<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 1999
REGISTRATION NO. 333-73153
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
COPPER MOUNTAIN NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3661 33-0702004
(STATE OR OTHER JURISDICTION PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2470 EMBARCADERO WAY
PALO ALTO, CA 94303
(650) 858-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
RICHARD S. GILBERT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COPPER MOUNTAIN NETWORKS, INC.
2470 EMBARCADERO WAY
PALO ALTO, CA 94303
(650) 858-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
LARRY W. SONSINI, ESQ.
FREDERICK T. MUTO, ESQ.
LANCE W. BRIDGES, ESQ. JAMES N. STRAWBRIDGE, ESQ.
COOLEY GODWARD LLP DON S. WILLIAMS, ESQ.
4365 EXECUTIVE DRIVE, SUITE 1100 WILSON SONSINI GOODRICH & ROSATI,
SAN DIEGO, CA 92121 PROFESSIONAL CORPORATION
(619) 550-6000 650 PAGE MILL ROAD
PALO ALTO, CA 94304
--------------- (650) 493-9300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(1)(2) FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.001 par
value)................ 4,600,000 $14.00 $64,400,000 $17,904(3)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) promulgated under the Securities Act.
(3) $16,680 has been previously paid.
---------------
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE +
+SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 1999
4,000,000 Shares
[COPPER MOUNTAIN NETWORKS, INC. LOGO]
COMMON STOCK
-----------
COPPER MOUNTAIN NETWORKS, INC. IS OFFERING 4,000,000 SHARES OF ITS COMMON
STOCK. THIS IS OUR INITIAL PUBLIC OFFERING, AND NO PUBLIC MARKET CURRENTLY
EXISTS FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE
WILL BE BETWEEN $12 AND $14 PER SHARE.
-----------
WE HAVE APPLIED TO LIST THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "CMTN."
-----------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND COPPER
PUBLIC COMMISSIONS MOUNTAIN
-------- ------------- -----------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total................................. $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Copper Mountain has granted the underwriters the right to purchase up to an
additional 600,000 shares to cover any over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares of common stock to purchasers on
, 1999.
-----------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
, 1999
<PAGE>
[INSIDE FRONT COVER PAGE]
PHOTOGRAPHS, DESCRIPTIONS AND CAPTIONS
1. Top Caption: Copper Mountain Networks is a Leading Supplier of DSL
Communications Products
2. Top: Color photo of CopperEdge DSL access concentrator, one of our
products. Caption: CopperEdge DSL Access Concentrators. CopperEdge DSL
Access Concentrators enable Competitive Local Exchange Carriers (CLECs),
Incumbent Local Exchange Carriers (ILECs), Internet service providers and
multi-tenant unit service providers to deploy high-speed Internet and
remote LAN access services at competitive rates using ordinary copper
telephone wiring. CopperEdge allows DSL users to access network services at
speeds ranging from 128 kbps to 1.544 Mbps.
3. Center: Color photo of CopperRocket DSL access device, one of our products.
Caption: CopperRocket DSL Devices. CopperRocket customer premise equipment
(CPE) is used by teleworkers, small and medium businesses and other DSL
users. The CopperRocket provides high-performance, always-on, dedicated
Internet and LAN access. Users improve productivity while obtaining more
affordable telecommunications costs. Multiple speeds from 128 kbps to 1.544
Mbps fit today's budget and bandwidth needs.
4. Bottom: Color photo of a computer monitor. Caption: CopperView Network
Management Tools. CopperView network management tools allow carriers to
easily configure, diagnose and monitor their DSL networks end-to-end from
one site, match service offerings to the budget and bandwidth needs of each
customer and--with the touch of a button--migrate a user to a higher-speed
service in real time.
<PAGE>
[INTERIOR FOLD-OUT OF FRONT COVER PAGE]
IMAGES, DIAGRAM, DIAGRAM DESCRIPTIONS AND CAPTIONS
1. Left side: Captions describing four key benefits of Copper Mountain's
solution:
. Support for Business Applications: Our products enable
telecommunications service providers to deliver business services
such as high-speed Internet access, corporate networking,
teleworking and remote PBX extension.
. Full Coverage DSL: Our SDSL and IDSL-based products allow our
telecommunications service provider customers the flexibility and
range to reach their targeted customers.
. Multi-Vendor CPE Interoperability: We have partnered with third-
party DSL CPE manufacturers through the CopperCompatible(TM) program
to develop a broad line of modems, routers and other innovative CPE
which are compatible with our CopperEdge DSL Access Concentrators.
. Trouble-Free Operations: Our products are designed to reduce
installation and support requirements for our customers while
allowing large scale central-office based deployment of DSL
solutions with a zero-installation "plug and play" DSL CPE that
eliminates complex configuration issues for the end user.
2. Center: Diagram of a communications network of a metropolitan CLEC's DSL
deployment with a CLEC metro office, multiple ILEC central offices with
CopperEdge DSL access concentrators, multi-tenant building with a
CopperEdge DSL access concentrator, and multiple small office, home office
and residential subscribers with access devices and corporate, Internet
service provider and Internet data services. Caption: CLEC Metropolitan DSL
Network Enabled by Copper Mountain Networks.
3. Right side: Color logos of the following customers of Copper Mountain:
NorthPoint Communications, Inc.; UUNET, a subsidiary of MCI WorldCom, Inc.;
ICG Communications, Inc.; Rhythms NetConnections Inc.; InterAccess; JATO
Communications Corporation; Pacific Crest Networks, Inc.; and OnSite Access
LLC. Caption: Copper Mountain's CLEC Customers Deploy DSL Nationwide.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
The Company.............................................................. 3
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial Data.................................................. 23
Management's Discussion and Analysis of Financial Condition and Operating
Results................................................................. 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business................................................................... 34
Management................................................................. 46
Certain Transactions....................................................... 55
Principal Stockholders..................................................... 57
Description of Capital Stock............................................... 60
Shares Eligible for Future Sale............................................ 62
Underwriters............................................................... 64
Legal Matters.............................................................. 66
Experts.................................................................... 66
Additional Information..................................................... 66
Index to Financial Statements.............................................. F-1
</TABLE>
We are a Delaware corporation. Our principal executive offices are located
at 2470 Embarcadero Way, Palo Alto, California 94303, and our telephone number
is (650) 858-8500. Our fiscal year ends on December 31. We maintain a
worldwide web site at www.coppermountain.com. The reference to our worldwide
web address does not constitute incorporation by reference of the information
contained at this site. CopperThrottle and the Copper Mountain logo are
registered trademarks of Copper Mountain. Copper Mountain, CopperEdge,
CopperView, CopperCompatible, CopperCraft and CopperRocket are unregistered
trademarks of Copper Mountain. All other brand names or trademarks appearing
in this prospectus are the property of their respective holders.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
Except as otherwise noted, all information in this prospectus assumes (1)
the conversion of all outstanding shares of our preferred stock into common
stock on a three-for-two basis upon the completion of this offering, and (2)
no exercise of the underwriters' over-allotment option. In addition, all
common share numbers and common per share data in this prospectus reflect a
three-for-two stock split effected on November 25, 1998.
UNTIL , 1999 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information and
financial statements and notes appearing elsewhere in this prospectus. You
should carefully consider, among other things, the matters set forth in "Risk
Factors."
THE COMPANY
Copper Mountain is a leading supplier of high-speed digital subscriber line,
or DSL, based communications products. Our solutions enable telecommunications
service providers to provide high-speed, cost-effective connectivity over the
existing copper wire telephone infrastructure to the business, multi-tenant
unit and residential markets. We believe there is significant demand for high-
speed data access services, especially among business users who have found
current solutions to be inadequate or too expensive. Therefore, Copper Mountain
has initially focused on producing equipment that supports practical, large-
scale deployment of DSL services to businesses and their associated
teleworkers.
The emergence of electronic commerce, business usage of web-based
communications, remote access for teleworkers, applications hosting and other
services have generated enormous traffic for the existing communications
infrastructure. While there are a number of alternatives to deliver high-
bandwidth connectivity, we believe that none has the cost, performance and
coverage advantages of using the existing copper wire telephone infrastructure.
DSL is a technology that was developed to enable telecommunications service
providers to exploit this existing infrastructure to provide guaranteed,
dedicated bandwidth at a low cost to virtually all businesses and homes in the
United States.
Telecommunications service providers are seeking vendors that have
effectively incorporated DSL into communications equipment solutions enabling
them to offer cost-effective, full-coverage, high-bandwidth data access
services. Our flexible, scalable solution consists of the following products:
CopperEdge DSL access concentrators, CopperRocket DSL customer premise
equipment, or CPE, and CopperView network management tools. Our products offer
the following benefits:
. Support for Business Applications. Our products enable
telecommunications service providers to deliver business services such
as high-speed Internet access, corporate networking, teleworking and
packet-based voice solutions.
. Full Coverage DSL. Our SDSL and IDSL-based products allow our
telecommunications service provider customers the flexibility and range
to reach their targeted customers.
. Multi-Vendor CPE Interoperability. We have partnered with third-party
DSL customer premise equipment manufacturers through our
CopperCompatible program to develop a broad line of modems, routers and
other innovative CPE that is compatible with our CopperEdge DSL access
concentrators.
. Trouble Free Operations. Our products are designed to reduce
installation and support requirements for our customers while allowing
large scale central-office based deployment of DSL solutions with a
zero-installation "plug and play" DSL CPE that eliminates complex
configuration issues for the end user.
Our objective is to be the leading supplier of DSL solutions to
telecommunications service providers. We will focus on expanding our presence
in the business and multi-tenant building markets. In addition, we will address
the emerging opportunities we expect to develop in the residential market as
telecommunications service providers seek to offer DSL services to residential
subscribers seeking high-speed access. Our products are designed to support
future services and technology, and we are currently developing the capability
required to support additional services, such as virtual private networking and
voice-over-packet, as well as additional technologies, such as HDSL2 and UADSL,
to meet evolving telecommunications service provider and subscriber
requirements. Finally, we are working to drive interoperability of DSL
technology to facilitate faster and broader market acceptance.
We sell our products through a direct sales force and selected original
equipment manufacturers and distributors to telecommunications service
providers. As of March 31, 1999, we have sold over 1,300 CopperEdge DSL access
concentrators. We have also formed strategic relationships with Lucent
Technologies Inc. and 3Com Corporation to allow us to expand our distribution
and market presence. In addition, to facilitate faster and broader market
acceptance of our solutions, we have promoted a "CopperCompatible" program
through which we offer licenses of our DSL CPE technology to other
manufacturers of customer premise equipment. We were incorporated in California
in 1996 and reincorporated in Delaware in 1999. Our principal executive offices
are located at 2470 Embarcadero Way, Palo Alto, California 94303, and our
telephone number is (650) 858-8500.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered............................... 4,000,000 shares
Common stock to be outstanding after the offering.. 22,387,005 shares
Use of proceeds.................................... We intend to use the net
proceeds from the offering
for general corporate
purposes, including
working capital and
capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............. CMTN
</TABLE>
The above information about the offering is based upon the number of shares
of common stock outstanding as of March 31, 1999. It excludes, as of March 31,
1999, (1) 6,585,372 shares of common stock reserved for issuance under our 1996
Equity Incentive Plan and 360,000 shares of common stock reserved for issuance
under our 1999 Non-Employee Directors' Stock Option Plan, of which 4,582,225
shares and 180,000 shares, respectively, were subject to outstanding options at
weighted average exercise prices of $2.22 per share and $12.00 per share,
respectively; (2) 355,706 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $2.08 per share;
and (3) 200,000 shares of common stock issuable upon exercise of outstanding
non-qualified stock options at a weighted average exercise price of $12.00 per
share. See "Description of Capital Stock," "Management--1996 Equity Incentive
Plan" and "Management--1999 Non-Employee Directors' Stock Option Plan."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The "as adjusted" column in the Balance Sheet Data table below reflects our
sale of shares of common stock offered by this prospectus (at an assumed
initial public offering price of $13.00 per share) and the application of our
net proceeds from the offering, after deducting estimated underwriting
discounts and commissions and offering expenses payable by us, as described in
"Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 11, 1996 THREE MONTHS
(INCEPTION) YEAR ENDED ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------- ----------------
1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................. $ -- $ 211 $21,821 $ 317 $13,217
Gross profit (loss).......... -- (1,506) 9,421 100 6,833
Income (loss) from
operations.................. (2,036) (9,697) (6,644) (2,932) 488
Net income (loss)............ (1,992) (9,526) (6,451) (2,852) 587
Pro forma diluted net income
(loss) per share (1)........ $ (.39) $ .03
Shares used in computing pro
forma diluted net income
(loss) per share (1)........ 16,668 22,114
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $18,507 $66,117
Working capital........................................... 23,805 71,415
Total assets.............................................. 37,393 85,003
Long-term debt and capital lease obligations, less current
portion.................................................. 1,828 1,828
Total stockholders' equity................................ 27,585 75,195
</TABLE>
- --------
(1) Pro forma diluted per share calculations reflect the conversion upon the
closing of the offering of all outstanding shares of preferred stock into
15,334,824 shares of common stock.
5
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree of
risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to
any of these risks, and you may lose part or all of your investment.
COPPER MOUNTAIN HAS A HISTORY OF LOSSES, EXPECTS FUTURE LOSSES AND MAY NOT
ACHIEVE OR SUSTAIN ANNUAL PROFITABILITY
Copper Mountain has had accumulated losses of $17.4 million since its
inception and may continue to incur net losses in the future. We anticipate
continuing to incur significant sales and marketing, product development and
general and administrative expenses and, as a result, we will need to generate
significantly higher revenues to achieve and sustain profitability on an
annual basis. Copper Mountain has incurred net losses of approximately $2.0
million for the period from inception through December 31, 1996, approximately
$9.5 million for fiscal year 1997 and approximately $6.5 million for fiscal
year 1998. As of December 31, 1998, we had an accumulated deficit of
approximately $18.0 million. Although our revenue has grown in recent
quarters, on a year to year basis, we cannot be certain that our revenue
growth will continue or increase in the future or that we will realize
sufficient revenues to sustain profitability.
