528 1,107,331
=========== =========== =========== =========== ===========
Unaudited pro forma ba-
sic net loss per
share................. $ (0.50) $ (0.59)
=========== ===========
Shares used in comput-
ing unaudited pro
forma basic net loss
per share............. 7,827,437 8,867,273
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AltiGen Communications, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Deferred Total
---------------- ---------------- Paid-In Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Deficit Equity
--------- ------ --------- ------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
SEPTEMBER 30, 1995..... 3,053,420 $3,053 756,558 $ 756 $ 3,172,259 $ -- $ (1,156,467) $ 2,019,601
Issuance of Series B
convertible preferred
stock................. 76,063 76 -- -- 88,824 -- -- 88,900
Issuance of Series C
convertible preferred
stock................. 1,856,680 1,857 -- -- 3,098,148 -- -- 3,100,005
Exercise of stock
options............... -- -- 13,600 14 1,172 -- -- 1,186
Net loss............... -- -- -- -- -- (1,631,160) (1,631,160)
--------- ------ --------- ------ ----------- ------------ ------------- ------------
BALANCE,
SEPTEMBER 30, 1996..... 4,986,163 4,986 770,158 770 6,360,403 -- (2,787,627) 3,578,532
Issuance of Series C
convertible preferred
stock................. 1,492,846 1,493 -- -- 3,322,130 -- -- 3,323,623
Exercise of stock
options............... -- -- 31,669 32 3,140 -- -- 3,172
Net loss............... -- -- -- -- -- -- (3,118,782) (3,118,782)
--------- ------ --------- ------ ----------- ------------ ------------- ------------
BALANCE,
SEPTEMBER 30, 1997..... 6,479,009 6,479 801,827 802 9,685,673 -- (5,906,409) 3,786,545
Issuance of Series C
convertible preferred
stock................. 244,039 244 -- -- 1,425,879 -- -- 1,426,123
Issuance of Series D
convertible preferred
stock................. 926,513 927 -- -- 7,783,906 -- -- 7,784,833
Exercise of stock
options............... -- -- 69,500 69 9,519 -- -- 9,588
Deferred stock
compensation.......... -- -- -- 1,452,191 (1,452,191) -- --
Amortization of de-
ferred stock compensa-
tion.................. -- -- -- -- -- 163,858 163,858
Net loss............... -- -- -- -- -- -- (3,920,059) (3,920,059)
--------- ------ --------- ------ ----------- ------------ ------------- ------------
BALANCE,
SEPTEMBER 30, 1998..... 7,649,561 7,650 871,327 871 20,357,168 (1,288,333) (9,826,468) 9,250,888
Issuance of Series D
convertible preferred
stock................. 496,709 496 -- -- 5,771,840 -- -- 5,772,336
Exercise of stock
options............... -- -- 356,562 357 44,099 -- -- 44,456
Issuance of common
stock as payment on
notes payable......... -- -- 197,026 197 378,288 -- -- 378,485
Deferred stock
compensation.......... -- -- -- -- 2,439,671 (2,439,671) -- --
Amortization of de-
ferred stock compensa-
tion.................. -- -- -- -- -- 577,770 -- 577,770
Net loss............... -- -- -- -- -- -- (5,233,993) (5,233,993)
--------- ------ --------- ------ ----------- ------------ ------------- ------------
BALANCE,
JUNE 30, 1999 ......... 8,146,270 $8,146 1,424,915 $1,425 $28,991,066 $(3,150,234) $ (15,060,461) $ 10,789,942
========= ====== ========= ====== =========== ============ ============= ============
</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>
Nine Months
Fiscal Year Ended September 30, Ended June 30,
------------------------------------- ------------------------
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) $(3,920,059) $(2,808,557) $(5,233,993)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation.......... 32,390 75,382 139,411 90,671 224,673
Amortization of
deferred stock
compensation......... -- -- 163,858 82,098 577,770
Provision for accounts
receivable
allowances........... 10,000 31,000 92,000 89,000 217,000
Provision for excess
and obsolete
inventories.......... 94,000 187,000 418,000 361,000 126,000
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) (676,976) (412,976) (532,340)
Inventories........... (242,778) (679,595) (865,902) (618,666) (1,100,260)
Prepaid expenses and
other current
assets............... 20,760 (70,824) (90,049) (45,258) (563,581)
Accounts payable...... 30,585 145,583 253,441 (21,603) 349,703
Accrued liabilities... 34,901 195,868 474,123 378,414 386,002
Deferred revenue...... 54,048 128,120 108,610 32,386 224,089
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities........... (1,768,365) (3,135,579) (3,816,429) (2,832,606) (5,312,139)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
short-term
investments........... 2,340,441 371,000 52,478 -- 1,053,060
Purchases of short-term
investments........... (1,657,096) (1,138,538) -- (4,932,767) --
Purchases of property
and equipment......... (42,161) (249,644) (440,893) (184,565) (600,582)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities........... 641,184 (1,017,182) (388,415) (5,117,332) 452,478
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from
issuance of
convertible preferred
stock................. 3,188,905 3,323,623 9,210,956 6,891,970 5,772,336
Net proceeds from
issuance of common
stock................. 1,186 3,172 9,588 8,771 44,456
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities........... 3,190,091 3,326,795 9,220,544 6,900,741 5,816,792
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 2,062,910 (825,966) 5,015,700 (1,049,197) 957,131
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 $ 938,672 $ 7,960,700
=========== =========== =========== =========== ===========
NONCASH FINANCING
ACTIVITIES:
Issuance of common
stock as payment on
notes payable......... $ -- $ -- $ -- $ -- $ 378,485
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements
June 30, 1999
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. In June 1999, the
Company reincorporated in Delaware. The Company designs, manufactures, and
markets server-based telecommunications systems that allow businesses to use
data networks such as the Internet and the traditional 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 nine months ended June
30, 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. As of June 30 1999, the Company had approximately $29,400 in long lived
assets located in China. 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 for the nine months ended
June 30, 1998 has 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,
1998 and June 30, 1999, approximately 65%, 66% and 85%, 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 nine months ended June 30 1999 these three suppliers
provided 73%, 72%, 78% and 75%, 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 June 30, 1999, the Company's cash and cash equivalents
consisted of commercial paper, cash deposited in checking and money market
accounts. For fiscal years 1996, 1997, and 1998 and for the nine months ended
June 30, 1999, 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 $361,000 and $126,000 for the nine months ended June
30, 1998 and 1999, respectively. The components of inventories include:
<TABLE>
<CAPTION>
September 30,
------------------- June 30,
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Raw materials................................. $529,632 $ 966,516 $1,309,620
Work-in-progress.............................. 41,088 -- 184,364
Finished goods................................ 275,458 327,564 774,356
-------- ---------- ----------
$846,178 $1,294,080 $2,268,340
======== ========== ==========
</TABLE>
Prepaid Royalties
The Company has recently developed an ISDN product which contains certain
third-party proprietary technology, which has been modified for the Company's
use. In connection with the above, the Company prepaid royalty payments to the
owner of this technology totaling $100,000 and $300,000 as of September 30,
1998 and June 30, 1999, 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
fourth quarter of fiscal 1999.
Prepaid Offering Costs
The Company capitalized offering costs of $299,000 as of June 30, 1999. The
costs primarily consist of legal and accounting fees related to an initial
public offering of the Company's common stock currently in process. The
prepayments are included in prepaid expenses and other current assets in the
accompanying consolidated balance sheets as of June 30, 1999 and will be offset
against proceeds from the pending initial public offering.
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
F-8
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
and for the nine months ended June 30, 1999 was $32,000, $75,000, $139,000 and
$225,000, respectively. All repairs and maintenance costs are expensed as
incurred.
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 No. 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 nine months ended June 30, 1999,
sales to four distributors of the Company's products accounted for
approximately 24%, 25%, 46% and 53% of net revenues, respectively.
The following customers accounted for more than 10% of net revenues:
<TABLE>
<CAPTION>
Fiscal Year Nine
Ended Months
September 30, Ended
---------------- June 30,
1996 1997 1998 1999
---- ---- ---- --------
<S> <C> <C> <C> <C>
Customer A.............................................. -- 10% 24% 25%
Customer B.............................................. -- -- -- 20%
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 10% of the
Company's net revenues for fiscal years 1996, 1997, 1998 and for the nine
months ended June 30, 1999, respectively.
F-9
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company offers free software upgrades to users of their products when an
error in the software has been subsequently detected. Accordingly, the Company
offers free software upgrades for certain products that were determined to not
be Year 2000 compliant.
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, 2000. 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
F-10
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
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.
Stock Split and Reincorporation
In July 1999, the Company's Board of Directors approved a one for 1.66965
reverse stock split of its convertible preferred and common stock. All
convertible preferred and common share amounts in the accompanying consolidated
financial statements have been adjusted retroactively to give effect to this
split.
In June 1999, the Company's Board of Directors approved the reincorporation of
the Company in Delaware. Upon reincorporation, the Company issued new shares
with a par value of $0.001 per share to all convertible preferred and common
stockholders. All convertible preferred and common share amounts in the
accompanying consolidated financial statements have been adjusted retroactively
to give effect to this change.
3. NOTES PAYABLE:
As of September 30, 1998, the Company had 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. During the nine months
ended June 30, 1999, the Company issued additional notes payable of $12,798 to
consultants. The Company had agreed to issue a total of 197,026 shares of
preferred stock at the fair market values on the dates of the respective
issuances of the notes, which is $1.17-$8.35 per share, as payment for the
notes. 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
and are reflected in the accompanying consolidated statements of stockholders'
equity.
4. COMMITMENTS AND CONTINGENCIES:
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, $167,000 and $278,000 for fiscal years 1996,
1997 and 1998 and for the nine months ended June 30, 1999, respectively.
Minimum future lease payments under all noncancellable operating leases as of
June 30, 1999 are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 95,000
2000............................................................ 331,000
2001............................................................ 27,000
--------
$453,000
========
</TABLE>
Contingencies (unaudited)
From time to time and in the ordinary course of business, the Company has been
and will continue to be subject to claims of alleged infringement of the
patents and intellectual property rights of others. In addition, the Company
may file actions against others to defend its intellectual property rights. The
Company is currently engaged in litigation with NetPhone, Inc. (NetPhone), a
competitor, related to alleged infringement by the Company of a NetPhone
patent. The Company has responded to NetPhone's complaint in the U.S. District
Court requesting a declaration that the Company does not infringe any valid
claim of NetPhone's patent. NetPhone, in turn, has filed a motion against the
Company, seeking to enjoin the Company from
F-11
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
making, importing, using, selling or offering to sell its Quantum Board, a
product which accounted for approximately 84% of the Company's revenues for the
nine months ended June 30, 1999. The Company has responded by filing our
Opposition to NetPhone's motion and countered with a cross-motion. These
motions are scheduled for hearing in September 1999. AltiGen intends to
vigorously defend itself against the allegations and motion asserted by
NetPhone and based upon advice of AltiGen's patent prosecution counsel, does
not believe that the ultimate outcome of this matter will have a material
impact on the Company's financial condition or results of its operations.
However, litigation of this nature is subject to inherent uncertainties and
therefore, there is no assurance that the Company will prevail in the
litigation or that an adverse outcome will not adversely affect our business or
financial condition.
5. CAPITAL STOCK:
Convertible Preferred Stock
Preferred stock consists of the following:
<TABLE>
<CAPTION>
September 30,
--------------------- June 30,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Series A, 1,634,987 shares authorized,
1,634,987 shares outstanding at September
30, 1997 and 1998 and June 30, 1999...... $1,500,914 $1,500,914 $1,500,914
Series B, 1,494,496 shares authorized,
1,494,496 shares outstanding at September
30, 1997 and 1998 and June 30, 1999...... 1,746,700 1,746,700 1,746,700
Series C, 3,593,565 shares authorized,
3,349,525 shares outstanding at September
30, 1997, 3,593,565 shares outstanding at
September 30, 1998 and June 30, 1999..... 6,423,628 7,849,751 7,849,751
Series D, 3,593,568 shares authorized,
926,513 and 1,423,222 shares outstanding
at September 30, 1998 and June 30, 1999.. -- 7,784,833 13,557,169
</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 $0.08, $0.12, $0.17 and $0.83 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 June 30, 1999, no dividends have
been declared.
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 $0.83, $1.17, $1.67 and
$8.35 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 $0.83 per share, adjusted for any stock
split, stock
F-12
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
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 $8.35 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 23,957,117 shares of common stock. At June 30, 1999, the
Company had reserved the following shares for future issuance:
<TABLE>
<S> <C>
Conversion of Series A outstanding preferred stock................ 1,634,987
Conversion of Series B outstanding preferred stock................ 1,494,496
Conversion of Series C outstanding preferred stock................ 3,593,565
Conversion of Series D outstanding preferred stock................ 1,423,222
1994 Stock Option Plan............................................ 1,598,714
1999 Stock Option Plan............................................ 2,096,248
----------
11,841,232
==========
</TABLE>
1998 Stock Purchase Plan
In June 1999, the Company ratified the 1998 Stock Purchase Plan and authorized
the issuance of 15,452 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.