COPPER MOUNTAIN DERIVES ALMOST ALL OF ITS REVENUES FROM A SMALL NUMBER OF
CUSTOMERS AND COPPER MOUNTAIN'S REVENUES MAY DECLINE SIGNIFICANTLY IF ANY
MAJOR CUSTOMER CANCELS OR DELAYS A PURCHASE OF COPPER MOUNTAIN'S DSL PRODUCTS
Copper Mountain sells its products predominantly to competitive local
exchange carriers, or CLECs. Aggregate sales to our two largest customers
accounted for approximately 79% of our total net revenues for the twelve
months ended December 31, 1998. Sales to our most significant customers,
NorthPoint Communications, Inc. and Rhythms NetConnections, Inc., accounted
for approximately 61% and 18% of Copper Mountain's total revenues,
respectively, for the twelve months ended December 31, 1998. Accordingly,
unless and until we diversify and expand our customer base, our future success
will significantly depend upon the timing and size of future purchase orders,
if any, from our largest customers and, in particular:
. the product requirements of these customers,
. the financial and operational success of these customers, and
. the success of these customers' services deployed using our products.
The loss of any one of our major customers or the delay of significant
orders from such customers, even if only temporary, could among other things
reduce or delay our recognition of revenues, harm our reputation in the
industry, and reduce our ability to accurately predict cash-flow, and, as a
consequence, could materially adversely affect our business, financial
condition and results of operations.
ICG Communications, Inc., which was a significant customer in 1998, recently
signed an agreement to sell its digital subscriber line, or DSL, assets,
including those already deployed or scheduled for delivery, to NorthPoint
Communications and to designate NorthPoint Communications as its preferred DSL
provider. As a result, ICG Communications may reduce, or even eliminate, the
completion of its own DSL network, and consequently reduce or cease its
purchases of our products. For the twelve months ended December 31, 1998,
Copper Mountain's total revenues from ICG Communications accounted for
approximately 9% of its total revenues.
COPPER MOUNTAIN HAS A LIMITED OPERATING HISTORY UPON WHICH TO BASE YOUR
INVESTMENT DECISION
Copper Mountain has a very limited operating history. We were incorporated
in March 1996 and have generated only limited revenues. Due to our limited
operating history, it is difficult or impossible for us to predict
6
<PAGE>
future results of operations and you should not expect future revenue growth
to be comparable to our recent revenue growth. In addition, we believe that
comparing different periods of our operating results is not meaningful, as you
should not rely on the results for any period as an indication of our future
performance. Investors in our common stock must consider our business and
prospects in light of the risks and difficulties typically encountered by
companies in their early stages of development, particularly those in rapidly
evolving markets such as the telecommunications equipment industry. Some of
the specific risks include whether we are able:
. to compete in the intensely competitive market for telecommunications
equipment;
. to expand our sales, support and distribution organization;
. to timely and effectively introduce new products and product
enhancements; and
. to expand our operational infrastructure.
We discuss these and other risks in more detail below.
A NUMBER OF FACTORS COULD CAUSE COPPER MOUNTAIN'S OPERATING RESULTS TO
FLUCTUATE SIGNIFICANTLY AND CAUSE ITS STOCK PRICE TO BE VOLATILE
Copper Mountain's quarterly and annual operating results have fluctuated in
the past and are likely to fluctuate significantly in the future due to a
variety of factors, many of which are outside of its control. If our quarterly
or annual operating results do not meet the expectations of securities
analysts and investors, the trading price of our common stock could
significantly decline. Some of the factors that could affect our quarterly or
annual operating results include:
. the timing and amount of, or cancellation or rescheduling of, orders for
our products and services, particularly large orders from our key
customers and original equipment manufacturers;
. our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions;
. announcements, new product introductions and reductions in price of
products offered by our competitors;
. a decrease in the average selling prices of our products;
. our ability to achieve cost reductions;
. our ability to obtain sufficient supplies of sole or limited source
components for our products;
. changes in the prices of our components;
. our ability to attain and maintain production volumes and quality levels
for our products;
. the mix of products sold and the mix of distribution channels through
which they are sold;
. fluctuations in demand for our products and services;
. costs relating to possible acquisitions and integration of technologies
or businesses; and
. telecommunications and DSL market conditions and economic conditions
generally.
Historically, our backlog at the beginning of each quarter has not been
equal to expected revenue for that quarter. Accordingly, we are dependent upon
obtaining orders in a quarter for shipment in that quarter to achieve our
revenue objectives. In addition, due in part to factors such as the timing of
product release dates, purchase orders and product availability, significant
volume shipments of products could occur at the end of our fiscal quarter.
Failure to ship products by the end of a quarter may adversely affect our
operating results. Furthermore, our customers may delay delivery schedules or
cancel their orders without notice. Due to these and other factors, quarterly
revenues, expenses and results of operations could vary significantly in the
future, and period-to-period comparisons should not be relied upon as
indications of future performance.
7
<PAGE>
COPPER MOUNTAIN SELLS THE MAJORITY OF ITS PRODUCTS TO EMERGING
TELECOMMUNICATIONS SERVICE PROVIDERS THAT MAY REDUCE OR DISCONTINUE THEIR
PURCHASE OF COPPER MOUNTAIN'S PRODUCTS AT ANY TIME
The customers of Copper Mountain's products to date have predominantly been
telecommunications service providers. The market for the services provided by
these CLECs has only begun to emerge since the passage of the
Telecommunications Act of 1996 (the "Telecom Act"), and many CLECs are still
building their infrastructure and rolling out their services. These CLECs
require substantial capital for the development, construction and expansion of
their networks and the introduction of their services. Financing may not be
available to emerging CLECs on favorable terms, if at all. The inability of
our current or potential emerging CLEC customers to acquire and keep
customers, to successfully raise needed funds, or to respond to any other
trends such as price reductions for their services or diminished demand for
telecommunications services generally, could adversely affect their operating
results or cause them to reduce their capital spending programs. If our
customers are forced to defer or curtail their capital spending programs, our
sales to those telecommunication service providers may be adversely affected,
which would have a material adverse effect on our business, financial
condition and results of operations. In addition, many of the industries in
which telecommunications service providers operate have recently experienced
consolidation. The loss of one or more of our telecommunications service
provider customers, through industry consolidation or otherwise, could reduce
or eliminate our sales to such a customer and consequently have a material
adverse effect on our business, financial condition and results of operations.
IF DSL TECHNOLOGY AND COPPER MOUNTAIN'S DSL PRODUCT OFFERINGS ARE NOT ACCEPTED
BY TELECOMMUNICATIONS SERVICE PROVIDERS, COPPER MOUNTAIN MAY NOT BE ABLE TO
SUSTAIN OR GROW ITS BUSINESS
Copper Mountain's future success is substantially dependent upon whether DSL
technology gains widespread market acceptance by telecommunications service
providers, of which there are a limited number, and end users of their
services. We have invested substantial resources in the development of DSL
technology, and all of our products are based on DSL technology.
Telecommunications service providers are continuously evaluating alternative
high-speed data access technologies and may, at any time, adopt technologies
other than the DSL technologies offered by Copper Mountain. Even if
telecommunications service providers adopt policies favoring full-scale
implementation of DSL technology, they may not choose to purchase our DSL
product offerings. In addition, we have limited ability to influence or
control decisions made by telecommunications service providers. In the event
that the telecommunications service providers to whom we market our products
adopt technologies other than the DSL technologies offered by Copper Mountain
or choose not to purchase Copper Mountain's DSL product offerings, we may not
be able to sustain or grow our business.
UNLESS COPPER MOUNTAIN IS ABLE TO KEEP PACE WITH THE RAPIDLY CHANGING PRODUCT
REQUIREMENTS OF ITS CUSTOMERS, IT WILL NOT BE ABLE TO SUSTAIN OR GROW ITS
BUSINESS
The telecommunications and data communications markets are characterized by
rapid technological advances, evolving industry standards, changes in end-user
requirements, frequent new product introductions and evolving offerings by
telecommunications service providers. We believe our future success will
depend, in part, on our ability to anticipate or adapt to such changes and to
offer, on a timely basis, services that meet customer demands. Our inability
to develop on a timely basis new products or enhancements to existing
products, or the failure of such new products or enhancements to achieve
market acceptance, could materially adversely affect our business, financial
condition and results of operations.
COPPER MOUNTAIN'S PRODUCT CYCLES TEND TO BE SHORT AND COPPER MOUNTAIN MAY
INCUR SUBSTANTIAL NON-RECOVERABLE EXPENSES OR DEVOTE SIGNIFICANT RESOURCES TO
SALES THAT DO NOT OCCUR WHEN ANTICIPATED
In the rapidly changing technology environment in which we operate, product
cycles tend to be short. Therefore, the resources we devote to product sales
and marketing may not generate revenues for us and from time to time we may
need to write-off excess and obsolete inventory. In the past, we have
experienced such
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write-offs attributed to the obsolescence of certain printed circuit boards.
As of December 31, 1998 and 1997, we reduced the carrying value of inventory
by approximately $1,297,000 and $315,000, respectively, to take into
consideration excess inventory levels and obsolete inventory. We also recorded
charges for purchase commitments related to obsolete inventory not yet
received by December 31, 1997 of approximately $582,000. If we incur
substantial sales, marketing and inventory expenses in the future that we are
not able to recover, and we are not able to compensate for such expenses, it
could have a material adverse effect on our business, financial condition and
results of operations.
COPPER MOUNTAIN'S ABILITY TO SUSTAIN OR GROW ITS BUSINESS MAY BE HARMED IF IT
IS UNABLE TO DEVELOP AND MAINTAIN CERTAIN STRATEGIC RELATIONSHIPS WITH THIRD
PARTIES TO MARKET AND SELL COPPER MOUNTAIN'S PRODUCTS
Copper Mountain's success will be substantially dependent upon its strategic
partnerships, including its recently signed original equipment manufacturer
agreements with Lucent Technologies Inc. and 3Com Corporation under which we
have agreed to manufacture, co-brand and/or sell our products to Lucent and
3Com. The amount and timing of resources which our strategic partners devote
to our business is not within our control. Our strategic partners may not
perform their obligations as expected. Agreements with our strategic partners
are relatively new, and we cannot be certain that any revenue will be derived
from strategic arrangements. If any of our strategic partners breaches or
terminates its agreement or fails to perform its obligations under its
agreement, we may not be able to sustain or grow our business. In the event
that these relationships are terminated, we may not be able to continue to
maintain or develop strategic relationships or to replace strategic partners.
In addition, any strategic agreements we enter into in the future may not be
successful.
In January 1999, shortly after we entered into our original equipment
manufacturer agreement with Lucent, Lucent announced an agreement to acquire
Ascend Communications, Inc., a competitor of ours which offers a competing DSL
solution. As a result, Lucent may seek to reduce the marketing and/or sales of
our products in favor of competitive products manufactured by Ascend. For a
further discussion of our strategic relationships with Lucent and 3Com please
refer to "Business--Strategic Relationships and Interoperability
Partnerships."
INTENSE COMPETITION IN THE MARKET FOR TELECOMMUNICATIONS EQUIPMENT COULD
PREVENT COPPER MOUNTAIN FROM INCREASING OR SUSTAINING REVENUE AND PREVENT
COPPER MOUNTAIN FROM ACHIEVING OR SUSTAINING ANNUAL PROFITABILITY
The market for telecommunications equipment is highly competitive. We
compete directly with the following companies: Cisco Systems, Inc., Ascend
(acquisition by Lucent pending), Alcatel S.A., Diamond Lane Communications
Corporation (acquisition by Nokia Corporation pending) and Paradyne
Corporation. We also compete with other DSL equipment providers. If we are
unable to compete effectively in the market for DSL telecommunications
equipment, our revenue and future profitability could be materially adversely
affected. Many of our current and potential competitors have significantly
greater selling and marketing, technical, manufacturing, financial, and other
resources, including vendor-sponsored lease financing programs. Moreover, our
competitors may foresee the course of market developments more accurately than
we do and could in the future develop new technologies that compete with our
products or even render our products obsolete. Although we believe we
presently have certain technological and other advantages over our
competitors, realizing and maintaining such advantages will require a
continued high level of investment in research and development, marketing and
customer service and support. Due to the rapidly evolving markets in which we
compete, additional competitors with significant market presence and financial
resources, including other large telecommunications equipment manufacturers,
may enter those markets, thereby further intensifying competition. We may not
have sufficient resources to continue to make the investments or achieve the
technological advances necessary to compete successfully with existing
competitors or new competitors. Also, to the extent we introduce new product
offerings intended to capitalize on the anticipated trend toward broad
deployment of DSL services, including DSL services targeted at residential
subscribers seeking high-speed access to public communications networks, we
will encounter new competitors such as coaxial cable and wireless equipment
vendors. Even if we
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are successful in competing in the business DSL market, we may not be able to
compete successfully in the market for residential subscribers.
FUTURE CONSOLIDATION IN THE TELECOMMUNICATIONS EQUIPMENT INDUSTRY MAY INCREASE
COMPETITION THAT COULD HARM COPPER MOUNTAIN'S BUSINESS
The markets in which Copper Mountain competes are characterized by
increasing consolidation both within the data communications sector and by
companies combining or acquiring data communications assets and assets for
delivering voice-related services, as exemplified by the recently announced
acquisitions of Ascend by Lucent and Diamond Lane by Nokia. We cannot predict
with certainty how industry consolidation will affect our competitors. We may
not be able to compete successfully in an increasingly consolidated industry.
Increased competition and consolidation in our industry could require that we
reduce the prices of our products and result in our loss of market share,
which would materially adversely affect our business, financial condition and
results of operations. Additionally, because we are now, and may in the future
be, dependent on certain strategic relationships with third parties in our
industry, any consolidation involving these parties could reduce the demand
for our products and otherwise harm our business prospects.
COPPER MOUNTAIN MAY EXPERIENCE DIFFICULTIES IN THE INTRODUCTION OF NEW
PRODUCTS THAT COULD RESULT IN COPPER MOUNTAIN HAVING TO INCUR SIGNIFICANT
UNEXPECTED EXPENSES OR DELAY THE LAUNCH OF NEW PRODUCTS
Copper Mountain intends to continue to invest in product and technology
development. The development of new or enhanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends. We may experience design, manufacturing, marketing and other
difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements. The introduction of new or
enhanced products also requires that we manage the transition from older
products in order to minimize disruption in customer ordering patterns and
ensure that adequate supplies of new products can be delivered to meet
anticipated customer demand. In the future, we expect to develop certain new
products, such as new DSL Access Concentrators, UADSL and HDSL2 line cards and
new CPEs. We may not successfully develop, introduce or manage the transition
of these new products. Furthermore, products such as those we currently offer
may contain undetected or unresolved errors when they are first introduced or
as new versions are released. Despite testing, errors may be found in new
products or upgrades after commencement of commercial shipments. These errors
could result in:
. delays in or loss of market acceptance and sales;
. diversion of development resources;
. injury to our reputation; and
. increased service and warranty costs.
Any of these could materially adversely affect our business, financial
condition and results of operations.
COPPER MOUNTAIN IS DEPENDENT ON WIDESPREAD MARKET ACCEPTANCE OF ITS PRODUCTS
Widespread market acceptance of Copper Mountain's products is critical to
its future success. Factors that may affect the market acceptance of our
products include market acceptance of DSL technology in particular, the
performance, price and total cost of ownership of our products, the
availability and price of competing products and technologies and the success
and development of our resellers, original equipment manufacturers and field
sales channels. Many of these factors are beyond our control. The introduction
of new and enhanced products may cause certain customers to defer or return
orders for existing products. Although we maintain reserves against such
returns, such resources may not be adequate. We cannot be certain that we will
not experience delays in product development in the future. Failure of our
existing or future products to maintain
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and achieve meaningful levels of market acceptance would materially adversely
affect our business, financial condition and results of operations.
BECAUSE SUBSTANTIALLY ALL OF COPPER MOUNTAIN'S REVENUE IS DERIVED FROM SALES
OF A SMALL NUMBER OF PRODUCTS ITS FUTURE OPERATING RESULTS WILL BE DEPENDENT
ON SALES OF THESE PRODUCTS
Copper Mountain currently derives substantially all of its revenues from its
product family of DSL solutions and expects that this concentration will
continue in the foreseeable future. The market may not continue to demand our
current products, and we may not be successful in marketing any new or
enhanced products. Any reduction in the demand for our current products or our
failure to successfully develop or market and introduce new or enhanced
products could materially adversely affect our operating results and cause the
price of our common stock to decline. Factors that could affect sales of our
current or new or enhanced products include:
. the demand for DSL solutions;
. our successful development, introduction and market acceptance of new
and enhanced products that address customer requirements;
. product introductions or announcements by our competitors;
. price competition in our industry and between DSL and competing
technologies; and
. technological change.
COPPER MOUNTAIN'S LIMITED ABILITY TO PROTECT ITS INTELLECTUAL PROPERTY MAY
ADVERSELY AFFECT ITS ABILITY TO COMPETE
Copper Mountain's success and ability to compete is dependent in part upon
its proprietary technology. Any infringement of our proprietary rights could
result in significant litigation costs, and any failure to adequately protect
our proprietary rights could result in our competitors offering similar
products, potentially resulting in loss of a competitive advantage and
decreased revenues. We rely on a combination of copyright, trademark and trade
secret laws, as well as confidentiality agreements and licensing arrangements,
to establish and protect our proprietary rights. We presently have no patents,
although we have one patent application pending which we intend to pursue but
which is not central to our current business. Despite our efforts to protect
our proprietary rights, existing copyright, trademark and trade secret laws
afford only limited protection. In addition, the laws of certain foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. Attempts may be made to copy or reverse engineer
aspects of our products or to obtain and use information that we regard as
proprietary. Accordingly, we may not be able to protect our proprietary rights
against unauthorized third-party copying or use. Furthermore, policing the
unauthorized use of our products is difficult. Litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our future operating
results.
IF COPPER MOUNTAIN LOSES KEY PERSONNEL IT MAY NOT BE ABLE TO SUCCESSFULLY
OPERATE ITS BUSINESS
Copper Mountain's success depends to a significant degree upon the continued
contributions of the principal members of its sales, engineering and
management personnel, many of whom perform important management functions and
would be difficult to replace. Specifically, we believe that our future
success is highly dependent on our senior management, and in particular on
Richard S. Gilbert, President and Chief Executive Officer; Joseph Markee,
Chief Technology Officer; Steven Hunt, Vice President of Engineering; and
Michael Kelly, Vice President of Sales. Except for agreements with Mr.
Gilbert, Mr. Markee and Mr. Hunt, we do not have employment contracts with our
key personnel. In any event, employment contracts would not prevent key
personnel from terminating their employment with Copper Mountain. The loss of
the services of any key personnel, particularly senior management and
engineers, could materially adversely affect our business, financial condition
and results of operations.
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IF COPPER MOUNTAIN IS UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL
AS NECESSARY, IT MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE ITS OBJECTIVES
Copper Mountain has experienced growth in revenues and expansion of its
operations which have placed significant demands on its management,
engineering staff and facilities. We have recently hired additional
engineering, sales, marketing, customer support and accounting personnel.
Continued growth will also require us to hire more engineering, sales and
administrative personnel. We may not be able to attract and retain the
necessary personnel to accomplish our business objectives and we may
experience constraints that will adversely affect our ability to satisfy
customer demand in a timely fashion or to support our customers and
operations. We have at times experienced, and continue to experience,
difficulty in recruiting qualified personnel. Recruiting qualified personnel
is an intensely competitive and time-consuming process.
In addition, companies in the telecommunications industry whose employees
accept positions with competitors frequently claim that such competitors have
engaged in unfair hiring practices. We received one such notice from another
company and, although to date this notice has not resulted in litigation, we
may receive other notices in the future as we seek to hire qualified personnel
and such notices may result in material litigation. We could incur substantial
costs in defending ourselves against any such litigation, regardless of the
merits or outcome of such litigation.
FAILURE TO MANAGE THE GROWTH OF COPPER MOUNTAIN'S OPERATIONS WILL ADVERSELY
AFFECT ITS BUSINESS
Copper Mountain has rapidly and significantly expanded its operations and
anticipates that further significant expansion will be required to address
potential growth in its client base and market opportunities if it is
successful in implementing its business strategy.We may not be able to
implement management information and control systems in an efficient and
timely manner, and our current or planned personnel, systems, procedures and
controls may not be adequate to support our future operations. If we are
unable to manage growth effectively, our business, financial condition and
results of operations will be materially adversely affected. During 1998, we
increased the number of employees from 56 to 111 and during the first three
months of 1999 we added 43 additional employees. This expansion is placing a
significant strain on our managerial, operational and financial resources.
Most of our existing senior management personnel joined us within the last 18
months, including a number of key managerial, technical and operations
personnel who we have not yet fully integrated. We expect to add additional
key personnel in the near future, including direct sales and marketing
personnel. To manage the expected growth of our operations and personnel, we
will be required to:
. improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
. install new management information systems; and
. train, motivate and manage our sales and marketing, engineering,
technical and customer support employees.
We operate our business from facilities in Palo Alto, California and San
Diego, California. We face challenges related to effectively and efficiently
coordinating our operations between these facilities. If we are unsuccessful
in meeting these challenges, our business and operating results may be
adversely affected. Moreover, we currently fully occupy our existing
facilities in San Diego, and we have secured a new facility to replace them.
To the extent we are unsuccessful in our efforts to build-out and move into
larger facilities in San Diego, our ability to add new personnel and expand
our operations in San Diego will be adversely affected. We may not be able to
complete this move in a timely or cost effective manner, and there may be
disruptions related to such move that could materially adversely affect our
business, financial condition and results of operations.
COPPER MOUNTAIN'S DEPENDENCE ON SOLE AND SINGLE SOURCE SUPPLIERS EXPOSES IT TO
SUPPLY INTERRUPTION
Although Copper Mountain generally uses standard parts and components for
its products, many key components are purchased from sole or single source
vendors for which alternative sources are not currently
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available. The inability to obtain sufficient quantities of these components
may in the future result in delays or reductions in product shipments which
could materially adversely affect our business, financial condition and
results of operations. We presently purchase three key components from vendors
for which there are currently no substitutes: a semiconductor chip, a power
supply and a system control module. We are evaluating alternate source vendors
for each of these key components, but any alternate vendors may not meet our
quality standards for component vendors. In the event of a reduction or
interruption of supply of any such components, as much as six months could be
required before we would begin receiving adequate supplies from alternative
suppliers, if any. It is possible that a source may not be available for us or
be in a position to satisfy our production requirements at acceptable prices
and on a timely basis, if at all.
In addition, the manufacture of certain of these single or sole source
components is extremely complex, and our reliance on the suppliers of these
components exposes us to potential production difficulties and quality
variations, which could negatively impact cost and timely delivery of our
products. Any significant interruption in the supply, or degradation in the
quality, of any component could have a material adverse effect on our
business, financial condition and results of operations.
COPPER MOUNTAIN'S DEPENDENCE ON INDEPENDENT MANUFACTURERS COULD RESULT IN
PRODUCT DELIVERY DELAYS
Copper Mountain currently uses a small number of independent manufacturers
to provide certain printed circuit boards, chassis and subassemblies and, in
certain cases, to complete final assembly and testing of our products. Our
reliance on independent manufacturers involves a number of risks, including
the absence of adequate capacity, the unavailability of or interruptions in
access to certain process technologies and reduced control over delivery
schedules, manufacturing yields and costs. We have historically subcontracted
substantially all of our manufacturing to one company, SMS Technology, located
in San Diego, California. We recently entered into a letter of intent with
Flextronics International Ltd., located in San Jose, California and expect to
have a formal agreement in place by April 30, 1999. Under the letter of
intent, Flextronics will be our main source of independent manufacturing. The
transition from SMS Technology to Flextronics may result in delays,
interruptions or quality problems, and we may not effectively manage the
transition. If our manufacturers are unable or unwilling to continue
manufacturing our components in required volumes, we will have to identify
acceptable alternative manufacturers, which could take in excess of six
months. It is possible that a source may not be available to us when needed or
be in a position to satisfy our production requirements at acceptable prices
and on a timely basis, if at all. Any significant interruption in supply would
result in the allocation of products to customers, which in turn could have a
material adverse effect on our business, financial condition and results of
operations. Moreover, since all of our final assembly and tests are performed
in one location, any fire or other disaster at our assembly facility would
have a material adverse effect on our business, financial condition and
results of operations.
COPPER MOUNTAIN'S CUSTOMERS MAY DEMAND PREFERENTIAL TERMS OR DELAY COPPER
MOUNTAIN'S SALES CYCLE, WHICH MAY RESULT IN OPERATING LOSSES FOR COPPER
MOUNTAIN
Copper Mountain's customers tend to be significantly larger than Copper
Mountain and are able to exert a high degree of influence over Copper
Mountain. They have sufficient bargaining power to demand low prices and other
terms and conditions that may materially adversely affect our business,
financial condition and results of operations. In addition, prior to selling
our products to such customers, we must typically undergo lengthy product
approval processes, often taking up to one year. Accordingly, we are
continually submitting successive versions of our products as well as new
products to our customers for approval. The length of the approval process can
vary and is affected by a number of factors, including customer priorities,
customer budgets and regulatory issues affecting telecommunication service
providers. Delays in the product approval process could materially adversely
affect our business, financial condition and results of operations. While we
have been successful in the past in obtaining product approvals from our
customers, such approvals and the ensuing sales of such products may not
continue to occur. Delays can also be caused by late deliveries by other
vendors, changes in implementation priorities and slower than anticipated
growth in demand for the services that our
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products support. A delay in, or cancellation of, the sale of our products
could result in operating losses and cause our results of operations to vary
significantly from quarter to quarter.
CHANGES TO REGULATIONS AFFECTING THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE
DEMAND FOR COPPER MOUNTAIN'S PRODUCTS OR ADVERSELY AFFECT ITS RESULTS OF
OPERATIONS
Any changes to legal requirements relating to the telecommunications
industry, including the adoption of new regulations by federal or state
regulatory authorities under current laws or any legal challenges to existing
laws or regulations relating to the telecommunications industry could have a
material adverse effect upon the market for Copper Mountain's products.
Moreover, our distributors or telecommunications service provider customers
may require, or we may otherwise deem it necessary or advisable, that we
modify our products to address actual or anticipated changes in the regulatory
environment. Our inability to modify our products or address any regulatory
changes could have a material adverse effect on our business, financial
condition or results of operations. For additional background on recent
legislation affecting the telecommunications industry please refer to
"Business--Industry Background."
COPPER MOUNTAIN MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND ITS
OPERATIONS WHEN NEEDED
Copper Mountain expects to use the net proceeds of this offering primarily
to continue investments in product development, to expand sales and marketing
activities and to make capital expenditures. We believe that such proceeds,
together with our existing capital resources, will be sufficient to meet our
capital requirements for at least the next twelve months. However, our capital
requirements depend on several factors, including the rate of market
acceptance of our products, the ability to expand our client base, the growth
of sales and marketing and other factors. If capital requirements vary
materially from those currently planned, we may require additional financing
sooner than anticipated. If additional funds are raised through the issuance
of equity securities, the percentage ownership of our stockholders will be
reduced, stockholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. If additional funds are raised through the
issuance of debt securities, such securities would have rights, preferences
and privileges senior to holders of common stock and the term of such debt
could impose restrictions on our operations. Additional financing may not be
available when needed on terms favorable to us or at all. If adequate funds
are not available or are not available on acceptable terms, we may be unable
to develop or enhance our services, take advantage of future opportunities or
respond to competitive pressures, which could materially adversely affect our
business, financial condition or results of operations.