Stock Option Plans
In October 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan") and authorized the issuance of 2,096,246 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
F-13
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
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 2,096,246 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...................................... 306,052 $0.08
Granted................................................ 548,199 0.13
Exercised.............................................. (13,600) 0.08
Canceled............................................... (11,080) 0.10
--------- -----
September 30, 1996...................................... 829,571 0.11
Authorized............................................. -- --
Granted................................................ 100,621 0.17
Exercised.............................................. (31,669) 0.10
Canceled............................................... (52,781) 0.10
--------- -----
September 30, 1997...................................... 845,742 0.12
Granted................................................ 856,738 0.45
Exercised.............................................. (69,500) 0.13
Canceled............................................... (15,348) 0.52
--------- -----
September 30, 1998...................................... 1,617,632 0.29
Granted................................................ 580,111 5.09
Exercised.............................................. (356,562) 0.13
Canceled............................................... (71,481) 0.45
--------- -----
June 30, 1999........................................... 1,769,700 $1.89
========= =====
</TABLE>
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Exercisable at September 30, 1997................... 497,190 $0.10
Exercisable at September 30, 1998................... 744,861 $0.15
Exercisable at June 30, 1999 ....................... 869,760 $0.35
</TABLE>
F-14
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes information concerning outstanding and
exercisable options at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- --------------------------
Weighted Weighted Weighted
Exercise Number Average Average Number Average
Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price
------------- ------------ -------------- -------------- ----------- --------------
<C> <S> <C> <C> <C> <C>
$0.08 - $0.12 29,208 6.37 $0.12 18,872 $0.12
0.13 - 0.17 415,386 6.62 0.15 374,235 0.13
0.23 443,341 8.38 0.23 351,740 0.23
0.58 - 0.87 379,515 8.94 0.85 98,021 0.75
2.89 - 4.34 382,165 9.76 3.82 26,892 3.69
11.69 120,085 9.93 11.69 -- --
------------- --------- ---- ----- ------- -----
$0.08 -$11.69 1,769,700 8.46 $1.89 869,760 $0.35
============= ========= ==== ===== ======= =====
</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:
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended September 30, Ended June 30,
------------------------------------- --------------
1996 1997 1998 1999
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Net loss:
As reported........... $(1,631,160) $(3,118,782) $(3,920,059) $(5,233,993)
Pro forma............. (1,632,026) (3,122,558) (3,931,305) (5,369,256)
Basic net loss per
share:
As reported........... $ (2.14) $ (3.91) $ (4.75) $ (4.73)
Pro forma............. (2.14) (3.92) (4.76) $ (4.85)
</TABLE>
The weighted-average grant date fair value of options granted during fiscal
years 1996, 1997, 1998 and the nine months ended June 30, 1999 was $0.03,
$0.06, $0.13 and $1.17 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,
1998 and 1999: risk free interest rates ranging from 4.5%-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
the fair value for its options.
In connection with the issuance of certain stock options to employees in fiscal
years 1998 and 1999, the Company has recorded deferred stock compensation in
the aggregate amount of approximately $3,892,000, 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 nine months ended June 30, 1999, amortization of
deferred stock compensation expense was $163,858 and $577,770, respectively.
In June 1999, the Board of Directors adopted the 1999 Employee Stock Purchase
Plan under which 299,464 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). The number of shares will
be increased on the first day of each fiscal year beginning in 2000 by the
lesser of (i) 598,928 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
F-15
<PAGE>
AltiGen Communications, Inc.
Notes to Consolidated Financial Statements (Continued)
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
5,989 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.
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,
------------------------ June 30,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards.... $ 1,575,000 $ 2,807,000 $ 2,850,000
Capitalized start-up costs.......... 353,000 263,000 176,000
Reserve and other cumulative tempo-
rary differences................... 273,000 414,000 1,047,000
Research and development credit
carryforward....................... 182,000 317,000 420,000
Net capitalized research and devel-
opment expenses.................... 107,000 204,000 356,000
----------- ----------- -----------
2,490,000 4,005,000 4,849,000
Valuation allowance................. (2,490,000) (4,005,000) (4,849,000)
----------- ----------- -----------
Net deferred tax asset.......... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
As of June 30, 1999, the Company has cumulative net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $7.8 million and $3.1 million, respectively, which expire in
various periods from 2002 to 2019. 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 and June 30, 1999 the Company had no
significant deferred tax liabilities.
F-16
<PAGE>
[LOGO OF ALTIGEN COMMUNICATIONS, INC.]
AltiGen Communications, Inc.
4,600,000 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................................................. $ 17,648
NASD filing fee.................................................. 5,675
Nasdaq National Market listing fee............................... 60,000
Blue sky fees and expenses....................................... 25,000
Printing and engraving expenses.................................. 200,000
Legal fees and expenses.......................................... 350,000
Accounting fees and expenses..................................... 320,000
Transfer Agent and Registrar fees................................ 5,000
Miscellaneous.................................................... 16,677
----------
Total.......................................................... $1,000,000
==========
</TABLE>
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 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
II-1
<PAGE>
officers for certain expenses (including attorneys' fees), judgments, fines
and settlement 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
of 1933 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 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 3,593,565 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 $7,849,751.
(2) In March 1998 through May 1999, we completed a series of private
placements of 1,423,549 shares of series D preferred stock for an aggregate
offering price of $13,624,299. Of these 1,423,222 shares, 25,800 were sold to
certain of our employees pursuant to our 1998 Stock Purchase Plan.
(3) In June 1999, we issued 197,026 shares of common stock to 12 individuals
and entities in satisfaction of certain promissory notes held by them, for
aggregate consideration of $378,485.
(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 471,331 shares of common stock were issued pursuant to option
exercises at exercise prices ranging from $0.05 to $7.00.
(5) In July 1999, AltiGen effected a one-for-1.66965 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.
10.24** Form of Promissory Notes from the Registrant to Simon Chouldjian
10.25** Form of Indemnification Agreement by and between the registrant and
its directors and executive officers.
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>
- -------------------
** 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 Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
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
II-4
<PAGE>
against public policy as expressed in the Securities Act of 1933 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 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 of 1933 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. 4 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
23rd day of September, 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. 4 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 September 23, 1999
____________________________________ (principal executive
Gilbert Hu officer) and Director
/s/ Philip McDermott Chief Financial (principal September 23, 1999
____________________________________ financial and accounting
Philip McDermott officer)
* Director September 23, 1999
____________________________________
Wen-Huang Chang
* Director September 23, 1999
____________________________________
Thomas Shao
* Director September 23, 1999
____________________________________
Masaharu Shinya
* Director September 23, 1999
____________________________________
Kenneth Tai
* Director September 23, 1999
____________________________________
Richard Black
*By: /s/ Gilbert Hu
-----------------------------
Gilbert Hu
Attorney-in-Fact
</TABLE>
II-6
<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 July 19,
1999. 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.
/s/ Arthur Andersen LLP
-------------------------------------
Arthur Andersen LLP
San Jose, California
July 19, 1999
S-1
<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
Nine months ended June 30, 1999
Allowance for returns and doubtful
accounts......................... 133,000 217,000 (150,000) 200,000
</TABLE>
S-2
<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.
10.24** Form of Promissory Notes from the Registrant to Simon Chouldjian
10.25** Form of Indemnification Agreement by and between the registrant and
its directors and executive officers.
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>
- -------------------
** 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 55,000,000 shares, consisting of
50,000,000 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
-2-
<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.
-3-
<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**
-4-
<PAGE>
Exhibit 10.12
OEM Private Label License Agreement
This Original Equipment Manufacturer (OEM) License Agreement (the Agreement)
is entered into on this __________ day of ________-___________,1998 (the
Effective Date) between Renaissance Network Technology Corporation a
California Corporation with principal offices at 708 Blossom Hill Road, Suite
172, Los Gatos, CA 95032 (the Licensor) and AltiGen Communications Corporation
with principal offices at 45635 Northpoint Loop East, Fremont, CA 94538 (the
Licensee).
WHEREAS, Licensor has proprietary hardware and software for the interface of
Windows NT servers to ISDN networks.
WHEREAS, Licensee develops and markets communications servers and certain
applications for those servers.
WHEREAS, Renaissance Network Technology wishes to grant to Licensee and Licensee
desires to obtain certain license rights to manufacture and to distribute
Licensor's hardware and software described below in accordance with the terms
and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
promises contained herein, the Parties agree to the following terms and
conditions, which set forth the rights, duties, and obligations of the parties.
1 Definitions
For the purpose of this Agreement, the following terms shall have the following
meanings:
1.1 Attachment(s) are the attachments and exhibits to this Agreement which are
attached hereto and incorporated herein.
1.2 Confidential Information means any information disclosed by one party (the
Disclosing Party) to the other party (the Receiving Party), which, if in
written, graphic, machine readable or other tangible form is marked as
"Confidential" or "Proprietary", or which, if disclosed orally or by
demonstration, is identified at the time of disclosure as confidential and
such information is reduced to writing and delivered to the Receiving Party
within thirty (30) days of such disclosure.
1.3 Distributor means any third party which acquires possession of the
Licensor's Licensed Products from the Licensee without becoming an
[1]
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
End User and distributes such products to an End User or to another
Distributor.
1.4 Derivative Work means a revision, modification, condensation or expansion
of the Hardware Product design or the Software, which if prepared without
the consent of Renaissance Network Technology, would be a copyright or
trade secret infringement.
1.5 Documentation means any user manuals, technical manuals, reference manuals,
drawings, schematics, software listings, test scripts, installation guides,
requirements specifications or portions thereof, which are delivered by the
Licensor to the Licensee.
1.6 End User is any third party licensed by Licensee or a Distributor to use,
but not further distribute, the Licensed Products.
1.7 Hardware means computer systems or printed circuit cards for use in a
computer system or any components supplied by the Licensor under this
Agreement or manufactured by the Licensee under this OEM License. These are
identified in Attachment A.
1.8 Initial Manufacturing License Quantity means the quantity of hardware
components to be manufactured and shipped by AltiGen for which royalty fees
have been pre-paid. This quantity will be determined at the time that
actual accumulated royalties owed exceeds the pre-paid license fees.
1.9 Licensed Product means the Hardware and Software licensed for manufacture
and distribution by Licensee from the Licensor under this Agreement.
1.10 Licensee Acceptance Tests are activities conducted by the Licensee and/or
their Distributors for determination of licensed product stability and
conformance to requirements. These tests include explicit formal testing
and product characterization (e.g. homolugation testing), in-house and
field trial testing (e.g. Alpha/Beta testing) and the first 180 days
following the conclusion of field trial testing (e.g. the first 180 days
after product release).
1.11 Manufacturing Contractors are business entities that the Licensee
contracts with to manufacture, test and/or produce the Licensed Hardware
Products.
[2]
<PAGE>
1.12 Manufacturing License refers to the license granted under this Agreement
to the Licensee to manufacture the Licensed Hardware Products either
directly or through Manufacturing Contractors.
1.13 Manufacturing Specifications means the detailed drawings, schematics,
test procedures, bills of materials, operation lists and other
Documentation provided to the Licensee to enable the manufacture of the
Licensed Hardware Products.
1.14 Product Defects means one or more reproducible deviations in Licensor's
products from the applicable specifications shown in the Documentation.
1.15 Quarterly Royalty Reports means the information supplied by the Licensee
to the Licensor reflecting the royalties owed due to Hardware products
shipped during the preceding three months. This information will include
quantity and price of product shipped, and a breakdown of associated
manufacturing costs (i.e. component costs, cost of outside services for PCB
fabrication/assembly/test/rework, and costs of scrapped material).
1.16 Software means computer programs supplied by the Licensor under this
Agreement for integration with products distributed by Licensee under this
OEM License. These are identified in Attachment A.
2 Grant of Licenses and Rights
2.1 License
2.1.1 License. Subject to the terms and conditions of this Agreement,
Renaissance Network Technology Corporation hereby grants and Licensee
accepts, a non-exclusive, non-transferable license to (i) manufacture,
without change to the design, the Licensed Hardware Products indicated
in Attachment A unless explicitly noted in Attachment A as an exception
to this clause, (ii) use and reproduce, without change, the Licensed
Software Products (in executable form only) and (iii) distribute by
sublicense these Licensed Products to Distributors and End Users only
in conjunction with a product of the Licensee. Licensee may grant its
authorized Distributors the right to distribute Licensed Products to
other Distributors and to End Users.
2.1.2 Source Code Restrictions. Licensee agrees not to decompile, reverse
engineer, disassemble or otherwise attempt to determine source code for
the executable code of the Licensed Software Products or to create any
Derivative Works based upon the Licensed Products or
[3]
<PAGE>
Documentation, and agrees not to permit or authorize anyone else to do
so.
2.1.3 Documentation License. Subject to the terms and conditions of this
Agreement, Licensor hereby grants and Licensee hereby accepts, a non-
exclusive, non-transferable license to use and reproduce the
Documentation and to distribute same solely in conjunction with the
Licensed Products. Such distribution may only be to Manufacturing
Contractors, Distributors or End Users. Any such distribution shall
contain the restriction that the Documentation may not be subsequently
reproduced. The licensee is permitted to translate the above
Documentation for distribution to international customers.
2.1.4 Use of Manufacturing Contractors.
2.1.4.1 Manufacturing Contractors Agreement. Licensee shall procure from each
of its Manufacturing Contractors an executed copy of a Contract for
Work (Manufacturing Contractors' Agreement) sufficient to ensure that
such Manufacturing Contractors are required to comply with the
relevant terms of this Agreement.
2.1.4.2 Enforcement of Manufacturing Contractors' Agreements. Licensee shall
use commercially reasonable efforts to enforce each Manufacturing
Contractors' Agreement, with at least the same degree of diligence
used in enforcing similar agreements covering others, which in any
event shall be sufficient to adequately enforce such agreements.
Licensee shall use commercially reasonable efforts to protect
Licensor's copyright, shall notify Licensor of any breach of material
obligation under a Manufacturing Contractors' Agreement affecting
Licensed Products, and will cooperate with Licensor in any legal
action to prevent or stop unauthorized use, reproduction or
distribution of the Licensed Products or the relevant technology.
2.2 Export Controls. None of the Software or Hardware technology or information
underlying the technology may be downloaded or otherwise exported or re-
exported (i) into any countries to which the United States has embargoed
goods; or (ii) to anyone on the U.S. Treasury Department's list of
Specifically Designated Nationals or the U.S. Commerce Department's Table
of Denial Orders.
3 Purchase of Licensed Products
3.1 Sale of Hardware Products. In addition to granting the Manufacturing
License detailed in paragraph 2.1.1 above, Licensor will sell to the
[4]
<PAGE>
Licensee quantities of the Hardware Products requested by the Licensee.
Such products will be ordered by the Licensee via purchase order or other
valid document as indicated by the Licensee from time to time.
3.2 Terms of Sale. The sale of these products will be consistent with the
terms and conditions of this OEM License Agreement and the Licensee will
treat purchased Hardware Products in the same manner as Products
manufactured under this Agreement. The price, delivery and other terms of
sale for completed Hardware Products sold to Licensee not detailed in this
Agreement will be those then in effect by Licensor with its other
customers.
3.3 Quantity of Products Sold. Products sold to the Licensee will not be
counted as a part of the Initial Manufacturing License Quantity.
4 Marketing
4.1 Non-exclusivity. Licensee understands that Licensor may enter into
arrangements similar to this Agreement with third parties.
4.2 Public Announcements and Promotional Material. Renaissance Network
Technology and AltiGen Communications Corporation shall cooperate with each
other so that each Party may issue a press release concerning this
Agreement, provided that each Party must approve any press release prior to
its release. Licensor shall cooperate with Licensee in its development of
the initial marketing and sales materials used to promote the distribution
of the Licensed Products.
4.3 Terms Relating to Distribution.
4.3.1 General Restrictions on Distribution. Licensee agrees to comply with and
shall require its Distributors to comply with all applicable laws, rules,
and regulations to preclude the acquisition of unlimited rights to
technical data, Software and Documentation provided with the Licensed
Products to any governmental agency, and ensure the inclusion of the
appropriate "Restricted Rights" or "Limited Rights" notices required by
U.S. Government Agencies.
4.3.2 Distributor License Agreement. Licensee shall procure from each of its
Distributors an executed copy of a distribution license (Distributor
License Agreement) sufficient to ensure that such Distributors are
required to comply with the relevant terms of this Agreement.
[5]
<PAGE>
4.3.3 End User License Agreements. Licensee and its Distributors shall
distribute the Licensed Products to End Users only under the terms of,
and shall ensure that the Licensed Products are subject to applicable
End User License Agreements with terms at least as restrictive as those
of, this Agreement.
4.4 Enforcement of Sublicense Agreements. Licensee and its Distributors shall
use commercially reasonable efforts to enforce each Distributor License
Agreement and End User License Agreement, whichever may be relevant, with
at least the same degree of diligence used in enforcing similar agreements
covering others, which in any event shall be sufficient to adequately
enforce such agreements. Licensee shall use commercially reasonable efforts
to protect Licensor's copyright, shall notify Licensor of any breach of
material obligation under a Distributor License Agreement or an End User
License Agreement affecting Licensed Products, and will cooperate with
Licensor in any legal action to prevent or stop unauthorized use,
reproduction or distribution of the Licensed Products or the relevant
technology.
5 Fees and Payment
5.1 Prepaid License Fees. Licensee will pay to Renaissance Network Technology
non-refundable royalty license fees (License Fees) as specified in
Attachment A.
5.2 Royalties. In addition, upon the exhaustion of the Initial Manufacturing
License Quantity as described in section 1.8, Licensee shall pay to
Licensor the per board royalties indicated in Attachment A for each
Hardware Product shipped. Such Royalties will be due and payable [*]
following the end of the quarter in which the boards were shipped. Each
payment shall be accompanied by a Quarterly Royalty Report as described
in paragraph 5.5 below.
5.3 Service and Technical Support Fees. Licensor will transfer to Licensee
manufacturing skills and know-how sufficient to allow Licensee to
manufacture Licensed Hardware Products. The cost of such support will be
borne by the Licensor except that Licensee agrees to pay for all travel to
sites out of the State of California made at their request for such
support, and all expenses for support after completion of the Licensee
Acceptance Test.
5.4 Payment and Taxes
5.4.1 Payments. All payments shall be made in United States dollars at
Licensor's address indicated in this Agreement or at such other
[6]
[*]=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>
address as Licensor may from time to time indicate by proper notice
hereunder.
5.4.2 Taxes. All fees and royalties are exclusive of all taxes, duties or
levies, however designated or computed. Licensee shall be responsible
for and pay all taxes based on the transfer, use, distribution of
Licensed Products, or the program storage media, or upon payments due
under this Agreement including, but not limited to, sales, use or value-
added taxes, duties, withholding taxes and other assessments now or
hereafter imposed on or in connection with this Agreement or with any
sublicense granted hereunder, exclusive of taxes based upon Licensor's
net income. In lieu thereof, Licensee shall provide to Licensor a tax
or other levy exemption certificate acceptable to the taxing or other
levying authority.
5.5 Quarterly Royalty Reports. Licensee and its Distributors shall maintain
accurate records of End Users, including the name and address of each End
User and any further information as Licensor may from time to time
reasonably request. Licensee shall report to Licensor within thirty (30)
calendar days after the end of each quarter (i.e. on or before 1/30, 4/30,
7/30 and 10/30), the type and number of Hardware Products shipped in the
prior three months and their associated prices and costs as described in
section 1.15.
5.6 Audit of Records. Licensee shall keep full, true and accurate records
containing all data reasonably required for verification of the amounts to
be paid, and the quantity of Licensed Products manufactured and
distributed. Licensor shall have the right, during normal business hours
upon at least five (5) business days' prior notice, to audit and analyze
the relevant records of Licensee to verify compliance with the provisions
of this Agreement. The audit shall be conducted at Licensor's expense
unless there is inadequate record keeping or the results of such audit
establish that inaccuracies in the monthly reports have resulted in
underpayment of royalties to Licensor of more than five percent (5%) of the
amount actually due in any month, in which case the Licensee will bear the
cost of the audit. In any case any underpayment must be rectified within
thirty (30) calendar days.
6 Deliverables, Updates and Technical Support
6.1 Deliverables. The Deliverables under this Agreement include the
Manufacturing Specifications and other documentation necessary for Licensee
to build and test the Licensed Hardware and the Documentation and object
code modules necessary for the Licensee to integrate the Licensed Software
into its products.
[7]
<PAGE>
6.2 Updates. Licensor will provide Licensee with updates in the form of new
Manufacturing Specifications for hardware revision levels, and software
versions and releases, from time to time without charge for the Licensed
Products listed on Attachment A of this Agreement.
6.3 Technical Support.
6.3.1 Product Defects. Licensor will use its best efforts to repair any
Product Defects as defined in paragraph 1.14. Licensee agrees to
provide Licensor with a written product defect report and evidence of
the Defect. Licensor agrees to notify Licensee, within thirty (30)
calendar days of delivery of documented evidence by the Licensee of any
Product Defects that it does not intend to repair.
6.3.2 General Support. General support for technical issues other than fixing
Product Defects and assisting with product integration prior to
completion of Licensee Acceptance Test will be available from the
Licensor at its then prevailing rates for support.
7 Trademarks
7.1 License to Use. Not Applicable.
8 Proprietary Rights
8.1 Proprietary Rights. Title to and ownership of all copies of the Licensed
Software, Manufacturing Specifications and the Documentation whether in
machine readable or printed form, and including, without limitation,
Derivative Works, compilations or collective works thereof and all related
technical know-how and all rights therein (including without limitation
rights in patents, copyrights and trade secrets applicable thereto), are
and shall remain the exclusive property of Renaissance Network Technology
and its suppliers. Licensee shall not take any action to jeopardize, limit
or interfere in any manner with Licensor's ownership of and rights with
respect to the Licenses Products and Documentation. Licensee shall have
only those rights on of to the Licensed Products and Documentation granted
pursuant to this Agreement.
8.2 Proprietary Notices. Not Applicable.
9 Confidential information and Disclosure
[8]
<PAGE>
9.1 The Receiving Party agrees to retain the Confidential Information in
confidence for a period of five (5) years from the date of receipt of the
Confidential Information and shall use reasonable care not to disclose the
received Confidential Information to any party by using the same degree of
care as the Receiving Party employs with respect to its own information of
like importance.
9.2 Notwithstanding any other provisions of this Agreement, each Party
acknowledges that Confidential Information shall not include any
information which: (a) is not clearly marked at the time of disclosure as
being Confidential or Proprietary or if orally disclosed is not confirmed
in writing as confidential within ten (10) days of disclosure; (b) is or
becomes publicly known through no wrongful act on the Receiving Party's
part; (c) is already known to the Receiving Party at the time of
disclosure; (d) is rightfully received by the Receiving Party from a third
party without breach of this Agreement; (e) is independently developed by
the Receiving Party without breach of this Agreement; (f) is furnished to a
third party by the Disclosing Party without a similar restriction on the
third party's rights; (g) is explicitly approved for release by written
authorization of the Disclosing Party; or (h) is disclosed pursuant to the
lawful requirement or request of a Government Agency or disclosure is
permitted by operation of law, provided that the Party making the
disclosure has given prior notice to the other Party and has made a
reasonable attempt to obtain a protective order limiting the use of the
information so disclosed.
9.3 Each party agrees to return to the disclosing party upon written request,
the writings containing Confidential Information referred to in paragraph
1.2 of this Agreement except that one copy of same may be retained for
archival purposes only if requested by the receiving party.
9.4 Nothing contained in this agreement shall be construed as granting or
conferring any rights by license or otherwise, expressly implied, or
otherwise, for any patents, copyrights, trademarks, know-how or other
proprietary rights of either party acquired prior to or after the date of
this Agreement.
9.5 Remedies. If a Party breaches any of its obligations with respect to
confidentiality or the use of Confidential Information hereunder, the
relevant Disclosing Party shall be entitled to seek equitable relief to
protect its interest therein, including but not limited to injunctive
relief, as well as monetary damages.
10 Warranties
[9]
<PAGE>
10.1 Limited Warranty. Subject to the limits set forth in this Agreement,
Licensor warrants only to Licensee that the Licensed Products when properly
adapted, integrated, installed and used will conform to the mutually agreed
upon requirements specifications. Licensor's warranty and obligation shall
extend to completion of the final phase of the Licensee's Acceptance Test.
All warranty claims not made in writing or not received by Licensor within
the Warranty Period specified above shall be deemed waived. Licensor
warranty and obligation is solely for the benefit of the Licensee, who has
no authority to extend this warranty to any other person or entity.
Licensor makes no warranty that all failures or errors will be corrected.
10.2 Exclusive Warranty. The express warranty set forth in paragraph 10.1
constitutes the only warranty with respect to the Licensed Products.
Licensor makes no other representation or warranty of any king whether
express or implied (either in fact or by operation of law) with respect to
the Licensed Products. Licensor expressly disclaims all warranties of
merchantability or fitness for a particular purpose. Licensor does not
warrant, for example, that the Licensed Products will be secure or
uninterrupted. There is also no implied warranty of non-infringement; the
sole remedy for infringement is provided in Section 11.
10.3 Defects not Covered by Warranties. If Licensor's ability to perform
warranty services is affected thereby, Licensor shall have no obligations
under the warranty provisions set forth in Section 10.1 (a) in the event
Licensee incorporates, integrates, attaches or otherwise engages any
attachment, feature, program or device to the Licensed Products, or any
part thereof; (b) if any nonconformance is caused by accident,
transportation, neglector misuse, alteration, modification or enhancement
of the Licensed Products by the Licensee; or (c) if Licensee fails to
provide a suitable installation environment, uses the Licensed Products for
other than their intended purpose, or on any systems other than the
specified hardware platform, or Licensee uses defective media to duplicate
or distribute the Licensed Software.
10.4 Exclusive Remedy. If Licensee finds what it believes to be errors or a
failure of the Licensed Products to meet specifications which significantly
affects performance, and provides Licensor with a written report during the
Warranty Period, Licensor will use reasonable efforts to correct promptly,
at no charge to the Licensee, any such errors or failures. This is the
Licensee's sole and exclusive remedy for any express or implied warranties
hereunder.
11 Indemnification
[10]
<PAGE>
11.1 Renaissance Network Technology shall defend any action brought against
Licensee to the extent it is based on a claim that reproduction or
distribution by Licensee of the Licensed Products furnished hereunder
within the scope of the license granted hereunder directly infringes any
valid U.S. or foreign patent, Copyright, trademark or trade secret.
Licensor will pay resulting costs, damages and legal fees finally awarded
against Licensee in such action which are attributable to such claim
provided that the Licensee (a) promptly (within twenty days) notifies
Licensor in writing of any such claim and Licensor has sole control of the
defense and all related settlement negotiations, and (b) cooperates with
Licensor at Licensor's expense, in defending or setting such claim.
11.2 Should a Renaissance Network Technology product become, or be likely to
become in Licensor's opinion, the subject of infringement of such
copyright, patent, trademark or trade secret, Licensor may procure for
Licensee (i) the right to continue using the same or (ii) replace or modify
it to make it non-infringing. Licensor shall have no liability for and
Licensee shall indemnify and hold harmless from and against any claim based
upon: (a) use of other than the current, unaltered version of the Licensed
Product, unless the infringing portion is also in the then current,
unaltered release; (b) use, operation or combination of the Licensed
Products with non-Licensor equipment, programs or documentation if such
infringement would have been avoided but for the use, operation or
combination; (c) Licensee's or its agents activities after Licensor has
notified Licensee that Licensor believes that such activities may result in
such infringement; (d) compliance with Licensee's designs, specifications
or instructions; (e) any modifications or marking of the Licensed Products
not specifically authorized in writing by the Licensor; (f) Licensee's use
of any trademarks not specifically authorized by Licensor; or (g) third
party software. The foregoing states the entire liability of Licensor and
the exclusive remedy of Licensee with respect to infringement of
copyrights, patents, trademarks and trade secrets.
12 Limitation of Liability
In no event shall Renaissance Network Technology or its suppliers be liable
for any loss of profits, loss of business, loss or use of data,
interruption of business or for indirect, special, incidental or
consequential damages of any kind, even if Renaissance Network Technology
has been advised of the possibility of such damages (and notwithstanding
any failure of essential purpose of any limited remedy), or for any claim
against Licensee by any third party, except as provided in the section
entitled "Indemnification". In no event will Licensor or its suppliers be
liable for (a) any representation or warranty made to any
[11]
<PAGE>
third party by Licensee, any agent of the Licensee or Distributor; (b)
failure of the Licensed Products to perform as specified herein except as,
and the extent, otherwise expressly provided herein; (c) failure of the
Licensed Products to provide security; or (d) any use of the Licensed
Products or the Documentation or the results or information obtained or
decisions made by End Users of the Licensed Products or the Documentation.