CLAIMS AGAINST COPPER MOUNTAIN ALLEGING ITS INFRINGEMENT OF A THIRD PARTY'S
INTELLECTUAL PROPERTY COULD RESULT IN SIGNIFICANT EXPENSE TO COPPER MOUNTAIN
AND RESULT IN ITS LOSS OF SIGNIFICANT RIGHTS
The telecommunications industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to our business. Any claims asserting that our products infringe or
may infringe proprietary rights of third parties, if determined adversely to
us, could have a material adverse effect on our business, financial condition
or results of operations. In addition, in our agreements, we agree to
indemnify our customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third parties. As the
number of entrants in our market increases and the functionality of our
products is enhanced and overlaps with the products of other companies, we may
become subject to claims of infringement or misappropriation of the
intellectual property rights of others. Any claims, with or without merit,
could be time-consuming, result in costly litigation, divert the efforts of
our technical and management personnel, cause product shipment delays or
require us to enter into royalty or licensing agreements, any of which could
have a material adverse effect upon our operating results. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all. Legal action claiming patent infringement may be commenced
against us. We cannot assure you that we would prevail in such litigation
given the complex technical issues and inherent uncertainties in patent
litigation. In the event a
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claim against us was successful and we could not obtain a license to the
relevant technology on acceptable terms or license a substitute technology or
redesign our products to avoid infringement, our business, financial condition
and results of operations would be materially adversely affected.
COPPER MOUNTAIN'S FAILURE TO COMPLY WITH REGULATIONS AND EVOLVING INDUSTRY
STANDARDS COULD DELAY ITS INTRODUCTION OF NEW PRODUCTS
The market for Copper Mountain's products is characterized by the need to
meet a significant number of communications regulations and standards, some of
which are evolving as new technologies are deployed. In order to meet the
requirements of our customers, our products may be required to comply with
various regulations including those promulgated by the FCC and standards
established by Underwriters Laboratories and Bell Communications Research.
Failure of our products to comply, or delays in compliance, with the various
existing and evolving industry regulations and standards could delay the
introduction of our products. Moreover, enactment by federal, state or foreign
governments of new laws or regulations, changes in the interpretation of
existing laws or regulations or a reversal of the trend toward deregulation in
the telecommunications industry could have a material adverse effect on our
customers, and thereby materially adversely affect our business, financial
condition and results of operations.
IF COPPER MOUNTAIN OR ITS KEY SUPPLIERS FAIL TO BE YEAR 2000 COMPLIANT, COPPER
MOUNTAIN'S BUSINESS MAY BE SEVERELY DISRUPTED AND ITS RESULTS OF OPERATIONS
MAY BE MATERIALLY ADVERSELY AFFECTED
As is true for most companies, the Year 2000 problem creates a risk for
Copper Mountain. If systems do not correctly recognize date information when
the year changes to 2000, there could be an adverse impact on our operations.
The risk exists primarily in four areas:
. potential warranty or other claims from our customers, which may result
in significant expense to Copper Mountain;
. failures of systems we use to run our business, which could disrupt our
business operations;
. systems used by our suppliers, which could delay or affect the quality
of our manufacturing of products; and
. the potential for failures of our products, particularly our central
office-based systems, due to Year 2000 problems associated with products
manufactured by other equipment vendors used in conjunction with our
products, which may require that we replace any such products and
potentially incur significant unexpected expenses.
We are currently evaluating our exposure in all of these areas.
We are in the process of conducting a comprehensive inventory and evaluation
of the information systems used to run our business. Systems which are
identified as non-compliant will be upgraded or replaced. For the Year 2000
non-compliance issues identified to date, the cost of remediation is not
expected to be material to our operating results. However, if implementation
of replacement systems is delayed, or if significant new non-compliance issues
are identified, our business, financial condition or results of operations
could be materially adversely affected.
We intend to contact our critical suppliers and contract manufacturers to
determine whether their operations and the products and services they provide
are Year 2000 compliant. Where practicable, we will attempt to mitigate our
risks with respect to the failure of our suppliers and contract manufacturers
to be prepared for any Year 2000 problems. However, such failures remain a
possibility and could have a material adverse impact on our business,
financial condition or results of operations.
Although we believe our products are Year 2000 compliant, because all
customer situations cannot be anticipated, we may see an increase in warranty
and other claims as a result of the Year 2000 transition. In
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addition, litigation regarding Year 2000 compliance issues is expected to
escalate. For these reasons, the impact of customer claims could have a
material adverse impact on our business, financial condition or results of
operations.
IF COPPER MOUNTAIN'S PRODUCTS CONTAIN DEFECTS, COPPER MOUNTAIN MAY BE SUBJECT
TO SIGNIFICANT LIABILITY CLAIMS FROM ITS CUSTOMERS AND THE END-USERS OF ITS
PRODUCTS AND INCUR SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES
Copper Mountain's products have in the past contained, and may in the future
contain, undetected or unresolved errors when first introduced or as new
versions are released. Despite extensive testing, errors, defects or failures
may be found in our current or future products or enhancements after
commencement of commercial shipments. If this happens, we may experience delay
in or loss of market acceptance and sales, product returns, diversion of
development resources, injury to our reputation or increased service and
warranty costs, any of which could have a material adverse effect on our
business, financial condition and results of operations. Moreover, because our
products are designed to provide critical communications services, we may
receive significant liability claims. Our agreements with customers typically
contain provisions intended to limit our exposure to liability claims. These
limitations may not, however, preclude all potential claims resulting from a
defect in one of our products. Although we maintain product liability
insurance covering certain damages arising from implementation and use of our
products, our insurance may not cover any claims sought against us. Liability
claims could require us to spend significant time and money in litigation or
to pay significant damages. As a result, any such claims, whether or not
successful could seriously damage our reputation and our business.
COPPER MOUNTAIN MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE ITS
STOCKHOLDERS, CAUSE IT TO INCUR DEBT AND ASSUME CONTINGENT LIABILITIES
As part of Copper Mountain's business strategy, we expect to review
acquisition prospects that would complement our current product offerings,
augment our market coverage or enhance our technical capabilities, or that may
otherwise offer growth opportunities. While we have no current agreements or
negotiations underway with respect to any such acquisitions, we may acquire
businesses, products or technologies in the future. In the event of such
future acquisitions, we could:
. issue equity securities which would dilute current stockholders'
percentage ownership;
. incur substantial debt; or
. assume contingent liabilities.
Such actions by us could materially adversely affect our results of
operations and/or the price of our common stock. Acquisitions also entail
numerous risks, including:
. difficulties in assimilating acquired operations, technologies or
products;
. unanticipated costs associated with the acquisition could materially
adversely affect our results of operations;
. diversion of management's attention from other business concerns;
. adverse effects on existing business relationships with suppliers and
customers;
. risks of entering markets in which we have no or limited prior
experience; and
. potential loss of key employees of acquired organizations.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future, and our failure
to do so could have a material adverse effect on our business, financial
condition and results of operations.
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CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE
OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL
Upon completion of this offering, Copper Mountain's executive officers,
directors and principal stockholders and their affiliates will own 10,197,372
shares or approximately 45.6% of the outstanding shares of common stock (44.4%
if the underwriters' over-allotment option is exercised in full). These
stockholders, if acting together, would be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions. This concentration of ownership could have the effect of
delaying or preventing a change in our control or otherwise discouraging a
potential acquirer from attempting to obtain control of us, which in turn
could have a material adverse effect on the market price of the common stock
or prevent our stockholders from realizing a premium over the market prices
for their shares of common stock. For information about the ownership of
common stock by our executive officers, directors and principal stockholders
please refer to "Principal Stockholders."
COPPER MOUNTAIN'S STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO
RESELL SHARES AT OR ABOVE THE OFFERING PRICE
There has previously not been a public market for Copper Mountain's common
stock. We cannot predict the extent to which investor interest in Copper
Mountain will lead to the development of a trading market or how liquid that
market might become. The initial public offering price for the shares will be
determined by negotiations between us and the representatives of the
Underwriters and may not be indicative of prices that will prevail in the
trading market. The trading price of our common stock could be subject to wide
fluctuations in response to factors such as:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations;
. new products or services offered by us or our competitors;
. changes in financial estimates by securities analysts;
. announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors;
. additions or departures of key personnel;
. sales of common stock; and
. other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the Nasdaq National Market and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of many technology
companies' stocks are at or near historical highs and these trading prices and
multiples are substantially above historical levels. These trading prices and
multiples may not be sustained. These broad market and industry factors may
materially adversely affect the market price of our common stock, regardless
of our actual operating performance. In the past, following periods of
volatility in the market price of a company's securities, securities class-
action litigation has often been instituted against such companies. Such
litigation, if instituted, could result in substantial costs and a diversion
of management's attention and resources, which would materially adversely
affect our business, financial condition and results of operations.
SUBSTANTIAL FUTURE SALES OF COPPER MOUNTAIN'S COMMON STOCK IN THE PUBLIC
MARKET COULD CAUSE ITS STOCK PRICE TO FALL
Sales of a large number of shares of Copper Mountain's common stock in the
public market after this offering or the perception that such sales could
occur could cause the market price of its common stock to drop.
17
<PAGE>
Upon completion of this offering, we will have approximately 22,387,005 shares
of common stock outstanding, of which approximately 4,000,000 shares
(approximately 4,600,000 shares if the underwriters' over-allotment option is
exercised in full) will be freely transferable without restriction or
registration under the Securities Act of 1933, unless such shares are held by
our affiliates, as that term is defined in Rule 144 under the Securities Act.
The officers and directors and all of our existing stockholders have agreed
with Morgan Stanley & Co. Incorporated or have otherwise agreed with us not to
sell or otherwise dispose of any of their shares for 180 days after the date
of this prospectus. However, Morgan Stanley & Co. Incorporated may, in its
sole discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements. Sales of common stock by existing
stockholders in the public market, or the availability of such shares for
sale, could adversely affect the market price of the common stock.
In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the 7,445,372 shares of common stock reserved for
issuance under our 1996 Equity Incentive Plan, 1999 Non-Employee Directors'
Stock Option Plan and 1999 Employee Stock Purchase Plan and for options issued
outside such plans. On the date 180 days after the effective date of this
offering, at least 1,475,555 shares will be subject to immediately exercisable
options (based on options outstanding on March 31, 1999). Sales of a large
number of shares could have an adverse effect on the market price for our
common stock.
After this offering, the holders of 15,690,530 shares of common stock
(including shares issuable upon exercise of warrants) will have certain rights
with respect to registration of such shares for sale to the public. If such
holders, by exercising their registration rights, cause a large number of
securities to be registered and sold in the public market, such sales could
have an adverse effect on the market price for our common stock. If we were to
include in a company-initiated registration shares held by such holders
pursuant to the exercise of their registration rights, such sales may have an
adverse effect on our ability to raise needed capital.
CERTAIN PROVISIONS IN COPPER MOUNTAIN'S CORPORATE CHARTER AND BYLAWS MAY
DISCOURAGE TAKE-OVER ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK
Provisions in Copper Mountain's certificate of incorporation, as amended and
restated upon the closing of this offering, may have the effect of delaying or
preventing a change of control or changes in its management. These provisions
include:
. the right of the board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors;
. the ability of the board of directors to alter our bylaws without
getting stockholder approval;
. the ability of the board of directors to issue, without stockholder
approval, up to 5,000,000 shares of preferred stock with terms set by
the board of directors; and
. the requirement that at least 10% of the outstanding shares are needed
to call a special meeting of stockholders.
Each of these provisions could discourage potential take-over attempts and
could adversely affect the market price of our common stock.
COPPER MOUNTAIN HAS NO SPECIFIC PLAN FOR ANY SIGNIFICANT PORTION OF PROCEEDS
AND ITS INVESTMENT OF THE NET PROCEEDS MAY NOT YIELD A FAVORABLE RETURN
Copper Mountain currently has no specific plans for any significant portion
of the net proceeds of the offering. As a consequence, our management will
have the discretion to allocate the net proceeds of this offering to uses the
stockholders may not deem desirable. We may not be able to invest these
proceeds to yield a significant return. Substantially all of the proceeds of
the offering will be invested in short-term, interest-bearing, investment
grade securities for an indefinite period of time.
18
<PAGE>
THE PURCHASERS IN THE OFFERING WILL IMMEDIATELY EXPERIENCE SUBSTANTIAL
DILUTION IN NET TANGIBLE BOOK VALUE
Because Copper Mountain's common stock has in the past been sold at prices
substantially less than the initial public offering price that you will pay,
you will suffer immediate dilution of $9.64 per share in pro forma net
tangible book value. The exercise of outstanding options and warrants may
result in further dilution. See "Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results
may differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risks Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the forward-
looking statements after the date of this prospectus to conform such
statements to actual results or to changes in our expectations.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by Copper Mountain from the sale of
4,000,000 shares of common stock in this offering are estimated to be
$47,610,000 ($54,864,000 if the underwriters exercise their over-allotment
option in full), at an assumed initial public offering price of $13.00 and
after deducting underwriting discounts and commissions and estimated offering
expenses of $750,000 payable by Copper Mountain.
We expect to use the net proceeds for general corporate purposes, including
working capital and other corporate purposes, such as expansion of sales and
marketing activities and our overall operations. The amounts we actually
expend for such working capital and other purposes may vary significantly and
will depend on a number of factors, including the amount of our future
revenues and the other factors described under "Risk Factors." Accordingly,
our management will retain broad discretion in the allocation of the net
proceeds of this offering. A portion of the net proceeds may also be used to
acquire or invest in complimentary businesses, technologies, product lines or
products. We have no current plans, agreements or commitments with respect to
any such acquisition, and we are not currently engaged in any negotiations
with respect to any such transaction. Pending such uses, the net proceeds of
this offering will be invested in short term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. In addition, our loan and security
agreement with a commercial bank prohibits the payment of dividends. Any
future determination to pay cash dividends will be at the discretion of the
board of directors and will be dependent upon our financial condition, results
of operations, capital requirements, general business condition and such other
factors as the board of directors may deem relevant.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the conversion upon the closing of the
offering of all outstanding shares of preferred stock into 15,334,824
shares of common stock; and
. on a pro forma basis as adjusted to reflect the sale of the common stock
offered hereby at an assumed initial public offering price of $13.00 per
share and the receipt of the net proceeds therefrom, after deducting the
estimated expenses, underwriting discounts and commissions payable by
Copper Mountain.