The remedies provided herein are the Licensee's sole and exclusive
remedies. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY,
LICENSOR'S ENTIRE LIABILITY TO LICENSEE FOR DAMAGES CONCERNING PERFORMANCE
OR NON- PERFORMANCE BY LICENSOR OR IN ANY WAY RELATED TO THE SUBJECT MATTER
OF THIS AGREEMENT, AND REGARDLESS OF WHETHER THE CLAIM FOR SUCH DAMAGES IS
BASED IN CONTRACT OR IN TORT, SHALL NOT EXCEED THE AMOUNT RECEIVED BY THE
LICENSOR FROM THE LICENSEE FOR THE LICENSED PRODUCTS GIVING RISE TO SUCH
CLAIM.
13 Term of Agreement
13.1 Term. The term of this Agreement shall be five (5) years from the
Effective Date.
13.2 Termination for Default. If either Party defaults in any of its
obligations under this Agreement, the non-defaulting Party, at its option
shall have the right to terminate the Agreement by written notice unless,
within thirty (30) days after the written notice of such default, the
defaulting Party remedies the default, or, in the case of default which
cannot with due diligence be cured within a period of thirty (30) calendar
days, the defaulting Party institutes within that period steps necessary to
remedy the default and thereafter diligently prosecutes the same to
completion.
13.3 Bankruptcy. Either Party shall have the right to terminate this Agreement
if the other Party ceases to do business in the normal course, becomes or
is declared bankrupt or insolvent, is the subject of any proceeding
relating to its liquidation or insolvency which is not dismissed within
ninety (90) calendar days, or makes an assignment for the benefit of its
creditors.
13.4 Source Documentation Escrow. Licensor will make available periodic
hardware and software source code baselines to the Licensee's escrow agent
for backup archival. In the event that the Agreement is terminated because
the Licensor ceases to do business, the Licensee has the right to access
and modify this source base to correct product defects in support of the
installed customer base. In this case, the
[12]
<PAGE>
modified source code modules and the resulting work products will be solely
owned by the Licensee. Nonexclusive access to the original source material
will be available equally to all Licensees. If the Licensor ceases to do
business prior to completion of the Licensee Acceptance Test, the Licensee
may use this documentation to complete the development of the product. In
this case, sole ownership of the resulting work products will then revert
to the Licensee.
13.5 Effect on Rights
13.5.1 Termination of this Agreement by either Party shall not act as a
waiver of any breach of this Agreement and shall not act as a release of
either Party from any liability for breach of such Party's obligations
under this Agreement.
13.5.2 Except as specified in Sections 13.5 and 13.6 below, upon termination
of this Agreement, all licenses for Licensor's Licensed Products and
Documentation granted under this Agreement shall terminate.
13.5.3 Except where otherwise specified, the rights and remedies granted to a
Party under this Agreement are cumulative and in addition to, and not
in lieu of, any other rights or remedies which the Party may possess
at law or in equity, including without limitation rights or remedies
under applicable patent, copyright, trade secrets, or proprietary
rights laws, rules or regulations.
13.6 Effect on Termination. Within thirty (30) calendar days after termination
of this Agreement, Licensee shall either deliver to Licensor or destroy all
copies of the Licensed Software and Documentation an the drawings,
schematics and Documentation relating to the Licensed Hardware (except as
provided for in Section 13.6) mad any other materials provided by Licensor
to Licensee hereunder in its possession or under its control, and shall
furnish to Licensor an affidavit signed by an officer of the Licensee
certifying that, to the best of its knowledge, such delivery or destruction
has been fully and completely effected. Notwithstanding the foregoing, and
provided Licensee fulfills, its obligations specified in this Agreement
with respect to such items, Licensee may continue to use and retain copies
of the Licensed Software and related Documentation, to the extent, but only
to the extent necessary to support and maintain Licensed Software Products
rightfully distributed to End Users by Licensee prior to the termination of
this Agreement.
13.7 Continuing Obligations
[13]
<PAGE>
13.7.1 Payment of Accrued Fees and Royalties. Within thirty (30) calendar
days of the termination of this Agreement, Licensee shall pay to
Licensor all sums then due and owing. Any other such sums shall
subsequently be promptly paid as they become due and owing.
13.7.2 Continuance of Sublicenses. Notwithstanding the termination of this
Agreement, all End User sublicenses which have been properly granted by
Licensee and Distributors pursuant to this Agreement prior to its
termination will survive.
13.7.3 Other Continuing Obligations. The respective rights and obligations of
Licensor and Licensee under the provisions of Paragraphs 2.1.2, 2.2,
4.3.1, 4.4 and Sections 5, 7, 8, 9, 11, 12, and 14 shall survive
termination of this Agreement.
14 Arbitration of Disputes
14.1 Arbitration of Disputes
14.1.1 Any controversy, dispute or claim arising out of, in connection, with,
or in relation to the interpretation, performance or breach of this
Agreement, including any claim based on contract, tort or statute,
shall be settled, at the request of either Party, by arbitration
conducted in the State of California, or such other location
upon(which the Parties shall mutually agree, before and in accordance
with the then-existing Rules of Commercial Arbitration of the American
Arbitration Association (the AAA), and judgment upon any award
rendered by the arbitrator may be entered by any State or Federal
court having jurisdiction thereof.
14.1.2 The Parties hereby consent to the jurisdiction of an arbitration panel
and of the courts located in and venue in, the State of California, with
respect to any dispute arising under this Agreement.
14.1.3 Any controversy concerning whether a dispute is an arbitrable dispute
hereunder shall be determined by one of the arbitrators selected in
accordance with section 1 4.3 below.
14.1.4 The Parties intend that this agreement to arbitrate be valid,
specifically enforceable and irrevocable.
14.2 Initiation of Arbitration. A Party may initiate arbitration hereunder by
filing a written demand for arbitration with the other Party and with the
AAA. Arbitration hereunder shall be conducted on a timely, expedited basis.
[14]
<PAGE>
14.3 Selection of the Arbitrator. Any arbitration shall be held before a
single arbitrator, who shall be selected in accordance with the procedures
of the AAA, and shall be a member of the Large Complex Case Panel with
significant intellectual property and manufacturing experience. If the,
Parties are unable to agree on a single arbitrator, then each of the
Parties will select a single arbitrator and such arbitrators will select a
third arbitrator. Such arbitration shall then be held before the panel of
three arbitrators.
14.4 Awards. The arbitrator(s) may, in their discretion, award to the
prevailing Party in any proceeding commenced hereunder, and the court shall
include in its judgment for the prevailing Party in any claim arising
hereunder, the prevailing Party's costs and expenses (including expert
witness expenses and reasonable attorney's fees) of investigating,
preparing and presenting such arbitration claim or cause of action.
15 General Provisions
15.1 Notices. Any notice, request, demand or other communication required or
permitted hereunder shall be in writing and shall be deemed to be properly
given upon the earlier of (a) the actual receipt by the addressee or (b)
five (5) business days after deposit in the U.S. mail, postage prepaid,
when mailed by registered or Certified U.S. mail, return receipt requested,
or two (2) business days after being sent via private industry courier to
the respective Parties at the addresses set forth above or to such other
person or address as the Parties may from time to time designate in a
writing delivered pursuant to this paragraph 15.1. Notices to Licensor
and Licensee shall be attention to: Legal Department.
15.2 Waiver and Amendment. The waiver by either Party of a breach of or a
default under any provision of this Agreement, shall not be construed as a
waiver of any subsequent breach of the same or any other provision of the
Agreement, nor shall any delay or omission on the part of either Party to
exercise or avail itself of any right or remedy that it has or may have
hereunder operate as a waiver of any right or remedy. No amendment or
modification of any provision of this Agreement shall be effective unless
in writing and signed by a duly authorized signatory of both Licensor and
Licensee.
15.3 Assignment. This Agreement and the licenses granted hereunder are to a
specific legal entity, not including corporate subsidiaries or affiliates
of the Licensee, and are not assignable by Licensee, nor are the
obligations imposed on the Licensee delegable. Any attempt to
[15]
<PAGE>
sublicense (except as expressly permitted herein) assign or transfer any of
the rights, duties or obligations of the Licensee in derogation hereof
shall be null and void.
15.4 Relationship of the Parties. No agency, partnership, joint venture, or
employment is created as a result of this Agreement and neither Licensee
nor its agents have any authority of any kind to bind Renaissance Network
Technology in any respect whatsoever.
15.5 Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any provision
of this Agreement is invalid or unenforceable, but that by limiting such
provision it would become valid and enforceable, then such provision shall
be deemed to be written, construed, and enforced as so limited.
15.6 Force Majeure. Either Party shall be excused from any delay or failure in
performance hereunder, except the payment of monies by the Licensee to the
Licensor, caused by reason of any occurrence or contingency beyond its
reasonable control. The obligations and rights of the Party so excused
shall be extended on a day-to-day basis for the period of time equal to the
underlying cause of the delay. The Party experiencing such cause or delay
shall immediately notify the other Party of the circumstances which may
prevent its performance hereunder, and shall use its best efforts to
alleviate the effects of such cause or delay.
15.7 Entire Agreement. This Agreement, including the Attachments hereto,
constitutes the entire agreement between the Parties concerning the subject
matter hereof and supercedes all proposals or prior agreements, whether
oral or written, and all communications between the Parties relating to the
subject matter of this Agreement. The terms and conditions of this
Agreement shall prevail, notwithstanding any variance with any purchase
order or other written instrument submitted by the Licensee whether
formally rejected by the Licensor or not.
15.8 Governing Law. This Agreement shall be governed by the laws of the State
of California, without regard to that State's choice of laws.
[16]
<PAGE>
AUTHORIZED SIGNATURES
AltiGen Communications Corp. Renaissance Network Technology Corp.
/s/ Gilbert Hu /s/ G. Nicholas Tuttle
- --------------------------------- ---------------------------------
Gilbert Hu, President & CEO G. Nicholas Tuttle, President & CEO
5/28/98
- --------------- ---------------
Date Date
[17]
<PAGE>
Attachment A
Licensed Products
Hardware
The Products licensed under this agreement will be:
. Multifunction Resource Card (MRC) with one 4-channel BRI ISDN interface
daughter card (BRI I/F EDB). This product will conform to the ISDN "S/T"
interface standard.
. Multifunction Resource Card (MRC) with one 4-channel BRI ISDN interface
daughter card with an integrated NT-1 device (BRI I/F w DSU SDB). This
product will conform to the ISDN "U" interface standard. A waiver to the
restriction on design changes described in section 2.1.1 will be granted
for the development of the BRI I/F w DSU EDB by the licensee. Technical
support for transfer of design technology and design assistance are not
covered by this agreement. A separate Professional Services Agreement will
detail the terms and conditions of this project.
The Renaissance Network Technology's Multifunction Resource Cards provided under
this Agreement will be used by AltiGen only for ISDN connectivity, and AltiGen
agrees to protect this usage under its contract with its customers.
Software
1. On-board Firmware (Motorola 860 code)
2. Microsoft NT Driver
3. Service Provider Module, conforming to AltiGen's Service Provider Interface
(SPI)
4. Manufacturing Test Routines
[18]
<PAGE>
Royalties
- ---------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Products Royalty
- -------------------------------------------------------------------------------
<S> <C>
4-channel BRI Interface
(assumes external DSU) [*]
- -------------------------------------------------------------------------------
4-channel BRI Interface with
Built-in DSU [*]
- -------------------------------------------------------------------------------
Software (items 1-4 above) [*]
- -------------------------------------------------------------------------------
</TABLE>
Pre-Paid Licenses
- -----------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Products Royalty
- -------------------------------------------------------------------------------
<S> <C>
4-channel BRI Interface
(either with or without integrated DSU capability) [*]
- -------------------------------------------------------------------------------
Software (items 1-4 above) [*]
- -------------------------------------------------------------------------------
</TABLE>
Pre-Paide License Milestones*
- -----------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Milestones Supplier
- --------------------------------------------------------------------------------
<S> <C> <C>
1.1 License Agreement Approval AltiGen &
Renaissance NT
- --------------------------------------------------------------------------------
1.2 Requirements Spec Approval AltiGen
- --------------------------------------------------------------------------------
2.1 AM1 HW/SW Unit Tested Renaissance NT
- --------------------------------------------------------------------------------
2.2 AM1 HW/SW Integration and AltiGen &
System Tested Renaissance NT
- --------------------------------------------------------------------------------
3.1 AM2 Manufacturing Renaissance NT
Documentation Delivery
- --------------------------------------------------------------------------------
3.2 AM2 HW System Regression AltiGen
Tested
- --------------------------------------------------------------------------------
4.1 First Customer Shipment (Start AltiGen
of Final Acceptance Test)
- --------------------------------------------------------------------------------
4.2 90 days of Customer Soak Test AltiGen
(End of first phase of Final
Acceptance Test)
- --------------------------------------------------------------------------------
</TABLE>
[19]
[*]=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>
EXHIBIT 10.14
[LOGO OF ALTIGEN APPEARS HERE]
[LETTERHEAD OF ALTIGEN APPEARS HERE]
ALTIGEN COMMUNICATIONS INC.
DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is made and entered into as
of this 12th day of June, 1998 (the "Effective Date") by and between Altigen
Communications Inc., a California corporation, with principal offices at 45635
Northport Loop East, Fremont, CA 94538 ("AltiGen") and INGRAM MICRO INC., a
Delaware corporation, with principal offices at 1600 E. St. Andrew Place, Santa
Ana, CA 92705 ("Distributor,") both jointly referred to herein as "The
Parties".
1. Definitions
1.1 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.
1.2 End User means a licensee who acquires Products for Internal Use
(rather than distribution 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").
1.3 Internal Use means use for purposes which do not directly produce
revenue for the End User. "Internal Use" does not include timesharing.
1.4 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.
1.5 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.
1.6 Purchase Objectives means the minimum quantity of each Product
which Distributor commits to purchase quarterly during the term of this
Agreement, as mutually agreed upon and set forth in Exhibit C attached
hereto. These quarterly purchase objectives are to serve as goals and a
means to track progress but are non-binding.
1.7 Territory shall be described in Exhibit E.
[*]- CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
1.8 Grant of Distribution Right Subject to the terms and conditions set
forth in this Agreement, AltiGen hereby grants to Distributor a
non-exclusive, non-transferable right to (a) market and distribute the
Products solely to Dealers located in the Territory as stated in
Exhibit E and (b) use the Products for those purposes set forth in the
Agreement. Distributor shall not, knowingly directly or indirectly,
solicit sales of the 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, including, by way
of illustration but not limitation, distributors, Dealers, and original
equipment manufacturers. Distributor shall have no right to modify the
Product or Documentation without the prior written approval of AltiGen.
Distributor agrees not to (a) reverse engineer, decompile, disassemble
or otherwise reduce the Product to human-perceivable form, or to
knowingly encourage or assist third parties in doing so or (b)
distribute the Product by rental or lease to end users. All rights not
expressly granted herein are retained by AltiGen. Distributor shall
have no right to grant a Dealer the right to make copies from a golden
master absent further agreement between AltiGen and the Distributor.
2. Ownership
Except as specified in this agreement, AltiGen does not grant to the
distributor 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. Distributor shall pay AltiGen, for each Product and
upgrade, the list price for the Product as set forth on Exhibit B, less
any Distributor discount listed in Exhibit B. Both the AltiGen standard
list price and the Distributor's discount levels are subject to change
by AltiGen from time to time in its sole discretion upon thirty (30)
days written notice to Distributor. Orders requesting delivery after
the thirtieth (30) day of written notice of price or discount change
will be charged at the new price or discount level.
3.2 Distributor Pricing. Distributor 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.
However, Distributor agrees that any discounts it may offer (from
suggested applicable list prices that may be published by AltiGen)
shall be commercially reasonable and consistent with industry practices
providing Distributor commercially reasonable margins for its resale
activities with respect to the Products.
3.3 Dealer Pricing. Distributor 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, Distributor
shall deliver to AltiGen a purchase order for an [*]
[*]- 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.
2
<PAGE>
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
invoice. Invoices or any undisputed invoice not paid when due can
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. All Products ordered in excess of any credit
limit shall be paid for as agreed upon by AltiGen and Distributor.
These terms and conditions will be communicated in writing within
forty-eight hours to Distributor to resolve or accept currency in
advance of shipment, by a letter of credit drawn upon a bank acceptable
to AltiGen and Distributor, a bank cashier's check, or a bank wire
transfer. AltiGen reserves the right to vary, change, or limit the
amount or duration of credit to be allowed to Distributor, either
generally or with respect to a particular order. In the event AltiGen
does not extend credit to Distributor, payment for all purchases
hereunder shall be made in advance of shipment or, at AltiGen' option,
C.O.D. If Distributor fails to meet its payment obligations under the
Agreement and such failure continues for [*] following receipt of
written notice from AltiGen this Agreement will or may be terminated
which is described in section 12.2 of this Agreement.
(a) Right to Withhold. Notwithstanding any other provision in this
Agreement to the contrary, Distributor shall not be deemed in default
if it withholds any specific amount to AltiGen because of a legitimate
dispute between the parties as to that specific amount pending the
timely resolution of the disputed amount.
3.6 Price Protection.
(a) Distributor Price Protection. AltiGen shall notify Distributor of
the effective date of a [*] for any of the Products covered
herein. All inventory acquired by Distributor from AltiGen prior to the
effective date of the [*] and not yet sold or under a contract
for sale will be granted price protection as set forth herein. This
will also include any product order accepted by AltiGen that has not
shipped, all product in transit from AltiGen to Distributor's warehouse
and product in transit between Distributor's warehouses during the less
than [*] period 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 AltiGen' notice of the [*]
Distributor shall provide to AltiGen a written inventory report showing
by part number the quantity of each AltiGen Product in the
Distributor'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. On a case by case basis, AltiGen will
grant price protection for Distributor's dealers at AltiGen's
discretion. To obtain price protection for its Dealers, Distributor (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
[*]- 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.
3
<PAGE>
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 Distributor provides such reports to AltiGen within
[*] of Distributor's receipt of AltiGen' notice of a price
decrease, AltiGen shall credit the Distributor's account for the
difference between the invoice price charged to Distributor and the
reduced price for those copies shipped by Distributor to its Dealers
less than [*] before the effective date of the [*] and not
yet sold or under contract for sale. [*]
3.7 Stock Rotation.
(a) Inventory Balancing. Provided that the Distributor issues a
simultaneous offsetting purchase order, Distributor may, once during
each quarter, return for credit Product purchased 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
Distributor 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. Distributor shall submit a request
for authorization 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 (RMA)
number no later than 1 week after the request is acknowledged by
AltiGen, Inc. Inventory returned under this section must be accompanied
by a return of materials authorization number assigned by AltiGen and
(i) in merchantable condition, in its-factory-sealed packaging. -All
Product returned under this subsection (a) shall be returned within
thirty (30) days of the date of issuance of the return of materials
authorization number. AltiGen shall pay for the shipping of returned
Products to AltiGen and Distributor shall pay for the shipping of
replacement Product sent to Distributor.
(b) Defective Product/Dead on Arrival (DOA). Distributor may return any
product to AltiGen that its customer finds defective as detailed in the
End User Agreement described in Exhibit A. Inventory returned under
this section must be accompanied by a return of materials authorization
number assigned by AltiGen. All Product returned under this section
shall be returned within thirty (30) days of the date of issuance of
the return of materials authorization number, and 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. The credit issued for the
returned products will be based on the Products purchase price, less
any discounts or credits previously received. AltiGen shall pay for the
shipping of returned Products to AltiGen and for the shipping of
replacement Product sent to Distributor. AltiGen will specify account
number and carrier at time of RMA issuance.
[*]- CERTAIN INFORMATION OF 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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(c) Product Refresh. AltiGen may, at its sole discretion, modify the
Products. 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 Distributor under the terms of this
Agreement or a new product requiring execution of an appendix to this
Agreement prior to distribution. Once a new version of a Product
covered by this Agreement begins shipping, Distributor shall have
thirty (30) days from the first AltiGen shipment date of the new
version to Distributor, 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
Distributor's inventory that was shipped by AltiGen to Distributor
within the previous ninety (90) days. Such returns shall be shipped at
AltiGen expense using AltiGen Communication's account number and
carrier which will be specified at time of RMA issuance, and the
offsetting Purchase Order shipment will be paid for by Distributor as
described in section 5.7 and 5.8 of this agreement. 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 Distributor 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 Distributor's inventory
balancing right under subsection (a) above.
(d) Product Discontinuation. AltiGen shall provide Distributor with
thirty (30) days written notice prior to AltiGen' discontinuation of
any Product. Upon receipt of such notice, Distributor shall have the
right to return all discontinued Products purchased within sixty (60)
days of the notice of discontinuation for a credit to Distributor's
account of the Product's purchase price less any discounts or credits
previously received. The rights to return discontinued Product under
this subsection (d) shall be in addition to Distributor's inventory
balancing right under subsection (a) above.
3.8 Distributor Financial Condition. Distributor 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. Distributor 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 purchased. From time to time,
on reasonable notice from AltiGen, Distributor shall furnish Annual
Reports, 10K and 10Q reports.
3.9 Taxes. Prices calculated in accordance with Exhibit B are exclusive
of all applicable taxes. Distributor agrees to pay all taxes associated
with the marketing, distribution and delivery of the Products ordered,
including but not limited to sales, use, excise, added value and
similar taxes and all customs, duties or governmental impositions, but
excluding taxes on AltiGen' net income. Any tax or duty AltiGen may be
required to collect or pay upon the marketing or delivery of the
Products shall be paid by Distributor and such sums shall be due and
payable to AltiGen upon delivery. If claiming a tax exemption,
Distributor must provide AltiGen with valid tax exemption certificates
at the time of invoicing.
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4. PRODUCT CHANGES
AltiGen shall have the right, in its sole discretion, without liability
to Distributor, with written thirty (30) day notice, 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. 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.
5. ORDERS
5.1 Procedure. All orders for Products placed by Distributor 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 Distributor 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. If a rejection is not provided within (5) days of written
receipt of the order, it shall be deemed accepted.
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 & Obligation to Ship in Presence of
Breach. Even where AltiGen accepts a purchase order, AltiGen reserves
the right to cancel or suspend any orders placed by Distributor and
accepted by AltiGen, or to refuse or delay shipment thereof, at the
time of scheduled shipment if Distributor (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. If
Distributor has a legitimate dispute of an invoice under section 3.5b,
orders will not be held or canceled as a result.
5.5 Distributor 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 Distributor cancel any order or any portion of an order after
shipment.
[*]- 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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<PAGE>
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 AltiGen' 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 Distributor on account of the method of allocation chosen or its
implementation. AltiGen shall not be liable to Distributor or any third
party for any damages due to AltiGen' failure to fill any orders or for
any delay in delivery or error in filing any orders for any reason
whatsoever.
(a) Distributor requires concurrent with the execution of this
Agreement Export Administration Regulations product classification and
supporting documentation: Certificate of Origin (General Use and/or
NAFTA), Export Commodity Control Number's; (ECCN's), General License
and/or Individual Validated License information and Schedule
"B"/Harmonized Numbers. This applies when distribution rights granted
under Section 1.7 are outside the United States for the initial
Product/s and when additions or changes to these Products occurs.
(b) Product Marking AltiGen will clearly mark each unit of Product with
the Product name and computer compatibility. Such packaging will also
bear a machine-readable bar code identifier scannable in standard
Uniform Product Code (UPC) format. The bar code must identify the
Product as specified by the Uniform Code Council (UCC). If the AltiGen
or Distributor customers' require serial number tracking the serial
number must be clearly marked and bar coded on the outside of the
individual selling unit. The bar code shall fully comply with all
conditions regarding standard product labeling set forth in Exhibit B
in the then-current Distributor Guide to Bar Code: The Product Label.
------------------------------------
AltiGen may be assessed a reasonable per unit charge for all Product
not in conformance herewith.
5.7 Delivery. AltiGen will ship Products FOB Destination, unless
otherwise agreed in writing, to Distributor's North American designated
location or freight forwarder via ground transport. Distributor may
change the designated locations by providing AltiGen with written
notice of such change, and the notice is received by AltiGen at least
fifteen (15) days prior to the estimated shipment dates. AltiGen shall
ship all Product in accordance with instructions specified in
Distributor's AltiGen Routing Guide attached hereto as Exhibit F.
AltiGen shall, to the extent possible, assist Distributor in making
claims with carriers in the event of loss or damage in transit.
5.8 Risk of Loss. In the case of shipments to shipping destinations
within the United States, 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 Distributor upon delivery by AltiGen to the
freight carrier regardless of whether AltiGen or the Distributor has
designated the carrier. Title to the Products will be passed to the
Distributor once sold to dealer or paid for by Distributor which ever
occurs first.
[In the case of shipments to shipping designations outside the
United States, Distributor and AltiGen expressly agree that
beneficial and legal title to, ownership of, right to possession
of, control over, and risks of
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<PAGE>
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 Distributor
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 Distributor or
Distributor'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 Distributor requests shipment to those countries).
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 Distributor requests shipment to those
countries.) If Distributor 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.]
6. DISTRIBUTIONS OBLIGATIONS
6.1 Distributor Distribution. Distributor shall distribute or market
Product: (i) solely to resellers approved by AltiGen under its
Authorized Dealer Program, (ii) subject to an End-user License
Agreement, (iii) subject to Distributor's standard terms and conditions
of sale to it's resellers which do not alter or contradict this
Agreement, and (iv) in the form received from AltiGen. Distributor
shall neither add to nor remove any documentation included by AltiGen
with the Product.
6.2 Authorized Dealer Program. AltiGen has instituted an AltiGen
Authorized Dealer Program. Distributor agrees to market the Products in
compliance with AltiGen's Authorized Dealer Program.
6.3 Business Plan. Within ninety (90) days of the Effective Date of the
contract, Distributor and AltiGen will co-author a business plan
setting forth Distributor's plans for promoting the Products, which
will be reviewed semi-annually, at which time objectives and
performance will be evaluated. Distributor agrees to provide an updated
business plan in accordance with the schedule for updating such as
specified by AltiGen.
6.4 Purchase Objectives; Inventory. Distributor and AltiGen shall agree
upon quarterly Purchase Objectives. The initial Purchase Objectives are
stated in Exhibit C with on-going purchase and business objectives
described in the business plan outlined in 6.3. Distributor shall
warehouse and order to meet market demand and will deliver to resellers
in a timely manner. Distributor will inventory 30 days of product in
each of its named warehouses or as deemed by market conditions.
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<PAGE>
65. Point of Sale and Inventory Reports. During the term of this Agreement,
Distributor will provide AltiGen standard sales-out and inventory reports via
its electronic Bulletin Board. Distributor is on a 4-4-5 week calendar schedule
starting with January 5, 1998. Each report will be ready on the 1/st/ Tuesday of
the new month. This report will include the following: (i) - State and zip code:
(ii) - Products purchased in this month's reporting, including returns; (iii)
- - Current distributor's inventory on a weekly basis, reflecting the previous
Friday's close of business inventory; (iv) - Six month trailing history of
product sold by region; (v) - List of Distributor's open purchase orders. Such
report, with respect to a calendar month, shall be posted. Distributor shall
also provide non-standard reporting data including reseller name and address
subject to the terms and conditions of a separate Proprietary Information Non-
Disclosure Agreement attached hereto as Exhibit G.
6.6 Customer Satisfaction. Distributor 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, Distributor agrees that high
customer satisfaction is a condition of distribution authorization by AltiGen.
The distribution channels established by AltiGen, and the obligations placed on
distributors, exist to ensure high customer satisfaction. Distributor agrees to
market the Products only in accordance with this Agreement. In addition, in
order to assure high customer satisfaction, Distributor 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.
. 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.
6.7 Promotional Efforts. Distributor shall use its best efforts to market and
distribute the Products to Dealers in the Territory. Distributor may advertise
the
9
<PAGE>
Products in advertising media of Distributor's choice, provided that
the primary audience or circulation is located in the Territory.