This information should be read in conjunction with our financial statements
and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Long-term debt, less current portion(1)........ $ 1,828 $ 1,828 $ 1,828
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, no par value,
10,602,464 shares authorized, 10,223,230
shares issued and outstanding actual; $.001
par value, 5,000,000 shares authorized, no
shares issued and outstanding pro forma and
pro forma as adjusted....................... 44,502 -- --
Common stock, $.001 par value,
29,397,536 shares authorized, 3,052,181
shares issued and outstanding actual,
18,387,005 shares issued and outstanding pro
forma; 100,000,000 shares authorized,
22,387,005 shares issued and outstanding pro
forma as adjusted(2)........................ 3 18 22
Notes receivable from stockholders........... (41) (41) (41)
Paid-in capital.............................. 1,501 45,988 93,594
Deferred compensation........................ (998) (998) (998)
Accumulated deficit.......................... (17,382) (17,382) (17,382)
-------- -------- --------
Total stockholders' equity................. 27,585 27,585 75,195
-------- -------- --------
Total capitalization..................... $ 29,413 $ 29,413 $ 77,023
======== ======== ========
</TABLE>
- --------
(1) See Notes 3 and 4 of Notes to Financial Statements.
(2) Excludes: (1) 6,585,372 shares of common stock reserved for issuance under
our 1996 Equity Incentive Plan and 360,000 shares of common stock reserved
for issuance under our 1999 Non-Employee Directors' Stock Option Plan, of
which 4,582,225 shares and 180,000 shares, respectively, were subject to
outstanding options at weighted average exercise prices of $2.22 per share
and $12.00 per share, respectively; and (2) 355,706 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $2.08 per share; and (3) 200,000 shares of common stock
issuable upon exercise of outstanding non-qualified stock options at a
weighted average exercise price of $12.00 per share. See "Description of
Capital Stock," "Management--1996 Equity Incentive Plan" and "Management--
1999 Non-Employee Directors' Stock Option Plan."
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately
$27.5 million or $1.50 per share of common stock. Pro forma net tangible book
value represents the amount of total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding, assuming
conversion of all outstanding shares of preferred stock into common stock.
Without taking into account any other changes in the net tangible book value
after March 31, 1999, other than to give effect to our sale of the 4,000,000
shares of common stock offered hereby at an assumed initial public offering
price of $13.00 per share, and our receipt of the estimated net proceeds
therefrom, our as adjusted pro forma net tangible book value as of March 31,
1999 would have been approximately $75.1 million or $3.36 per share. This
represents an immediate increase in net tangible book value of $1.86 per share
to existing stockholders and an immediate dilution of $9.64 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $13.00
Pro forma net tangible book value per share before this
offering....................................................... $1.50
Increase per share attributable to new investors................ 1.86
-----
As adjusted pro forma net tangible book value per share after this
offering......................................................... 3.36
------
Dilution per share to new investors............................... $ 9.64
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the differences between existing stockholders and the new investors with
respect to the number of shares of common stock purchased from Copper
Mountain, the total consideration paid and the average price per share paid,
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by Copper Mountain.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 18,387,005 82.1% $45,739,000 46.8% $ 2.49
New investors.................. 4,000,000 17.9 52,000,000 53.2 13.00
---------- ----- ----------- -----
Total........................ 22,387,005 100.0% $97,739,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
or warrants outstanding as of March 31, 1999. As of March 31, 1999, there were
options outstanding to purchase a total of 4,962,225 shares of common stock
with a weighted average exercise price of $2.97 per share and warrants
outstanding to purchase a total of 355,706 shares of common stock with a
weighted average exercise price of $2.08 per share. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors.
22
<PAGE>
SELECTED FINANCIAL DATA
In the table below, we provide you with our summary historical financial
data. We have prepared this information using our financial statements for the
period March 11, 1996 (inception) to December 31, 1996, the years ended
December 31, 1997 and 1998, and the three month periods ended March 31, 1998
and 1999. The financial statements for the period March 11, 1996 (inception)
to December 31, 1996 and the years ended December 31, 1997 and 1998 have been
audited by Ernst & Young LLP, independent auditors. The financial statements
for the three-month periods ended March 31, 1998 and 1999 have not been
audited.
When you read this summary historical financial data, it is important that
you read along with it the historical financial statements and related notes
included in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 11, 1996
(INCEPTION) THROUGH YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------------- ---------------- --------------------
1996 1997 1998 1998 1999
------------------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ -- $ 211 $21,821 $ 317 $ 13,217
Cost of revenue......... -- 1,717 12,400 217 6,384
------- ------- ------- --------- ---------
Gross profit (loss)..... -- (1,506) 9,421 100 6,833
Operating expenses:
Research and
development.......... 1,483 4,753 7,225 1,773 2,564
Sales and marketing... -- 1,510 5,363 724 2,581
General and
administrative....... 553 1,928 3,428 535 1,130
Amortization of
deferred stock
compensation......... -- -- 49 -- 70
------- ------- ------- --------- ---------
Total operating
expenses........... 2,036 8,191 16,065 3,032 6,345
------- ------- ------- --------- ---------
Income (Loss) from
operations............. (2,036) (9,697) (6,644) (2,932) 488
Interest income......... 47 268 406 113 202
Interest expense........ (3) (97) (213) (33) (55)
------- ------- ------- --------- ---------
Income (loss) before
income taxes........... (1,992) (9,526) (6,451) (2,852) 635
Provision for income
taxes.................. -- -- -- -- 48
------- ------- ------- --------- ---------
Net income (loss)....... $(1,992) $(9,526) $(6,451) $ (2,852) $ 587
======= ======= ======= ========= =========
Diluted net income
(loss) per share(1).... $(10.66) $(13.51) $ (4.84) $ (2.67) $ .03
======= ======= ======= ========= =========
Shares used to compute
diluted net income
(loss) per share(1).... 187 705 1,333 1,068 22,114
======= ======= ======= ========= =========
Pro forma diluted net
income (loss) per
share, basic and
diluted(2)............. $ (.39) $ .03
======= =========
Shares used in computing
pro forma diluted net
income (loss) per
share(2)............... 16,668 22,114
======= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ---------
1996 1997 1998 1999
------ ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $3,406 $ 9,517 $18,529 $18,507
Working capital.............................. 366 7,653 24,326 23,805
Total assets................................. 4,056 12,332 36,209 37,393
Long-term debt and capital lease obligation,
less current portion........................ 262 735 1,965 1,828
Total stockholders' equity................... 750 9,069 26,843 27,585
</TABLE>
- --------
(1) See Note 1 of Notes to the Financial Statements for a description of the
computation of diluted net income (loss) per share and the number of
shares used to compute diluted net income (loss) per share.
(2) Pro forma per share calculations reflect the conversion upon the closing
of the offering of all outstanding shares of preferred stock into
15,334,824 shares of common stock.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
OVERVIEW
From Copper Mountain's inception in March 1996 through December 1997, its
operating activities related primarily to developing, building and testing
prototype products; building its technical support infrastructure; commencing
the staffing of its marketing, sales and customer service organizations; and
establishing relationships with its customers. We commenced shipments of our
CopperEdge product family in September 1997, including our initial line cards
and our CopperRocket DSL customer premise equipment, or CPE. Since inception,
we have incurred significant losses and as of March 31, 1999, we had an
accumulated deficit of $17.4 million.
Our revenue is generated primarily from sales of our central office based
equipment: our CopperEdge 200 DSL access concentrators, or CE200, the related
wide area network cards, line cards and, to a lesser extent, from sales of our
DSL CPE. Additionally, we plan to sell network management software which
provides monitoring and management capabilities for the CE200, revenues from
which have not been material to date. For the year ended December 31, 1998,
sales to our two largest customers accounted for approximately 79% of our
revenue, of which sales to NorthPoint Communications, Inc. accounted for
approximately 61% of our revenue and sales to Rhythms NetConnections Inc.,
accounted for approximately 18% of our revenue. This concentration of revenue
has continued during the three months ended March 31, 1999, with NorthPoint
and Rhythms accounting for approximately 36% and 48% of our revenue,
respectively, during the quarter. While the level of sales to any specific
customer is anticipated to vary from period to period, we expect that we will
continue to have significant customer concentration for the foreseeable
future.
We market and sell our products directly to telecommunications service
providers and, to a lesser extent, through strategic original equipment
manufacturers and distributors. We generally recognize revenue from product
sales upon shipment if collection of the resulting receivable is probable and
product returns are reasonably estimated. No revenue is recognized on products
shipped on a trial basis. Estimated sales returns, based on historical
experience by product, are recorded at the time the product revenue is
recognized. To date, we have not generated any revenues from international
sources.
We expect our gross margin to be affected by many factors including
competitive pricing pressures, fluctuations in manufacturing volumes, costs of
components and sub-assemblies, the mix of products or system configurations
sold and the volume and timing of sales of follow-on line cards for CE200
systems shipped in prior periods. Additionally, our gross margin may fluctuate
due to changes in our mix of distribution channels. Currently we derive the
majority of our revenue from sales made directly to telecommunications service
providers. With the recent strategic original equipment manufacturer
agreements with Lucent Technologies Inc. and 3Com Corporation, we expect to
generate increasing original equipment manufacturer revenue in the future. A
significant increase in our original equipment manufacturer revenue, while not
certain, could further impact or reduce our gross margin.
To date, gross margin on sales of our CE200 and related wide area network
and line cards, typically sold as a combined system, has been higher than
gross margin on sales of DSL CPE. Furthermore, combined systems are not
generally fully populated (i.e., eight line cards per system which can support
up to 192 subscribers) when sold. When our customers add more subscribers than
are supported in the initial configuration, we expect that these customers
will purchase additional line cards from us to increase subscriber capacity.
The sale of additional line cards generates higher gross margin than the
initial sale of combined systems. Gross margin on our DSL CPE is expected to
decline in the future and we expect to face pricing competition which may
result in lower average selling prices for these products as other suppliers
of Copper Mountain compatible CPE enter the market. As the telecommunications
service providers that purchase our products make their services broadly
available to their customers, we expect our product mix to continue to shift
more heavily toward sales of line cards. We expect gross margin for our CE200
systems and follow-on line cards to improve due to lower component costs and
improved costs from our subcontractors as our revenue from these products
increases. However, we cannot be sure that we will achieve or maintain the
revenue volumes required for these increases in gross margin.
24
<PAGE>
We outsource most of our manufacturing and supply chain management
operations, and we conduct manufacturing engineering, quality assurance,
program management, documentation control and product repairs at our
manufacturing facility in San Diego, California. Accordingly, a significant
portion of our cost of revenue consists of payments to our current contract
manufacturer, SMS Technologies, Inc. We expect to transition to a new
independent manufacturer, Flextronics International Ltd., during the second
quarter of 1999. We selected Flextronics as our new manufacturing partner with
the goal of lowering per unit product costs as a result of manufacturing
economies of scale. However, we cannot assure you when or if such cost
reductions will occur. The failure to obtain such cost reductions could
materially adversely affect our gross margins and operating results.
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 and enhancement of our
network management software. We expense all research and development expenses
as incurred. We believe that continued investment in research and development
is critical to attaining our strategic product and cost-reduction objectives
and, as a result, we expect these expenses to increase in absolute dollars in
the future.
Sales and marketing expenses consist of salaries, commissions and related
expenses for personnel engaged in marketing, sales and field service support
functions, as well as trade shows and promotional expenses. We intend to
invest in marketing, selling and promotional programs, and therefore we expect
expenses related to these programs to continue to increase substantially in
absolute dollars in the future. In addition, we expect to substantially expand
our field sales operations and customer support organizations, which would
also result in an increase in sales and marketing expenses.
General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, human resources, and administrative
personnel, recruiting expenses, professional fees and other general corporate
expenses. We expect general and administrative expenses to increase in
absolute dollars as we add personnel and incur additional costs related to the
growth of our business and operation as a public company.
Despite growing revenues, we have not been profitable on a fiscal-year
basis, and we may continue to incur net losses. In addition to the customer
concentration we have experienced, we also have a lengthy sales cycle for our
products, and there is often a significant delay between the time we incur
expenses and the time we realize the related revenue. To the extent that
future revenues do not increase significantly in the same periods in which
operating expenses increase, our operating results would be adversely
affected. On March 31, 1999 we signed a lease for a new facility in San Diego,
California which expires in July 2005. As a result, we expect to combine our
two offices in San Diego in this new facility which we expect will provide us
room for future expansion.
25
<PAGE>
Quarterly Operating Results
The following tables present unaudited quarterly operating results, in
dollars and as a percentage of net revenue, for the five quarters ended March
31, 1999. We believe this information reflects all adjustments (consisting
only of normal recurring adjustments) that we consider necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenue............. $ 317 $ 1,281 $ 5,556 $14,667 $13,217
Cost of revenue......... 217 795 3,359 8,029 6,384
------- ------- ------- ------- -------
Gross profit (loss)..... 100 486 2,197 6,638 6,833
Operating expenses:
Research and
development........... 1,773 1,788 1,765 1,899 2,564
Sales and marketing.... 724 954 1,377 2,308 2,581
General and
administrative........ 535 721 971 1,201 1,130
Amortization of
deferred stock
compensation.......... -- -- 2 47 70
------- ------- ------- ------- -------
Total operating
expenses............. 3,032 3,463 4,115 5,455 6,345
------- ------- ------- ------- -------
Income (loss) from
operations............. (2,932) (2,977) (1,918) 1,183 488
Interest income......... 113 62 18 213 202
Interest expense........ (33) (62) (65) (53) (55)
------- ------- ------- ------- -------
Income (loss) before
income taxes........... (2,852) (2,977) (1,965) 1,343 635
Provision for income
taxes.................. -- -- -- -- 48
------- ------- ------- ------- -------
Net income (loss)....... $(2,852) $(2,977) $(1,965) $ 1,343 $ 587
======= ======= ======= ======= =======
<CAPTION>
As a Percentage of Net Revenue
---------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue............. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 68.5 62.1 60.5 54.7 48.3
------- ------- ------- ------- -------
Gross profit (loss)..... 31.5 37.9 39.5 45.3 51.7
Operating expenses:
Research and
development........... 559.3 139.6 31.7 12.9 19.5
Sales and marketing.... 228.4 74.4 24.8 15.8 19.5
General and
administrative........ 168.8 56.3 17.5 8.2 8.5
Amortization of
deferred stock
compensation.......... -- -- -- 0.3 0.5
------- ------- ------- ------- -------
Total operating
expenses............. 956.5 270.3 74.0 37.2 48.0
------- ------- ------- ------- -------
Income (loss) from
operations............. (925.0) (232.4) (34.5) 8.2 3.7
Interest income......... 35.7 4.8 0.3 1.5 1.5
Interest expense........ (10.4) (4.8) (1.2) (0.4) (0.4)
------- ------- ------- ------- -------
Income (loss) before
income taxes........... (899.7) (232.4) (35.4) 9.2 4.8
Provision for income
taxes.................. -- -- -- -- 0.4
------- ------- ------- ------- -------
Net income (loss) ...... (899.7)% (232.4)% (35.4)% 9.2% 4.4%
======= ======= ======= ======= =======
</TABLE>
26
<PAGE>
FIVE QUARTERS ENDED MARCH 31, 1999
Net Revenue. Our revenue increased in each of the three quarters ended
December 31, 1998. Revenue in the quarter ended March 31, 1999 was $1.2
million less than in the quarter ended December 31, 1998 primarily due to a
decline in our shipments to NorthPoint which were partially offset by an
increase in our shipments to Rhythms. The increase in revenue in each of the
prior three quarters reflected the commercial acceptance of our CE200, the
successive release of various DSL line cards for the CE200 systems, release of
our DSL CPE, investments made in our marketing and direct sales organization
and the increased commercial acceptance of DSL technology.
Gross Profit (Loss). Our gross profit increased in each of the four quarters
ended March 31, 1999. The increases were due to operating efficiencies
including favorable product mix, decreased unit costs and improved overhead
absorption. We include warranty reserves, which are accrued monthly under our
warranty policy, in our cost of revenue figures. These warranty reserves are
taken in connection with the repair and replacement of certain products.
Research and Development. Our research and development expenses increased in
each of the four quarters ended March 31, 1999 except for the quarter ended
September 30, 1998 where expenses decreased slightly because of temporary
reductions in expenses for prototype material. These expenses have generally
increased because of increases in our personnel costs, quality and technical
support expenses, depreciation expense and costs of outside services. Expenses
for prototype materials fluctuated, on a quarter to quarter basis, due to the
timing of commercial releases of our products, and we may also continue to
experience fluctuations in prototype material expenses in the future. Research
and development expenses as a percentage of revenue declined in each of the
three quarters ended December 31, 1998 due to increases in our net revenue in
each such quarter. Research and development expenses as a percentage of
revenue increased in the quarter ended March 31, 1999 compared to the prior
quarter due to a substantial increase in the expenses and a reduction in net
revenue.
Sales and Marketing. Our sales and marketing expenses increased in each of
the four quarters ended March 31, 1999 due to general increases in personnel
costs, sales commissions, public relations expenses, and other variable
marketing expenses. Additionally, we have continued to increase our co-
marketing efforts and expenditures with vendors supplying Copper Mountain
compatible DSL CPE, strategic original equipment manufacturers and customers.
We expect these expenses, including costs of trade show participation, costs
of sponsorship of industry forums and expenses for prototype products, to
continue to increase in the future. Sales and marketing expenses as a
percentage of revenue declined in each of the three quarters ended December
31, 1998 due to increases in our net revenue in each such quarter. Sales and
marketing expense as a percentage of revenue increased in the quarter ended
March 31, 1999 as compared to the prior quarter due to an increase in these
expenses and a reduction of net revenue.
General and Administrative. Our general and administrative costs increased
in each of the three quarters ended December 31, 1998 due to increased
personnel and facilities related expenses. The decrease in our general and
administrative expenses in the quarter ended March 31, 1999 was due to lower
expenses for bonuses and relocation of employees. General and administrative
expenses as a percentage of revenue declined in each of the three quarters
ended December 31, 1998 due to increases in our net revenue in each such
quarter. General and administrative expense as a percentage of revenue
increased in the quarter ended March 31, 1999 as compared to the prior quarter
due to a reduction of net revenue and an increase in these expenses.
Interest Income (Expense). Our quarterly interest income fluctuated over the
last four quarters due to changes in our cash balances related to the timing
of the sale of our series D preferred stock in October 1998. Our quarterly
interest expense has also fluctuated over the last four quarters, due
primarily to varying interest expenses associated with our line of credit.
Provision for Income Taxes. The Company had not recorded any provision for
income taxes except for the quarter ended March 31, 1998 which is based on an
estimate of the effective tax rate for the entire fiscal year 1999.
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Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. Because of these and other
factors, our quarterly revenues, expenses and results of operations could vary
significantly in the future, and period-to-period comparisons should not be
relied upon as indications of future performance. We may not be able to
increase our revenues in future periods or be able to sustain our existing
level of revenues or our rate of revenue growth on a quarterly or annual
basis. In addition, our annual or quarterly operating results may not meet the
expectations of securities analysts and investors. If this happens, the
trading price of our common stock could significantly decline.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain
statement of operations data for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- ---------------------
1997 1998 1998 1999
-------- ----- --------- ---------
<S> <C> <C> <C> <C>
Net revenue........................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue....................... 813.7 56.8 68.5 48.3
-------- ----- --------- --------
Gross profit (loss)................... (713.7) 43.2 31.5 51.7
Operating expenses:
Research and development............ 2,252.6 33.1 559.3 19.5
Sales and marketing................. 715.6 24.6 228.4 19.5
General and administrative.......... 913.8 15.7 168.8 8.5
Amortization of deferred stock
compensation....................... -- 0.2 -- 0.5
-------- ----- --------- --------
Total operating expenses.......... 3,882.0 73.6 956.5 48.0
-------- ----- --------- --------
Income (loss) from operations......... (4,595.7) (30.4) (925.0) 3.7
Interest income....................... 127.0 1.9 35.7 1.5
Interest expense...................... (46.0) (1.0) (10.4) (0.4)
-------- ----- --------- --------
Income (loss) before income taxes..... (4,514.7) (29.5) (899.7) 4.8
Provision for income taxes............ -- -- -- (0.4)
-------- ----- --------- --------
Net loss.............................. (4,514.7)% (29.5)% (899.7)% 4.4%
======== ===== ========= ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
Net Revenue. Net revenue increased from $317,000 for the three months ended
March 31, 1998 to $13.2 million in the three months ended March 31, 1999. This
increase was due to increased sales of our CE200 DSL access concentrators and
related DSL CPE. Sales to our two largest customers, NorthPoint and Rhythms,
increased from $279,000 and zero, respectively, for the three months ended
March 31, 1998 to $4.8 million and $6.4 million, respectively, for the three
months ended March 31, 1999. For each of the quarters ended March 31, 1998 and
1999, we generated no revenue from international sales.
Gross Profit. Our gross profit increased from $100,000 for the three months
ended March 31, 1998 to $6.8 million in the three months ended March 31, 1999.
This increase in gross profit occurred because the increase in net revenue for
the respective periods was greater than the increase in cost of revenue for
the respective periods. Gross margin percentages also increased on a year over
year basis, from 31.5% for the quarter ended March 31, 1998 to 51.7% for the
quarter ended March 31, 1999. This increase in gross profit was primarily due
to the increase in unit volumes, and to a lesser extent due to the decreased
unit costs associated with improved overhead absorption and a favorable
product mix.
Research and Development. Our research and development expenses increased
from $1.8 million for the quarter ended March 31, 1998 to $2.6 million for the
quarter ended March 31, 1999. This increase was due to an
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increase in personnel expenses related to more full-time engineering staff,
prototype materials expenses, quality and technical support costs,
depreciation and costs of other outside services. Research and development
expenses as a percentage of revenue decreased from 559.3% for the quarter
ended March 31, 1998 to 19.5% for the quarter ended March 31, 1999. This
decrease in research and development expense as a percentage of revenue was
primarily the result of an increase in our net revenue during the stated
periods.
Sales and Marketing. Our sales and marketing expenses increased from
$724,000 for the quarter ended March 31, 1998 to $2.6 million for the quarter
ended March 31, 1999. This increase was due to an increase in sales
commissions associated with higher net revenue, higher personnel expenses for
sales and marketing staff, trade show and other promotional expenses and
expenses for prototype products during the stated periods. Sales and marketing
expenses as a percentage of revenue decreased from 228.4% of revenue for the
quarter ended March 31, 1998 to 19.5% for the quarter ended March 31, 1999.
This decrease was due principally the result of an increase in our net
revenue.
General and Administrative. Our general and administrative expenses
increased from $535,000 for the quarter ended March 31, 1998 to $1.1 million
for the quarter ended March 31, 1999. This increase was due to increased
staffing for finance and accounting and management informations systems
personnel, an increase in legal expenses, and growth in recruiting and human
resources expenses. General and administrative expenses as a percentage of
revenue decreased from 168.8% for the quarter ended March 31, 1998 to 8.5% for
the quarter ended March 31, 1999. This decrease was primarily the result of an
increase in our net revenue.
Interest Income (Expense). Our interest income increased from $113,000 for
the quarter ended March 31, 1998 to $202,000 for the quarter ended March 31,
1999. This increase was due to higher average cash balances in the quarter
ended March 31, 1999 which are attributable to the our series D preferred
stock financing which was concluded in the quarter ended December 31, 1998.
Our interest expense increased from $33,000 for the quarter ended March 31,
1998 to $55,000 for the quarter ended March 31, 1999. This increase was due to
a greater utilization of equipment lease financing for the quarter ended March
31, 1999.
Provision for Income Taxes. We did not incur any provision for income taxes
for the quarter ended March 31, 1998, while our provision for the quarter
ended March 31, 1999 was $48,000. The provision for income taxes for the three
months ended March 31, 1999 is based on an estimate of the effective tax rate
for the entire 1999 fiscal year.
YEARS ENDED DECEMBER 31, 1997 AND 1998
Net Revenue. Our revenue increased from $211,000 in 1997 to $21.8 million in
1998. This increase was primarily due to the successful transition from
development of our products to commencement of commercial operations and the
general release of our products. In 1998, we successfully introduced our 24
port SDSL line card, our 24 port IDSL line card, our frame relay-based wide
area networks card and our IDSL CPE.
Gross Profit (Loss). Our gross profit increased from a loss of $1.5 million
in 1997 to $9.4 million in 1998. The increase in gross profit was primarily
the result of the absorption of overhead associated with greater unit volumes
and increased economies of scale. As a result, our gross margin in 1998
improved substantially over 1997.
Research and Development. Our research and development expenses increased
from $4.8 million in 1997 to $7.2 million in 1998. This increase in our
research and development expenses was related to increases in personnel and
personnel related costs, prototype material expenses, contract development
expense and as well as expenses related to the completion and commercial
release of our initial products. We intend to increase expenditures in
research and development programs in future periods for the purpose of
enhancing current products, reducing the cost of current products and
developing new products.
Sales and Marketing. Our sales and marketing expenses increased from $1.5
million in 1997 to $5.4 million in 1998. This increase was primarily a result
of an increase in personnel and personnel-related costs,
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including increases in staffing for marketing program management, product
marketing, account management, customer support and direct sales as well as a
substantial increase in sales commissions. To a lesser extent, the increase
resulted from higher trade show and marketing communications expenses.
General and Administrative. Our general and administrative expenses
increased from $1.9 million in 1997 to $3.4 million in 1998. This increase is
a result of an increase in personnel costs for executive officers and support
staff, legal, accounting and consulting fees. The increase in our general and
administrative staffing, was required to support the growth in our operations,
commercial activities and customer base.
Interest Income (Expense). Net interest income increased by $22,000, from
$171,000 in 1997 to $193,000 in 1998. This increase reflects an increase in
interest income generated from higher average cash balances in 1998. The
increases in interest income were partially offset by lesser increases, from
1997 to 1998, in interest expense associated with our equipment loans and our
line of credit.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
sale of preferred equity securities and more recently through the use of loans
for the purchase of capital equipment. We have raised an aggregate of $44.5
million, net of offering expenses, through the sale of preferred stock
offerings.
At March 31, 1999, we had cash and cash equivalents of $8.5 million and
short-term investments of $10.0 million. We have a $4.0 million line of credit
agreement with a bank which allows us to borrow an amount equal to 80% of
eligible accounts receivable plus the lesser of 25% of our eligible inventory
or $500,000. There were no amounts outstanding under the line of credit at
March 31, 1999. In addition, we have secured equipment financing with three
lenders which terms allow us to borrow $3.7 million. As of March 31, 1999, we
had $2.7 million remained outstanding under these arrangements. See Notes 3
and 4 of Notes to Financial Statements.
Cash provided from operations for the three months ended March 31, 1999 was
$1.4 million. Cash provided from operations was primarily related to income
and depreciation. Cash used in operating activities for the periods ended
December 31, 1996, 1997 and 1998 was $1.5 million, $8.0 million and $14.3
million, respectively. The relative increase in cash used for operating
activities for the year ended December 31, 1997 compared to the prior period
was primarily due to an increase in net loss of $7.5 million which was
partially offset by an increase in accounts payable and other accruals. The
relative increase in cash used for operating activities for the year ended
December 31, 1998 compared to the prior year was primarily due to increases in
inventory, accounts receivable and other assets, as a result of the
introduction of and growth in demand for our products. This increase was
partially offset by increases in accounts payable and other accruals, as well
as a $3.1 million decrease in the net loss.
Cash used in investing activities for the quarter ended March 31, 1999 was
$644,000. Cash used in investing activities for the periods ended December 31,
1996, 1997 and 1998 was $682,000, $1.5 million and $12.1 million,
respectively. The relative increase in cash used for investing activities for
the year ended December 31, 1997 compared to the prior period was primarily
due to an $833,000 increase in the purchase of computers and other equipment.
The relative increase in cash used for investing activities for the year ended
December 31, 1998 compared to the prior year was primarily due to the purchase
of $10.9 million in short term investments, which was partially offset by a
decrease in the amount of equipment purchased.