Distributor 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 promotion of the Products, Distributor shall comply with AltiGen
standard cooperative advertising policies as specified from time to
time by AltiGen.
6.8 Demonstration System. Distributor shall maintain a demonstration
system capable of supporting the most technically advanced Products.
Distributor shall use such demonstration system both to facilitate its
ability to fulfill its Dealer support obligations, and to support its
sales efforts.
6.9 Distributor Personnel. AltiGen will provide mutually agreed upon
levels of training for Distributor's sales and technical personnel.
Distributor shall train and maintain a sufficient number of capable
technical and sales personnel to serve the demands of Dealers 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. Distributor 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. Distributor shall provide all Dealers with
technical support and other assistance appropriate for the promotion,
marketing, and distribution of the Products. Distributor shall attend
AltiGen distribution meetings.
7. Support and Maintenance
AltiGen shall provide Distributor (but not its Dealers, and not End
Users which purchase from such Dealers) with the support and maintenance
described in Exhibit D hereto free of charge during the term of this Agreement.
AltiGen may provide Dealers and End Users with support and maintenance under a
separate agreement. In order to have a high degree of customer satisfaction and
technical expertise Distributor and AltiGen will have to perform on-site
training for Distributor's Technical Support personnel. This will be coordinated
at a later date.
8. Trademarks and Confidential Information
8.1 Trademarks. AltiGen shall have and retain sole ownership of
AltiGen's logo, trade names and trademarks ("Trademarks"), including
the goodwill pertaining thereto. AltiGen hereby grants to Distributor
the right to use and display the Trademarks solely in connection with
and solely to the extent reasonably necessary for the marketing,
distribution, and support of the Products within the Territory in
accordance with the terms and conditions of this Agreement. Distributor
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 Distributor are
consistent with the reputation and prestige of the Trademarks.
Distributor shall market, distribute, and support the Products only
under the Trademarks, and not any other trademark or logo. Distributor
shall not use the Trademarks or any other trademarks or trade names of
AltiGen or any word, symbol, or design confusingly
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<PAGE>
similar thereto, as part of its corporate name, or as part of the name
of any product of Distributor. Distributor 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. Distributor agrees that any
goodwill which accrues because of Distributor's use of the Trademarks
shall become AltiGen's property. Distributor further agrees not to
contest AltiGen's Trademarks or tradenames, or to make application for
registration of any AltiGen Trademarks or tradenames.
8.2 Confidential Information. During the term of this Agreement, and
for a period of three (3) years thereafter, The Parties will maintain
in confidence any confidential or proprietary information of The
Parties disclosed to one another including, without limitation, any
information regarding scientific, engineering, manufacturing,
marketing, business plan, financial or personnel matter relating to The
Parties, whether in oral, written, graphic or electronic form
("Confidential Information"). The Parties will not use, disclose or
grant use of such Confidential Information except as expressly
authorized by The Parties. To the extent that disclosure is authorized
by The Parties, The Parties will obtain prior agreement from their
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 The Parties. The Parties will use at
least the same standard of care as they use 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. The Parties will promptly notify each other
upon discovery of any unauthorized use or disclosure of the
Confidential Information.
8.3 Exceptions. The obligations of confidentiality contained in
Section 8.2 will not apply to the extent that it can be established by
Distributor by competent proof that such Confidential Information:
(a) was already known to the parties, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the
parties;
(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 the parties in breach of
this Agreement;
(d) was disclosed to the parties, 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.
9. Indemnification
9.1 AltiGen Infringement Indemnity. Subject to the limitations set
forth herein below, AltiGen shall defend Distributor with respect to
any claim, suit or proceeding brought against Distributor 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 Distributor
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(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 Distributor,
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 Distributor 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 Distributor.
9.2 Exclusions. The provisions of the indemnity provided in Section
9.1 (with respect to infringement) 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 distributions
designated by AltiGen, for use of any Product that has been modified by
Distributor 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 Distributor's activities occurring subsequent to
its receipt of notice of any claimed infringement unless AltiGen shall
have given Distributor written permission to continue to market and
distribute the allegedly infringing Product.
9.3 Entire Liability and Limitation. THE FOREGOING SECTIONS 10.1 AND
10.2 STATE THE SOLE AND EXCLUSIVE REMEDY OF DISTRIBUTOR 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.
9.4 Product Defect Indemnity: Subject to the limitations set forth
herein below, AltiGen shall defend Distributor with respect to any
claim, suit or proceeding brought against Distributor to the extent it
is based upon a claim that any property damage, personal or bodily
injury or other damage has resulted from a defect in the Products;
provided, however, that Distributor (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
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<PAGE>
awarded to a third party, but AltiGen shall not be liable for such
amounts, or settlements incurred by Distributor, without AltiGen's
prior written authorization.
9.5 Indemnity by Distributor. DISTRIBUTOR AGREES TO INDEMNITY 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 DISTRIBUTOR OR REPRESENTATIVE OF DISTRIBUTOR. DISTRIBUTOR SHALL
BE SOLELY RESPONSIBLE FOR, AND SHALL INDEMNIFY AND HOLD ALTIGEN
HARMLESS FROM, ANY CLAIMS, WARRANTIES OR REPRESENTATIONS MADE BY
DISTRIBUTOR OR DISTRIBUTOR'S EMPLOYEES OR AGENTS WHICH DIFFER FROM THE
WARRANTY PROVIDED BY ALTIGEN IN ITS END USER AGREEMENT.
9.6 Mutual Indemnity Regarding Personal Injury and Other Damages.
Each party shall indemnify and hold the other harmless from and against
any and all claims, actions, damages, demands, liabilities, costs and
expenses, including reasonable attorney's fees and expenses, resulting
from any act or omission of the acting party or its employees or agents
under this Agreement that causes or results in property damage,
personal injury or death.
10. Warranty
10.1 AltiGen Warranty. AltiGen warrants the Products TO END-USERS ONLY
pursuant to the terms and conditions of the End User Agreement,
provide, however, Distributor shall be entitled to rely on the End User
Warranty for purposes of returns of Product and indemnities a copy of
which is attached to this Agreement as Exhibit A. In addition AltiGen
warrants the following:
(a) It has good transferable title to the products
(b) There are no suits or proceedings pending or threatened
which allege any infringement by the Products of any
patents, copyrights, trademarks, trade secrets or any other
intellectual property rights of a third party Product sales
to Distributor do not in any way constitute violation of any
law, ordinance, rule or regulation in the distribution
territory
(c) The Products will properly (a) record, store process,
calculate or present calendar dates falling on or after (and
if applicable, spans of time including) January 1, 2000 as a
result of the occurrence, or use of data consisting of such
dates and (b) calculate any information dependent on or
relating to dates on or after January 1, 2000 in the same
manner, and with the same functionality, data integrity and
performance, as such Product records, stores, processes,
calculates and presents calendar dates on or before December
31, 1999, or information dependent on or relating to such
dates
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(d) The Products have been or will be at the time of
shipment certified as a Class B computing device as required
by the rules of the U.S.A. Federal Communications Commission
(e) AltiGen will not label any of its products as being
"Made in America", "Made in USA," or with similar wording,
unless substantially all components of such Products are in
fact made in the United States of America
10.2 Limitations and Disclaimer. EXCEPT FOR THE EXPRESS WARRANTIES SET
FORTH IN SECTION 10.1 ABOVE, ALTIGEN EXPRESSLY DISCLAIMS ALL WARRANTIES
EXPRESSED OR IMPLIED RELATING TO THE PRODUCTS, AND FURTHER EXPRESSLY
EXCLUDES ANY WARRANTY OF NON-INFRINGEMENT, FITNESS FOR A PARTICULAR
PURPOSE OR MERCHANTABILITY.
10.3 NO PERSON IS AUTHORIZED TO MAKE ANY OTHER WARRANTY OR
REPRESENTATION CONCERNING THE PERFORMANCE OF THE PRODUCTS OTHER THAN AS
PROVIDED IN THE END USER AGREEMENT. DISTRIBUTOR SHALL MAKE NO OTHER
WARRANTY, EXPRESS OR IMPLIED, ON BEHALF OF ALTIGEN.
10.4 Distributor's Warranty. Distributor 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 Distributor is subject.
11. Limitation on Liability
11.1 Limitation of Liability. OTHER THAN AS PROVIDED IN SECTION 9
ABOVE THE TOTAL LIABILITY OF EITHER PARTY TO THE OTHER HEREUNDER SHALL
NOT EXCEED ONE MILLION DOLLARS ($1,000,000).
11.2 Waiver of Consequential Damages. IN NO EVENT WILL ALTIGEN OR
DISTRIBUTOR BE LIABLE TO THE OTHER 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.
11.3 Third Party Claims. AltiGen shall not be liable for any claim by
Distributor based on any third party claim, except as stated in Section
10 of the Agreement.
12. Term and Termination
12.1 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
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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.
12.2 Termination for Cause. 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.
12.3 Effect of Termination. For a period of sixty (60) days
following termination of this Agreement, Distributor may distribute any
Products in Distributor's possession at the time of termination or at
it's option return any product in inventory, provided, however, that if
AltiGen has terminated the Agreement pursuant to Section 12.2,
Distributor's right to distribute the Products shall immediately
terminate. Following any permitted distribution, Distributor shall
return to AltiGen or, at AltiGen's request, destroy the copies of the
Products and Documentation then in its possession. In addition,
Distributor 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 Distributor's account.
The termination of this Agreement shall not act to terminate the
licenses granted to Dealers or End Users pursuant to this Agreement.
(i) For a ninety day (90) period after termination, Distributor may
send back inventory received from its resellers to AltiGen. Product
returned under this provision must be in merchantable condition and in
its original factory-sealed packaging.
12.4 Payment upon Termination. Upon termination of the Agreement by
AltiGen for cause, the due dates of all outstanding invoices for
Products will become due and payable thirty (30) days from date of
termination minus returns received, even if longer terms had been
provided previously. After the ninety - (90) day period a final true-up
of inventory and monies will take place. If AltiGen owes Distributor
monies, AltiGen will issue a check to Distributor. All orders or
portions of orders remaining un-shipped as of the effective date of
such termination shall automatically be canceled.
13. Miscellaneous
13.1 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. Any discounts extended to other
like distributors that exceed the discount schedule (see Exhibit
"B") in effect at the time between AltiGen and Distributor shall
also be extended to distributor.
13.2 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.
13.3 Survival. Sections 5.8, 8, 9, 10,11, 12.3, 12.4, 13 shall
survive termination of this Agreement for three (3) years.
15
<PAGE>
13.4 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.
13.5 Toll Fraud. Dealer is forbidden from stating or implying that
AltiGen Products provide immunity from fraudulent intrusion (Toll
Fraud). Dealer must use this language on all sales materials and
contract involving AltiGen Products.
13.6 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 day three (3) following deposit with any national
overnight courier service in accordance with this section.
13.7 No Partnership of Joint Venture. No agency, employment,
partnership, joint venture, or other joint relationship is
created hereby, it being understood that Distributor and AltiGen
are independent contractors vis-a-vis one another and that
neither has any authority to bind the other in any respect
whatsoever.
13.8 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.
13.9 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 distribution of
the Products.
13.10 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 all of its
voting stock or capital assets or to an entity with which such
party merges or is consolidated.
13.11 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
16
<PAGE>
Agreement shall not constitute a waiver of any other or
subsequent default or breach.
13.12 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.
13.13 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.
13.14 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.
13.15 Insurance AltiGen shall carry insurance coverage product
liability/completed operations of one million dollars
($1,000,000) primary each occurrence and two million dollars
($2,000,000) excess. Within ten (10) days of full execution of
this Agreement, AltiGen shall provide Distributor with a
Certificate of Insurance. This Certificate of Insurance must
include: (i) a broad form endorsement naming Distributor as an
additional insured, and (ii) a mandatory thirty (30) day notice
to Distributor of insurance cancellation.
17
<PAGE>
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.
ALTIGEN INC. INGRAM MICRO INC.
By: /s/ Michele Shannon By: /s/ Michael Walkey
------------------------------ -------------------------------
Name: Michele Shannon Name: Michael Walkey
---------------------------- ------------------------------
Title: Vice President of Sales Title: Vice President - Purchasing
--------------------------- -----------------------------
EXHIBIT
A - END USER AGREEMENT
B - PRODUCT LIST AND DISCOUNT SCHEDULE
C - PURCHASING OBJECTIVES
D - SUPPORT AND MAINTENANCE
E - TERRITORIES
F - INGRAM VENDOR ROUTING GUIDE
G - PROPRIETARY INFORMATION NON-DISCLOSURE AGREEMENT
18
<PAGE>
EXHIBIT A
ALTIGEN(R), INC. - END USER AGREEMENT
NOTICE - READ THIS BEFORE OPENING THIS PACKAGE, INSTALLING THE PC HARDWARE
OR USING THE SOFTWARE
OPENING THIS PACKAGE, INSTALLING THE PC HARDWARE OR USING THE SOFTWARE
INDICATES YOUR ACCEPTANCE OF THESE TERMS AND CONDITIONS. READ ALL OF THE TERMS
AND CONDITIONS OF THIS LICENSE AGREEMENT PRIOR TO OPENING THIS PACKAGE OR USING
THE SOFTWARE. IF YOU DO NOT ACCEPT THESE TERMS, YOU MUST RETURN THIS PACKAGE
WITHIN 5 DAYS OF OBTAINING THE PACKAGE, WITH YOUR RECEIPT, AND YOUR MONEY WILL
BE RETURNED.
* * * *
PLEASE NOTE THAT YOU MAY NOT USE, COPY, MODIFY OR TRANSFER THE PROGRAM, THE
PC HARDWARE OR DOCUMENTATION OR ANY COPY, EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT.
LICENSE. This software program (the "Program") and the documentation (the
-------
"Documentation") are licensed, not sold, to you. The term "Program" shall also
include any updates of the Program licensed to you by AltiGen. Subject to the
terms of this agreement, you have a non-exclusive and nontransferable right to
use the Program, Personal Computer Card (the "PC Hardware") and Documentation.