Cash provided from financing for the three months ended March 31, 1999 was
$61,000. Cash provided by financing activities for the periods ended December
31, 1996, 1997 and 1998 was $5.6 million, $15.6 million and $24.5 million,
respectively. The relative increase in cash provided by investing activities
for the year ended December 31, 1997 compared to the prior period was
primarily due to $15.2 million in net proceeds from our issuance of series B
and series C preferred stock. The relative increase in cash provided from
financing activities for the year ended December 31, 1998 compared to the
prior year was primarily due to $24.1 million in net proceeds from our
issuance of series D preferred stock.
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We have no material commitments other than obligations under our credit
facilities and operating and capital leases. See Notes 3, 4 and 6 of Notes to
Financial Statements. Our future capital requirements will depend upon many
factors, including the timing of research and product development efforts and
expansion of our marketing efforts. We expect to continue to expend
significant amounts on property and equipment related to the expansion of
facility infrastructure, computer equipment and for research and development
laboratory and test equipment to support on-going research and development
operations.
In future periods, we generally anticipate significant increases in working
capital on a period-to-period basis primarily as a result of planned increased
product revenue. In conjunction with the expected increase in revenue, we
expect higher relative levels of inventory and accounts receivable. While we
also expect an increase in accounts payable and other liabilities, we do not
expect that they will offset the increases in inventory and accounts
receivable.
We believe that our cash and cash equivalents balances, short-term
investments and funds available under our existing line of credit will be
sufficient to satisfy our cash requirements for at least the next 12 months.
Our management intends to invest our cash in excess of current operating
requirements in short-term, interest-bearing, investment-grade securities.
INTEREST RATE RISK
We are exposed to changes in interest rates primarily from our long-term
debt arrangements and, secondarily, our investments in certain held-to-
maturity securities. Under our current policies, we do not use interest rate
derivative instruments to manage exposure to interest rate changes. A
hypothetical 100 basis point adverse move in interest rates along the entire
interest rate yield curve would not materially effect the fair value of
interest sensitive financial instruments at December 31, 1998.
IMPACT OF YEAR 2000
Many computers, software, and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and severity as
the year 2000 approaches, and are commonly referred to as the "Year 2000
Problem."
General Readiness Assessment. The Year 2000 Problem affects the computers,
software and other equipment that we use, operate or maintain for our
operations. As a result, we have formalized our Year 2000 compliance plan (the
"Plan"), to be implemented by a team of employees, led by our internal
information technology staff, responsible for monitoring the assessment and
remediation status of our Year 2000 projects and reporting such status to the
Audit Committee of our Board of Directors. This project team is currently
assessing the potential effect and costs of remediating the Year 2000 Problem
for our internal systems. To date, we have not obtained verification or
validation from any independent third parties of our processes to assess and
correct any of our Year 2000 Problems or the costs associated with these
activities.
Assessment of Copper Mountain's Software and Products. Beginning in 1998, we
began assessing the ability of our software and products to operate properly
in the year 2000. We believe that our current products are Year 2000
compliant. Additionally, as we design and develop new products, we subject
them to testing for Year 2000 compliance and the ability to distinguish
between various date formats. We expect to continue to test our software and
products for Year 2000 compliance and compliance when used with other standard
operating systems or computer platforms, including those developed by
companies such as Microsoft Corporation and Sun MicroSystems, Inc.
Assessment of Internal Infrastructure. We believe that we have identified
most of the major computers, software application, and related equipment used
in connection with our internal operations that will need to be evaluated to
determine if they must be modified, upgraded or replaced to minimize the
possibility of a material disruption to our business. We are currently
assessing the potential impact of the Year 2000 problem on such
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applications and equipment. Upon completion of such evaluation, which we
expect to occur by the end of June 1999, we expect to commence the process of
modifying, upgrading, and replacing major systems that have been assessed as
adversely affected. We expect to complete this process before the occurrence
of any material disruption of our business.
Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices
may be affected by the Year 2000 Problem. We are currently assessing the
potential effect and costs of remediating the Year 2000 Problem on our office
equipment and our facilities in San Diego, California and Palo Alto,
California.
Costs of Remediation. We estimate the total cost to us of completing any
required modifications, upgrades or replacements of our internal systems will
not exceed $100,000, most of which we expect to incur during calendar 1999.
This estimate is being monitored, and we will revise it as additional
information becomes available.
Based on the activities described above, we do not believe that the Year
2000 Problem will have a material adverse effect on our business or operating
results. In addition, we have not deferred any material information technology
projects, nor equipment purchases, as a result of our Year 2000 Problem
activities.
Suppliers. As part of our Year 2000 plan, we intend to contact third-party
suppliers of components and our key subcontractors used in the delivery of our
products to identify and, to the extent possible, resolve issues involving the
Year 2000 Problem. However, we have limited or no control over the actions of
these third-party suppliers and subcontractors. Thus, while we expect that we
will be able to resolve any significant Year 2000 Problems with these third
parties, there can be no assurance that these suppliers will resolve any or
all Year 2000 Problems before the occurrence of a material disruption to the
operation of our business. Any failure of these third parties to timely
resolve Year 2000 Problems with their systems could have a material adverse
effect on our business, financial condition and results of operations.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business operations. However, we believe that it is not possible to determine
with complete certainty that all Year 2000 Problems affecting us have been
identified or corrected. The number of devices and systems that could be
affected and the interactions among these devices and systems are too numerous
to address. In addition, no one can accurately predict which Year 2000
Problem-related failures will occur or the severity, timing, duration, or
financial consequences of these potential failures. As a result, we believe
that the following consequences are possible:
. a significant number of operational inconveniences and inefficiencies
for us, our contract manufacturers and our customers that will divert
management's time and attention and financial and human resources from
ordinary business activities;
. possible business disputes and claims, including claims under product
warranty, due to Year 2000 Problems experienced by our customers and
incorrectly attributed to our products or performance, which we believe
will be resolved in the ordinary course of business; and
. a few serious business disputes alleging that we failed to comply with
the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.
Contingency Plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct Year 2000 Problems
affecting our internal systems are not effective. We expect to complete our
contingency plans by the end of June 1999. 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 or other
redundant systems;
. increased work hours for our personnel or the hiring of additional
information technology staff; and
. the use of contract personnel to correct, on an accelerated basis, any
Year 2000 Problems that arise or to provide interim alternate solutions
for information system deficiencies.
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Our implementation of any of these contingency plans could have a material
adverse effect on our business, financial condition and results of operations.
Disclaimer. The discussion of our efforts and expectations relating to Year
2000 compliance are forward-looking statements. Our ability to achieve Year
2000 compliance, and the level of incremental costs associated therewith,
could be adversely affected by, among other things, the availability and cost
of contract personnel and external resources, third-party suppliers' ability
to modify proprietary software, and unanticipated problems not identified in
the ongoing compliance review.
33
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BUSINESS
OVERVIEW
Copper Mountain Networks supplies Digital Subscriber Line (DSL)
communications products to telecommunications service providers allowing them
to effectively utilize the existing copper infrastructure to deliver high-
speed data access services to their customers. Copper Mountain Networks
designs, manufactures, sells and supports these products and believes the
demand for higher speed access solutions which are enabled by such products is
significant and will continue to grow as the Internet and corporate networking
applications become increasing pervasive.
INDUSTRY BACKGROUND
Over the past few years, the volume of data traffic across public
communications networks has increased significantly due to the use of the
Internet as a communications and transaction medium. According to
International Data Corporation, the number of Internet users worldwide reached
approximately 69 million in 1997 and is forecasted to grow to approximately
320 million by 2002. International Data Corporation also estimates that the
value of goods and services sold worldwide through the Internet will increase
from $12 billion in 1997 to over $400 billion in 2002. In addition to
electronic commerce, business usage of web-based communications, remote access
for teleworkers, applications hosting and other services have generated
enormous traffic for the existing communications infrastructure. To meet this
demand, service providers have installed high-bandwidth fiber optic
transmission equipment, high-speed switches and core routers in backbone and
interoffice networks.
In contrast to these core networks, which support digital transmission
speeds exceeding 9 Gbps, most access networks, or connections between
subscribers and central offices, often called the "last mile," are made
through the copper infrastructure originally built to transmit analog voice
signals. In fact, over 140 million businesses and homes in the United States
are served by this copper infrastructure, and the worldwide installed base of
copper lines exceeds 700 million. We believe most business and residential
users have found narrowband access, using dial-up analog modems with
connection speeds that do not exceed 56.6 Kbps, inadequate to meet their high-
bandwidth requirements.
Until recently, local telephone companies such as the Regional Bell
Operating Companies and GTE Corporation, collectively the incumbent local
exchange carriers, or ILECs, were the exclusive operators of this last-mile,
copper wire-based infrastructure and primarily offered ISDN and T-1 services
to address the need for high-speed connectivity. These service offerings
enable symmetrical data transmission at rates up to 128 Kbps and 1.5 Mbps,
respectively. ISDN, which requires the installation of special equipment at
each end of the copper access line, has achieved limited success due to
complexity and high cost of deployment. T-1 services provide 12 times the
bandwidth of ISDN, but require expensive infrastructure modification and
investment. While there are various transmission media alternatives for
providing broadband connectivity, such as coaxial cable and wireless, we
believe none have the cost and coverage advantages of using the existing
copper infrastructure.
Digital Subscriber Line technology was developed to address the last-mile
bottleneck. While there are several variants of DSL implementations, they all
share several important advantages over traditional high-speed services
delivered over the copper infrastructure as well as cable and wireless
broadband alternatives.
. Guaranteed, Dedicated Bandwidth. DSL is a point-to-point technology that
allows for guaranteed levels of bandwidth. Because DSL connections are
dedicated to each user, DSL does not suffer from service degradation as
other subscribers are added to the system, and, in addition, allows a
higher level of security. Alternative broadcast solutions, such as cable
and wireless, are shared systems which suffer service degradation and
increase the risk of security breaches as additional users share
bandwidth.
. Low Cost. Because DSL uses the existing copper-based last-mile
connection, it can be significantly less expensive to deploy to
businesses and homes than other broadband solutions. In addition, recent
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advances in semiconductor technology and industry standardization have
made the widespread deployment of DSL increasingly economical to both
service providers and subscribers.
. Universal Coverage. Since virtually all businesses and homes in the
United States already have installed copper wire connections, DSL
technologies can be made immediately available to a large percentage of
potential customers. In addition, the leading variants of DSL can enable
data transmission up to and beyond 20,000 feet without requiring
repeaters.
Despite the advantages of deploying DSL over existing copper infrastructure,
ILECs historically have largely sought to protect their existing T-1 and ISDN
businesses. In the mid-1990's, however, the prospect of greater competition
from cable operators deploying cable modems to deliver high-bandwidth services
prompted the ILECs to accelerate their investments in those DSL technologies
that appeared most appropriate for residential subscribers. The ILECs promoted
a DSL variant called ADSL that permits one-way high-bandwidth data transfer.
Most DSL vendors focused on ADSL solutions for the residential market because
consumers typically download large quantities of data-intensive content from
the Internet, while the amount of data sent upstream by consumers is typically
limited. However, deployments of ADSL have been limited because of its cost
and a variety of technical issues.
More recently, DSL transmission technology has been embraced by a new set of
telecommunications service providers that emerged as a result of the
Telecommunications Reform Act of 1996. The Telecom Act redefined the
competitive landscape in the telecommunications industry by creating a legal
framework for new service providers to provide competing local
telecommunications services. The Telecom Act also eliminated a substantial
barrier to entry for these Competitive Local Exchange Carriers, or CLECs, by
allowing them to use the existing copper-based network infrastructure built by
the ILECs.
The realization of all of the objectives of the Telecom Act, however, is
still subject to certain uncertainties, including:
. legal proceedings that will further define rights and duties under the
Telecom Act;
. actions or inactions by telephone companies or other carriers that
affect the pace at which changes contemplated by the Telecom Act will
occur;
. resolution of questions concerning which parties will finance such
changes; and
. other regulatory, economic and political factors.
Since the implementation of the Telecom Act, some of the new CLECs have
focused on providing competitively priced, high-bandwidth connectivity for
business customers who typically had used T-1 lines from the ILECs to meet
their bandwidth needs or who used dial-up modems but are currently seeking
cost-effective broadband services. These CLECs are focused on providing DSL
solutions that meet the current needs of business subscribers and provide
flexibility for future services.
While many DSL equipment vendors focus on the needs of the residential
market, few focus on the unique needs of business subscribers. In particular,
CLECs are seeking equipment solutions that enable the deployment of cost-
effective, full-coverage, high-bandwidth data access services. Moreover, as
the demands of high-bandwidth users and technology mature, other
telecommunications service providers are also looking for vendors that can
effectively incorporate DSL into communications equipment solutions. Finally,
telecommunications service providers generally want their equipment providers
to support a variety of end-user devices. As the DSL market naturally evolves
from business to residential users, telecommunications service providers will
require equipment that enables them to provide high-speed services across
their subscriber base.
THE COPPER MOUNTAIN SOLUTION
We provide broadband access solutions based on DSL technology to
telecommunication service providers. Our solutions enable CLECs, ILECs and
other telecommunications service providers to provide high-speed,
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cost-effective, last-mile connectivity over the existing copper wire telephone
infrastructure to the business, multiple tenant unit and residential markets.
Our DSL solutions provide the following key benefits:
Support for Business Applications. Our products enable CLECs, ILECs and
other telecommunications service providers to deliver business services such
as high-speed Internet access, corporate networking, teleworking and packet-
based voice solutions. We focused our initial service offerings on symmetrical
data transmission addressing the bi-directional bandwidth needs of business
users because relevant applications, such as e-mail, file transfer, web
hosting and corporate intranets, require subscribers to send as well as
receive data. Our CopperEdge DSL Access Concentrator provides multiple
networking models and advanced packet processing to meet the evolving needs of
business subscribers by enabling simultaneous support for Internet access,
Frame Relay, virtual private network and voice-over-packet services.