You agree to use your best efforts to prevent and protect the contents of the
Program, the PC Hardware and Documentation from unauthorized disclosure or use.
AltiGen and its licensors reserve all rights not expressly granted to you.
AltiGen's licensors are the intended third party beneficiaries of this agreement
and have the express right to rely upon and directly enforce the terms set forth
herein.
LIMITATIONS ON USE. You may not rent, lease, sell or otherwise transfer or
------------------
distribute copies of the Program, the PC Hardware or Documentation to others.
You may not modify or translate the Program, the PC Hardware or the
Documentation without the prior written consent of AltiGen. You may not reverse
assemble, reverse compile or otherwise attempt to create the source code from
the Program or the PC Hardware. You may not use AltiGen's name or refer to
AltiGen directly or indirectly in any papers, articles, advertisements, sales
presentations, news releases or releases to any third party without the prior
written approval of AltiGen for each such use. You may not release the results
of any performance or functional evaluation of any Program to any third party
without prior written approval of AltiGen for each such release.
BACKUP AND TRANSFER. You may make one copy of the Program for backup
-------------------
purposes if AltiGen's copyright notice is included. You may not sublicense,
assign, delegate, rent, lease, time-share or otherwise transfer this license or
any of the related rights or obligations for any reason. Any attempt to make any
such sublicense, assignment, delegation or other transfer by you shall be void.
You may physically transfer the Program from one computer to another provided
that you do not retain any copies of the Program, including any copies stored on
a computer.
TOLL FRAUD. Although this software provides passwords and blocking options
----------
for controlling telephone use, the software does not provide a security system
that would prevent unauthorized use. AltiGen does not warrant that the software
will prevent, or can prevent, unauthorized and/or unlawful use. AltiGen will
have no responsibility and will not be liable for any unauthorized or unlawful
use, including without limitation long distance charges, criminal or civil
liabilities, or damages.
COPYRIGHT. The Program, the PC Hardware and related Documentation are
---------
copyrighted by AltiGen and its licensors. You may make one copy of the
Documentation and print one copy of any on-line documentation or other materials
provided to you in electronic form. Any and all other copies of the Program and
-------------------------------------------
any copy of the Documentation made by you are in violation of this license.
- --------------------------------------------------------------------------
19
<PAGE>
OWNERSHIP. You agree that the Program and Documentation belong to
---------
AltiGen and its licensors. You agree that you neither own nor hereby acquire any
claim or right of ownership to the Program and Documentation or to any related
patents, copyrights, trademarks or other intellectual property. You own only the
magnetic or other physical media (including Personal Computer Card) on which the
Program and related Documentation are recorded or fixed. AltiGen and its
licensors retain all right, title and interest in and to the Documentation and
all copies and the Program recorded on the original media and all subsequent
copies of the Program at all times, regardless of the form or media in or on
which the original or other copies may subsequently exist. This license is not a
sale of the original or any subsequent copy. All content accessed through the
Program is the property of the applicable content owner and may be protected by
applicable copyright law. This license gives you no rights to such content.
TERM AND TERMINATION. This license is effective until terminated. You
--------------------
may terminate this license at any time by destroying the Program and
Documentation and the permitted backup copy. This license automatically
terminates if you fail to comply with its terms and conditions. You agree that,
upon such termination, you will either destroy (or permanently erase) all copies
of the Program and Documentation, or return the original Program and
Documentation to AltiGen, together with any other material (PC Hardware) you
have received from AltiGen in connection with the Program.
LIMITED WARRANTY. AltiGen warrants the media on which the Program is
----------------
furnished to be free from defects in materials and workmanship under normal use
for 30 days from the date that you obtain the Program. AltiGen warrants the PC
Hardware for a period of one year from the date of consumer purchase to be free
from defects in materials and workmanship. EXCEPT FOR THIS LIMITED WARRANTY,
ALTIGEN AND ITS LICENSORS PROVIDE THE PROGRAM, THE PC HARDWARE AND THE
DOCUMENTATION "AS IS" WITHOUT WARRANTY OF ANY KIND EITHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Some states do not allow the exclusion of implied warranties, so the
above exclusion may not apply to you. This warranty gives you specific legal
rights and you may also have other rights which vary from state to state.
LIMITATION OF REMEDIES. AltiGen and its licensors' entire liability and
----------------------
your exclusive remedy in connection with the Program, the PC Hardware and the
Documentation shall be that you are entitled to return the defective media
containing the Program together with the PC Hardware and Documentation to the
merchant. At the option of the merchant, you may receive replacement media
containing the Program, the PC Hardware and Documentation that conforms with the
limited warranty or a refund of the amount paid by you. IN NO EVENT WILL ALTIGEN
OR ITS LICENSORS BE LIABLE FOR ANY INDIRECT DAMAGES OR OTHER RELIEF ARISING OUT
OF YOUR USE OR INABILITY TO USE THE PROGRAM INCLUDING, BY WAY OF ILLUSTRATION
AND NOT LIMITATION, LOST PROFITS, LOST BUSINESS OR LOST OPPORTUNITY, OR ANY
SPECIAL, INCIDENTAL OR CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING LEGAL FEES,
ARISING OUT OF SUCH USE OR INABILITY TO USE THE PROGRAM, EVEN IF ALTIGEN, ITS
LICENSORS OR AN AUTHORIZED ALTIGEN DEALER, DISTRIBUTOR OR SUPPLIER HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY.
Some states do not allow the exclusion or limitation of incidental or
consequential damages so the above limitation or exclusion may not apply to you.
This license will be governed by the laws of the State of California as
applied to transactions taking place wholly within California between California
residents.
U.S. GOVERNMENT END USERS. The Program is a "commercial item," as that
-------------------------
term is defined at 48 C.F.R. 2.101 (Oct. 1995), consisting of "commercial
computer software" and "commercial computer software documentation," as such
terms are used in 48 C.F.R. 12.212 (Sept. 1995). Consistent with 48 C.F.R.
12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4 (June 1995), all U.S.
Government End Users acquire the Program with only those rights set forth
herein.
20
<PAGE>
Exhibit B
PRODUCT LIST
and
DISCOUNT SCHEDULE
Quantum Boards
<TABLE>
<CAPTION>
Part Number Description Price
----------- ----------- -----
<S> <C> <C>
ALTI-CD0408UD CID Quantum Platform, 4 trunks & 8 extensions. Rev. D [*]
ALTI-CD0804UD CID Quantum Platform, 8 trunks & 4 extensions. Rev. D [*]
ALTI-CD0012UD CID Quantum Platform, 12 extensions. Rev. D [*]
ALTI-DID 0408UD DID Quantum Platform, 4 DID trunks & 8 extensions. Rev. D [*]
Demo
Part Number Description Price
----------- ----------- -----
ALTI-DMK4860 NFR CTI Demo Kit with AltiWare 2.1 Open Edition Software, AltiWare [*]
Console 2.1, Rev. D. CID Quantum board with 4 trunks & 8 extensions
and on-board power supply.
Software
Part Number Description Price
----------- ----------- -----
Alti-SS351E AltiWare 3.51A System Software [*]
Alti-OED210E AltiWare Open Edition 2.1 Software [*]
Alti-OAC210E AltiConsole 2.1 Operator Console Software [*]
Peripherals
Part Number Description Price
----------- ----------- -----
CBL-25M50-01 DB25 to 50-pin Telco cable, Male to Male [*]
CBL-MVIP6-01 MVIP cable with 6 connectors [*]
DOC-RFG01-04 4 User Pocket Reference Guides [*]
DOC-ICM01-01 Installation Configuration & Maintenance Manual [*]
MSC-PANEL-02 12 Port Connection Panel with 50-pin F Telco connector [*]
</TABLE>
[*] 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.
1
<PAGE>
Exhibit C
Purchase Objectives
AltiGen operates on a fiscal calendar.
Q1 Q2
Oct., Nov., Dec. Jan., Feb., March
_______N/A_________________ _______N/A_________________
(Qty. of boards per quarter) (Qty. of boards per quarter)
Q3 Q4
April, May, June July, Aug, Sept.
_______N/A_________________ _______400_________________
(Qty. of boards per quarter) (Qty. of boards per quarter)
TOTAL FOR 1998:
_______400__________
1
<PAGE>
Exhibit D
SUPPORT AND MAINTENANCE
AltiGen will provide the following maintenance services:
Telephone Support. Telephone support from [*].
Email support. Email support available at "[email protected]" or a
special address to be established for Distributor support. AltiGen will respond
to email within [*]
Training. AltiGen may provide in-depth Product training to Distributor
from time-to-time and Distributor will use its best efforts to have appropriate
support personnel attend such training sessions to the extent such training will
assist Distributor in better supporting the channel.
Website. AltiGen will provide product information and technical tips at
www.altigen.com.
- ---------------
[*]- 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.
1
<PAGE>
Exhibit E
TERRITORIES
All Territories and possessions in:
. [*]
. [*]
[*]- 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.
2
<PAGE>
Exhibit F
VENDOR ROUTING GUIDE
[LOGO APPEARS HERE]
<PAGE>
INGRAM
MICRO URGENT DOCUMENT: PLEASE READ IMMEDIATELY
----------------------------------------
TO: INGRAM MICRO VENDORS
FROM: TOM WRIGHT - SR. DIRECTOR OF LOGISTICS & TRANSPORTATION
SUBJECT: VENDOR ROUTING GUIDE
This guide was prepared to provide you with a comprehensive freight policy and
to assist you in better understanding the transportation needs of Ingram Micro.
This guide is for shipments originating in the U.S. and shipping to Ingram Micro
Distribution Centers located in the U.S. and/or our Fremont, CA Consolidation
Center. The instructions in this guide supersede any previous routing
instructions written or oral. If an unauthorized carrier is used, Ingram Micro
reserves the right to debit the vendor for costs incurred through noncompliance
with these instructions. There is a 60 day grace period associated with any
changes you must make to comply with this guide.
In this guide you will see information that applies to any Ingram Micro
shipment, information that applies to shipments moving to our Consolidation
Center in Fremont, CA, information that applies to shipments moving to our
distribution centers, information that applies to packaging specification, and
information that applies to shipping document requirements.
Information that applies to any Ingram Micro shipments:
. If you currently pay freight, we would urge you to consider using our
selected carriers. By using these carriers you will experience reduced
cycle times because of our electronic commerce arrangements with the
carriers. The carriers we have selected have some of the lowest claims
ratios in the industry. Finally, we believe these carriers are best
able to service Ingram Micro freight based on their understanding of
our unique operating requirements.
. Freight Routing Instructions (when Ingram Micro pays freight):
All ground shipments must be shipped "FREIGHT COLLECT"
Do not ship COD for freight or product. Shipments will be refused.
Do not insure or declare value on any shipment unless previously
authorized by Ingram Micro Traffic (contact information on page
5).
All shipments must be in closed vehicles. Do not tender shipments
to any carrier utilizing flat bed or stake bed trucks.
The vendor will be responsible for all air freight shipments
unless otherwise permitted by Ingram Micro Traffic.
. Shipments between 1 and 150 pounds are considered a small parcel
shipment. We request that our vendors keep small shipments to a
minimum. We understand that there is a need to ship small shipments as
a result of backorders and special orders. When it is necessary to ship
small orders and it is not possible to consolidate into an LTL
shipment, please use RPS Collect.
. Drop shipments
When Ingram Micro is responsible for paying freight and you are
shipping directly to an Ingram Micro customer. Send all shipments THIRD
PARTY BILL TO INGRAM MICRO.
. Hazardous Materials/Dangerous Goods
Shipments of goods falling under the definition of Title 49CFR as
hazardous materials will not be accepted by Ingram Micro. Please notify
--------
Ingram Micro Traffic if such material is ordered.
. International Shipments
Call (714) 566-1000 extension 2284 for International freight
routing assistance.
1
<PAGE>
Shipments moving directly to Ingram Micro's Consolidation Center - Fremont, CA:
. The purchase order numbers will begin with 52.
. When you have a shipment for the Consolidation Center call
(800) 388-3722 between 6am - 6pm PDT Monday - Friday.
. Please have the following information ready at the time of call:
1. Vendor name
2. Ship from address
3. Pieces, weight, and number of pallets
4. Contact name and phone number
5. Ready time of product and hours of operation of shipping dock
. Small package orders to the Consolidation Center should always be in
full case quantity. If you cannot ship product in full case quantity
please back order the full case shortage amount.
Shipments moving directly to Ingram Micro Distribution Centers:
. The P.O. numbers will begin with 10 (Fullerton, CA), 17 (Miami, FL), 20
(Carrollton, TX), 26 (Fullerton or Santa Ana, CA), 30 (Memphis or
Millington, TN), 40 (Carol Stream, IL), 42 (Buffalo Grove, IL), 45
(Buffalo Grove, IL), 50 (Fremont, CA), 70 (Clarkston, GA), and/or 80
(Harrisburg, PA).
. If the shipment is between 150 and 10,000 pounds:
Watkins Motor Lines is the primary LTL carrier and ABF is the secondary
LTL carrier. For intrastate shipments refer to the chart below. For
interstate shipments refer to routing matrix on page three.
. If the shipment is 10,000 pounds or greater or equivalent to a
full trailer load:
Call (800) 388-3722 or (510) 249-9130 and ask for dispatch.
. Intrastate Shipments:
Shipments weighing between 150 and 10,000 pounds in states where Ingram
Micro distribution centers are located use the following carriers:
California WestEx
Florida & Georgia Southeastern Freight Lines
Tennessee & Texas Saia Motor Freight
Illinois K & R Express
Pennsylvania New Penn
2
<PAGE>
Routine Matrix
--------------
If any of the carriers contained in this routing matrix is unacceptable or you
need routing assistance call Ingram Micro Traffic Department before shipping
product.
SHIP TO DESTINATION
SHIP
FROM
ORIGIN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
CA FL TX TN IL GA PA
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AL Watkins ABF Watkins ABF Watkins ABF Watkins
- --------------------------------------------------------------------------------------------------------------------------
AR Watkins Watkins ABF ABF Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
AZ WestEx Watkins Watkins Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
CA WestEx Watkins Watkins Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
CO Reddaway Watkins Watkins Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
CT Watkins Watkins Watkins Watkins Watkins Watkins New Penn
- --------------------------------------------------------------------------------------------------------------------------
DC Watkins Watkins Watkins Watkins Watkins Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
DE Watkins Watkins Watkins Watkins Watkins Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
FL Watkins Southeastern Watkins Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
GA Watkins Southeastern Watkins ABF Watkins Southeastern Watkins
- --------------------------------------------------------------------------------------------------------------------------
IA ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
ID ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
IL Watkins Watkins Watkins Watkins K&R Express Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
IN Watkins Watkins Watkins Watkins ABF Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
KS ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
KY Watkins Watkins Watkins ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
LA Watkins Watkins ABF Watkins ABF Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
MA Watkins Watkins Watkins Watkins Watkins Watkins New Penn
- --------------------------------------------------------------------------------------------------------------------------
MD Watkins Watkins Watkins Watkins Watkins Watkins New Penn
- --------------------------------------------------------------------------------------------------------------------------
ME ABF ABF ABF ABF ABF ABF New Penn
- --------------------------------------------------------------------------------------------------------------------------
MI Watkins Watkins Watkins Watkins ABF Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
MN Watkins Watkins Watkins Watkins K&R Express Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
MO Watkins Watkins Watkins ABF ABF Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
MS Watkins ABF ABF ABF Watkins ABF Watkins
- --------------------------------------------------------------------------------------------------------------------------
MT ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
NC Watkins ABF Watkins ABF Watkins ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
ND ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
NE ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
NH Watkins Watkins Watkins Watkins Watkins Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
NJ Watkins Watkins Watkins Watkins Watkins Watkins New Penn
- --------------------------------------------------------------------------------------------------------------------------
NM WestEx ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
NV WestEx Watkins Watkins Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
NY Watkins Watkins Watkins Watkins ABF Watkins New Penn
- --------------------------------------------------------------------------------------------------------------------------
OH Watkins Watkins Watkins Watkins ABF Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
OK Watkins Watkins ABF Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
OR Reddaway Watkins Watkins Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
PA Watkins Watkins Watkins Watkins ABF Watkins New Penn
- --------------------------------------------------------------------------------------------------------------------------
RI Watkins Watkins Watkins Watkins Watkins Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
SC Watkins ABF Watkins ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
SD ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
TN Watkins Watkins Watkins Saia Watkins ABF Watkins
- --------------------------------------------------------------------------------------------------------------------------
TX Watkins Watkins Saia Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
UT Reddaway ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
VA Watkins Watkins Watkins Southeastern Watkins ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
VT ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
WA Reddaway Watkins Watkins Watkins Watkins Watkins Watkins
- --------------------------------------------------------------------------------------------------------------------------
WV ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
WI Watkins Watkins Watkins Watkins ABF Watkins ABF
- --------------------------------------------------------------------------------------------------------------------------
WY ABF ABF ABF ABF ABF ABF ABF
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
PRODUCT PACKAGING SPECIFICATIONS
--------------------------------
Proper packaging is necessary to protect products while in transit. Because
proper packaging is so vital to our operation, we reserve the right to charge
back handling costs due to nonconformance with our packaging specifications. It
is the vendor's responsibility to make sure products arrive according to Ingram
Micro's specifications.
General Specifications (attachment A)
- ----------------------
1. Cartons must be packed with only one part number (SKU) per
carton.
2. Each carton must be labeled with human readable and bar code
information (see accompanying 'Guide to Packaging and Bar
Codes').
Specifications for Full Pallet Size Shipments (attachment B)
- ---------------------------------------------
1. Pallet size must conform to: Length 44" - 48"
Width 40" - 42"
Height up to 72" (pallet height
will vary depended on product)
2. All palletized shipments must be securely stretch wrapped or
banded.
3. Pallets and bills of lading must be marked 'DO NOT BREAK DOWN'
and 'DO NOT TOP LOAD'.
4. Cartons within a shipment must be uniform in carton size,
weight, and quantity per carton.
5. The number of units per carton must be uniform throughout the
life of the product.
6. The number of cartons per pallet must be uniform throughout the
life of the product.
7. If for any reason you cannot comply with the uniformity
requirements, the Ingram Micro Purchasing Department must be
notified (714) 566-1000 extension 3055.
8. Cartons must be delivered right side up and be able to be cubed
on a pallet with no overhang and no hollow center. Cartons must
be interlocked by layer.
Shipping Document
- -----------------
Each delivery must be accompanied by a packing slip (attachment C) and bill of
lading (attachment D), indicating the following:
1. Ingram Micro issued purchase order number (only one P.O. per
packing slip).
2. Vendor part number and Ingram Micro part number.
3. Full description of product, model number, versions, media size,
platform, and CPU.
4. Total quantity shipped per part number.
5. Quantity back ordered per part number.
6. Case pack number of cartons and weight information.
7. All Bills of Lading must have both carton count and skid/pallet
----
count as well as a reference to the Ingram Micro purchase order
numbers.
8. More than one P.O. is permissible per bill of lading.
Packing slips must be placed on the outside of a carton on the top of the pallet
loaded on the trailer.
Packing slips must have a numerical tracking number, vendor sales number,
invoice number, or a unique packing slip number on them for accounts payable.
All items shipped on the same day to the same destination via the same mode must
be consolidated on one bill of lading. This should not effect the packaging or
the markings on the cartons. This includes multiple purchase order numbers.
4
<PAGE>
ATTACHMENT A
SHIPPING LABEL LOCATION GUIDELINES
[ART APPEARS HERE] BOX OR CARTON
Identical labels should be located on at
least one and preferable two adjacent sides
(wraparound label acceptable). The labels
should be located in the upper third of the
box or carton.
[ART APPEARS HERE] CARTONS ON PALLET
Each carton should be individually labeled as
described above. One carton label should be
located in the upper third of the pallet.
[ART APPEARS HERE] PALLET BOX
Identical labels should be located on at least
one and preferably two adjacent sides
(wraparound label acceptable). The labels
should be located in the upper third of the
pallet box.
<PAGE>
ATTACHMENT B
TYPICAL INTERLOCKING CARTON PATTERNS FOR SOFTWARE MASTERPACK
AND HARDWARE SHIPMENTS
[CARTON PATTERNS APPEARS HERE]
<PAGE>
ORIGINAL - NOT NEGOTIABLE ATTACHMENT D
BOL NBR. 123456 SAMPLE
DATE: 9-1-94
TERMS
CARRIER ABF FREIGHT SYSTEMS, INC.
SEC 7
PU DATE 9-1-94 PU TIME
SHIPPER CONSIGNEE
ABCD CORP. INGRAM MICRO INC.
962 Blossom Road, #A 41490 Boyce Road, #A
Yuma, CA 66999 Fremont, CA 94538
BILL TO OR REMIT TO ISSUING OFFICE OR AGENT
INGRAM MICRO INC.
1759 Wehrle Drive
Williamsville, NY 14221-7887
- --------------------------------------------------------------------------------
GENERAL COMMENTS
P.0. #50-833451
#50-036683
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PIECES skid H DESCRIPTION WEIGHT RATE CHARGES CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
72 9 3.0 Computer Software 1700
109 5 4.1 Computer Software 2600
- ------------------------------------------------------------------------------------------------------------------------------------
REMIT C.O.D C.O.D FEE
TO
COD AMT: $ PREPAID [_] $
COLLECT [_]
ADDRESS
</TABLE>
[ILLEGIBLE]
<PAGE>
ATTACHMENT C
ABCD Corporation
962 Blossom Ave. Packing Slip #123589
Yuma, CA 66699 Sales Order #
Invoice #
Ship to: Ingram Micro Inc. Bill To: Ingram Micro Inc.
41490 Boyce Rd., #A 1759 Wehrle Dr.
Fremont, CA 94538 Williamsville, NY 14221
PO# 50-12345 Bill of Lading #12334455
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Qty. Ord Qty B.O. Qty Ship Description Case # Lbs Cost
Pack Cartons
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
24 0 24 123456 Laser 1 24 50
Printer
Mdl #PK1234
50 10 40 2 20 20
123459 Dot Matrix
Printer
60 0 60 2 30 75
Print Works
Software
Mdl #PK1325
- ---------------------------------------------------------------------------------------------------------------------------
Totals 134 10 124 5 74 145
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONTACT INFORMATION
-------------------
<TABLE>
<CAPTION>
INGRAM MICRO LTL CARRIERS SMALL PACKAGE
<S> <C> <C>
West Coast Traffic ABF RPS
1600 E St. Andrew Place 3801 Old Greenwood Road (888) 422-5423 extension 8007
Santa Ana, CA 92705 Fort Smith, AR 72903 they will answer Caliber Systems
(714) 566-1000 Customer Service - (800) 367-2237 Web Site: www.shiprps.com
EXT: 2217, 4432, 5750, & 2284 Web Site: www.abfs.com
East Coast Traffic K & R Express
1759 Wehrle Drive 15 W 480 Frontage Road
Williamsville, NY 14221-7887 Hindsdale, IL 60521
(716) 633-3600 (708) 323-3230
EXT: 6752, 6764, 6761, & 6722
New Penn
P.O. Box 360
Lebanon, PA 17042
(716) 633-5131
Saia Motor Freight
11555 Medlock Bridge Road
Duluth, GA 30155
(800) 765-7242
Southeastern Freight Lines
3655 Windsor Park Drive
Suwanee, GA 30174
(800) 282-3274
USF Reddaway
P.O. Box 1035
Clackamas, OR 97015
(800) 395-1360
Watkins Motor Lines
1144 West Griffin Road
Lakeland, FL 33804-5002
(800) 329-9703 8am to 8pm EST
Web Site: www.watkins.com
WestEx
2929 North 44/th/ Street, Suite 410
Phoenix, AZ 85018-7242
(800) 851-2851 - Janet Brant
</TABLE>
5
<PAGE>
EXHIBIT G
---------
PROPRIETARY INFORMATION
NON-DISCLOSURE AGREEMENT
This Agreement is made this 16 day of June, 1998 by and between Ingram
Micro Inc., a Delaware corporation with its principal place of business at 1600
East St. Andrew Place, Santa Ana, California 92705 ("Ingram"), ALTIGEN INC., a
California corporation, with principal offices at 45635 Northport Loop East,
Fremont, CA 94538 ("AltiGen")
WHEREAS Ingram has compiled and organized certain information relating to
its sales which is proprietary and confidential, and such information includes,
but is not limited to the "Point of Sale (POS) Report" ("Proprietary
Information"); and
WHEREAS Ingram agrees to disclose Proprietary Information to AltiGen for
the limited purpose set out herein; and
WHEREAS AltiGen desires to inspect and use such Proprietary Information for
the purposes of calculating sales commissions and monitoring marketing programs
only;
NOW, THEREFORE, in consideration of the mutual promises set out herein, the
parties hereby agree as follows:
1. AltiGen agrees not to communicate, disclose, or otherwise make
available all or any part of the Proprietary Information to any third
party, including, but not limited to AltiGen's parent, subsidiaries, or
affiliated companies.
2. AltiGen agrees not to use, or permit others to use, the Proprietary
Information, other than for the purpose(s) stated above. AltiGen agrees to
make no more than five (5) copies of the Proprietary Information unless
otherwise agreed in writing between the parties; and AltiGen agrees to
limit distribution of and access to the Proprietary Information to those of
AltiGen's personnel who require access to Proprietary Information for the
foregoing purpose. AltiGen agrees not to solicit, or sell Product to any
customer or dealer listed in the Proprietary Information that requests to
purchase product from Ingram Micro.
3. The term of this Agreement, unless terminated in accordance with
paragraph 7 shall be concurrent with the term of that mutual Distribution
Agreement between Ingram Micro Inc. and AltiGen Inc. dated June 15, 1998,
incorporated by reference as if fully set forth herein.
<PAGE>
4. AltiGen and Ingram mutually agree that all copies of the Proprietary
Information and all written descriptions, extractions, or summaries
thereof, whether made by AltiGen or Ingram, shall be the property of
Ingram, and shall, upon expiration of this Agreement or Ingram's request,
be immediately returned to Ingram.
5. AltiGen and Ingram mutually agree that Ingram's public disclosure of
the Proprietary Information, except pursuant to a confidential disclosure
agreement, to any party will release AltiGen from the obligation of
confidentiality with respect to that portion of the Proprietary Information
actually disclosed by Ingram.
6. AltiGen acknowledges the damage which Ingram may suffer in the event
of AltiGen's breach of obligations set forth herein. AltiGen agrees to and
shall indemnify Ingram from and compensate Ingram for any and all damage or
injury, including legal fees and costs incurred by Ingram because of
AltiGen's misuse of any Proprietary Information or incurred by Ingram in
enforcing its rights hereunder. This provision shall survive the expiration
or earlier termination of this Agreement for a period of one (1) year.
7. Upon termination of this Agreement by either party for any reason,
AltiGen shall return all Proprietary Information to Ingram within thirty
(30) days, irrespective of format. For purposes of enforcing this
provision, AltiGen's return obligation shall survive the termination of
this Agreement.
8. The rights, promises, duties, and obligations set out herein, and the
validity, interpretation, performance, and legal effect of the whole
Agreement shall be governed and determined by the laws of the State of
California. In the event that any provision is found invalid or
unenforceable pursuant to statutory or judicial decree, such provision
shall be construed only to the maximum extent permitted by law, and the
remainder of the Agreement shall be valid and enforceable in accordance
with its terms.
INGRAM MICRO INC. ALTIGEN NAME
By: /s/ Michael Walkey By: /s/ Michele Shannon
------------------- ---------------------------
Name: Michael Walkey Name: Michele Shannon
----------------- -------------------------
Title: VP Purchasing Title: Vice President of Sales
---------------- ------------------------
Date: 7/21/98 Date: 6/16/98
---------------- -------------------------
<PAGE>
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
-----------------------------------
ARTHUR ANDERSEN LLP
San Jose, California
September 23, 1999