Full Coverage DSL. Our products allow our service provider customers the
flexibility to reach their targeted subscribers. Our SDSL service offering
delivers symmetrical bandwidth between 128 Kbps and 1.5 Mbps to subscribers up
to and beyond 20,000 feet from the central office. We also offer IDSL, which
is the only variant of DSL that can reach the approximately 17% of U.S.
subscribers connected through existing remote digital loop carriers without
requiring an upgrade of these remote systems. In addition to symmetrical
bandwidth and long reach, our SDSL and IDSL products are based on a
communications protocol that is already widely deployed throughout the access
network ensuring compatibility with other network elements. We intend to
develop products, including new DSL implementations, to enable our customers
to deliver new services to subscribers.
Multi-Vendor CPE Interoperability. We have partnered with third-party DSL
customer premise equipment manufacturers through the CopperCompatible program
to develop a broad line of modems, routers and other innovative customer
premise equipment, or CPE, which are compatible with our CopperEdge DSL access
concentrators. This program delivers more innovation in CPE products to
address subscriber requirements than any single vendor could on its own, and
gives telecommunications service providers multiple sources of compatible CPE.
We provide CPE manufacturers with interoperability specifications and
intellectual property to assist their development, and we run a test
laboratory to certify the CopperCompatible status of their products. CPE
vendors which currently have or are developing CopperCompatible CPE include
3Com Corporation, ADC Kentrox, a subsidiary of ADC Telecommunications, Inc.,
Netopia, Inc., Cayman Systems, Inc., Escalate Networks, Inc., FlowPoint
Corporation and Ramp Networks, Inc., among others.
Trouble-Free Operations. Our products are designed to reduce installation
time and support requirements for our telecommunications service provider
customers. Our CopperEdge 200 DSL access concentrator is designed to meet the
stringent requirements of the telephone company central office environment.
Each concentrator supports full redundancy and is designed for easy support
and service. In addition, our products and management software are designed
for and proven in large-scale national deployments. Our initial service
implementations, SDSL and IDSL, are based on a mature protocol that is
spectrally compatible to existing ISDN and T-1 network elements which
minimizes potential interference within the central offices of host ILECs.
Finally, we have reduced CPE deployment complexity with a zero-installation
"plug-and-play" CPE procedure that eliminates end-user configuration, removes
the need to send a technician to the customer premise and provides centralized
management and control.
STRATEGY
Our objective is to be the leading supplier of DSL solutions to
telecommunications service providers. The key elements of our strategy
include:
Extend Position in the Business DSL Market. Since our inception, we have
focused on providing cost-effective solutions for telecommunications service
providers targeting business subscribers. Business users increasingly require
high-speed data services to conduct business, and non-DSL alternatives are
often expensive, complex and lack sufficient bi-directional bandwidth. We are
targeting telecommunications service providers
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focused on the business market, including well-financed CLECs and other
telecommunications service providers. To date, our major customers include
NorthPoint Communications, Inc., Rhythms NetConnections Inc., ICG
Communications, Inc. and UUNET, a subsidiary of MCI WorldCom, Inc. We will
continue to focus on supporting the requirements of our existing customers as
well as providing solutions to existing and new carriers that are focused on
business users.
Enhance Service Offerings. We intend to continue to add functionality and
services to increase the usefulness and performance of our products. We
believe that our core product offerings can be enhanced to offer better value
to service providers and business subscribers. Our products are designed to
support future services and technology. Currently, we are developing
additional quality of service capabilities to enable virtual private
networking and voice-over-packet services to meet evolving subscriber
requirements. In addition, we are developing new offerings with DSL
technologies such as HDSL-2 and UADSL, and plan to enhance our offerings as
needed by subscribers and service providers.
Leverage OEM and Development Relationships. We have formed original
equipment manufacturer relationships with Lucent Technologies Inc. and 3Com.
We expect these relationships to allow us to gain greater distribution and
market presence. Lucent has agreed to resell our product line as a co-branded
sale. Additionally, it is our hope that we will work together to integrate our
products with Lucent's complementary networking products. Under the original
equipment manufacturer and development agreement with 3Com, they will offer
our CPE products through their distribution channels. We intend to leverage
3Com's broad distribution network in the commercial and retail markets. We
believe that our original equipment manufacturer and development relationships
will enhance our market position, and we expect to continue to leverage these
relationships and seek additional collaborations.
Target Multi-Tenant Building Deployments Outside the Central Office. In
addition to deploying DSL equipment in ILEC central offices for our CLEC and
other telecommunications service provider customers, we have begun deploying
DSL concentrators in commercial office buildings and apartment and condominium
buildings. We believe that this market, known as the multi-tenant unit market,
will significantly expand the deployment of DSL technology. While we believe
that our current product offerings are well suited to this market, we are
developing new products that will allow carriers to reduce the cost of high-
speed data access to tenants in these types of properties. In addition, we are
working with service providers who are targeting multi-tenant property
managers to focus on this emerging market.
Drive Interoperability. We actively support the interoperability of DSL
technology to facilitate faster and broader market acceptance. We have formed
the CopperCompatible program through which we offer licenses of our DSL CPE
technology to a number of third-party manufacturers of CPE equipment. This
allows service providers easier deployment, as they can use a number of
different CPE products with our central office or multi-tenant equipment, and
gives subscribers the ability to choose their own premise equipment.
Additionally, interoperability enables our technology to be combined with
other networking products such as routers, access and aggregation devices.
Address Emerging Opportunities in Residential Market. We believe that with
the continued deployment of alternative data-based networks,
telecommunications service providers will seek to offer DSL-based services
beyond the core market for business subscribers. Specifically,
telecommunications service providers will target residential subscribers
seeking high-speed access to public communications networks. As this trend
toward broad deployment of DSL services evolves, we anticipate significant
opportunities for us to introduce new offerings that leverage both our
technology and our relationships with service providers. For example, we are
evaluating voice-over-packet and residential DSL alternatives.
PRODUCTS
We provide end-to-end DSL solutions that enable service providers to deploy
high-bandwidth services over traditional copper wire telephone infrastructure.
Our product family is designed to offer telecommunication
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service providers flexibility in network implementation as well as a wide
range of subscriber equipment offerings. Telecommunications service providers
using our products can allow subscribers access to a full range of DSL
services at rates up to 25 times faster than using current 56.6 Kbps analog
modems. Our products are scalable to enable carriers to serve a small number
of end users in a particular region on a cost-effective basis as well as an
entire metropolitan area with a high-performance manageable solution. Our
products are designed to support a variety of service provider network
architectures, such as ATM and Frame Relay. Our solution consists of the
following:
. CopperEdge DSL access concentrators: Telecommunications service
providers install CopperEdge products in ILEC central offices and multi-
tenant buildings to deliver services to potential end users.
. CopperRocket DSL CPE: Subscriber connection to the service provider
network is provided at the subscriber's premises with CopperRocket DSL
modems. In addition, we license our DSL CPE technology to third-party
vendors to create additional CPE that are compatible with our CopperEdge
DSL access concentrators.
. CopperView Network Management Tools: Our network management tools enable
telecommunications service providers to manage their Copper Mountain DSL
equipment as well as configure and provision subscriber services.
Substantially all of our revenues are derived from the sale of CopperEdge
DSL access concentrators and related wide area network cards and line cards.
[DESCRIPTION OF DIAGRAM
A diagram containing pictures of the Company's CopperEdge, CopperRocket and
CopperView products depicting the locations and usage of these products within
the telecommunications infrastructure.]
COPPEREDGE DSL ACCESS CONCENTRATORS
Our DSL access concentrator, the CopperEdge 200, or CE200, is a carrier-
class platform designed specifically for central office environments, and
meets or exceeds industry standards, and applicable regulatory requirements.
The CE200 can be deployed in ILEC central offices and multi-tenant buildings
and consists of a modular chassis containing power supplies, control system,
wide area network interface modules and DSL line cards. All line cards,
indicators and switches are accessible from the front of the system,
consistent with current telco industry practices. The following are
characteristics of the CE200:
. contains redundant power supplies that can be replaced without
interrupting power to the chassis to ensure high-availability for
subscriber services;
. supports a range of interfaces for wide area network connections;
. supports multiple advanced networking models implemented in the control
system, which can be used concurrently including Frame Relay
Multiplexing, Frame Relay to ATM interworking, Layer 3 IP multiplexing
and Layer 2 Ethernet frame multiplexing.
. up to 8 line cards containing DSL interfaces which connect to the
subscriber DSL equipment.
SDSL Line Cards. Our SDSL line cards use technology that is already
widely deployed in access networks, enhancing the ability of
telecommunications service providers to deploy compatible solutions. Each
SDSL line card provides 24 ports, each of which can provide service to a
subscriber network at speeds between 160 Kbps and 1.544 Mbps over distances
between 22,000 feet and 9,100 feet, respectively.
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IDSL Line Cards. For subscribers who can only be served over ISDN capable
copper lines we provide 24 port IDSL line cards. These line cards deliver
service at speeds between 64 Kbps and 144 Kbps up to a distance of 18,000
feet from the central office. The use of repeaters will increase the reach
to over 30,000 feet.
COPPERROCKET CUSTOMER PREMISE EQUIPMENT
The CopperRocket family of CPE products consists of SDSL and IDSL modems.
These CPE products can operate at multiple transmission speeds and distances
to satisfy the price and performance needs of each subscriber. The
CopperRocket is a "plug-and-play" device. Unlike ISDN modems, there are no
hardware switches, configuration parameters or end-user software to configure.
Copper Mountain's ZIP! feature enables the CopperRocket to identify itself to
a CopperEdge DSL access concentrator and automatically download all
configuration parameters to immediately begin full operation.
The CopperRocket operates over ordinary copper telephone wire and provides
dedicated, full-duplex throughput at multiple speeds to support network
activities like file transfers, intranet access and Internet Web browsing. The
CopperRocket's multi-speed DSL feature enables service providers to remotely
adjust line speed based upon subscriber requirements at no additional
investment by the service provider. In addition to offering our own CPE
products, we work with third-party providers to offer a broad range of
interoperable customer premise equipment through our CopperCompatible program.
COPPERVIEW NETWORK MANAGEMENT TOOLS
Our CopperView suite of network management tools are used to configure and
manage our DSL solutions. This set of tools provides user interfaces necessary
to manage large, geographically separated DSL access concentrator networks,
individual concentrators and simple on-site or remote management. Because the
CopperEdge DSL access concentrator also manages CopperRocket modems by proxy,
CopperView allows carriers to manage their DSL networks end-to-end from one
site.
. The CopperView DSL Access Management System provides global management
of large networks of CopperEdge DSL access concentrators with a simple,
intuitive user interface.
. The CopperView Element Management System provides a graphical user
interface which allows precise configuration and management of a single
CopperEdge DSL access concentrator and its CPE.
. The CopperCraft text based interface provides a simple interface for on-
site technicians and for remote access to a DSL access concentrator.
PRODUCT DEPLOYMENT
We sell our products for deployment into both central offices and multi-
tenant buildings. A particular telecommunications service provider may deploy
in either or both of these environments in order to reach its target market in
the most effective manner.
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Central Office-Based DSL Service Deployment. ILECs or CLECs may install our
CopperEdge DSL access concentrator product in a central office in order to
offer service to any telephone service subscriber served by that wiring center
(within the distance limitations of DSL service). The diagram below shows how
a CLEC can install a CopperEdge DSL access concentrator in a collocation cage
within the ILEC central office. Typically, the CLEC leases from the ILEC a
high-bandwidth trunk, usually a 45 Mbps DS-3 circuit, in order to connect the
DSL access concentrator to the CLEC's regional switching office. The CLEC then
requests from the ILEC an individual copper loop to a subscriber, for which
the CLEC pays a monthly fee. The copper loop is provisioned through the ILEC's
distribution facilities out to the subscriber premise. The CLEC then
provisions the wiring inside the subscriber premise and installs the CPE.
[DESCRIPTION OF DIAGRAM
A diagram depicting the telecommunications infrastructure, including a high
capacity trunk line that links the collocation cage in a ILEC's central office
to a CLEC's metropolitan office, and how these offices are linked to different
CPE through either copper wire telephone lines alone or through T-1 lines that
lead to copper wire telephone lines.]
CLECs or ILECs deploying DSL from central offices may elect do so in
selected central offices where the number of potential subscribers is highest,
or they may choose to cover a region by installing in all central offices in
that region. A CLEC may choose a regional deployment strategy or a nationwide
deployment strategy.
Multi-Tenant Building DSL Service Deployment. A telecommunications service
provider can deploy our CopperEdge DSL Access Concentrators into multi-tenant
buildings in order to provide Internet access and other data and voice
services to the tenants of that building. For a CLEC or an independent service
provider, multi-tenant building deployment can provide access to DSL
subscribers in a highly selective manner without the high costs of central
office collocation. Inside the building, the service provider can utilize the
existing telephone wiring to deliver high-bandwidth connections to each tenant
with no building re-wiring expense. A high-bandwidth leased circuit or
wireless transmitter on the roof connects the building to the service
provider's regional switching office or point of presence. Tenants in the
building can use a single, high-bandwidth connection from the building to the
service provider's switching office, providing good application performance at
a lower cost than the same bandwidth dedicated to a single subscriber.
CUSTOMERS
In 1998, sales to our top two customers represented approximately 79% of our
revenue. Of these customers, NorthPoint Communications accounted for
approximately 61% of our revenue and Rhythms NetConnections accounted for
approximately 18% of our revenue. This concentration of revenue has continued
during the three months ended March 31, 1999, with NorthPoint and Rhythms
NetConnections accounting for approximately 36% and 48%, of our revenue,
respectively, during the quarter. The loss of a significant customer could
have a material adverse effect on our business.
CASE STUDIES
NorthPoint Communications. NorthPoint Communications is a CLEC that delivers
its NorthPoint DSLSM services to small and mid-sized businesses via wholesale
agreements with service providers nationwide. NorthPoint is deploying services
in major metropolitan areas nationwide. Customers can order NorthPoint DSL
services from network service providers in the San Francisco Bay Area, the
greater Los Angeles area, Boston, New York, Chicago, San Diego, Washington
D.C., Dallas, Detroit, Houston, Cleveland and Austin. NorthPoint plans to
expand to 16 additional metropolitan markets by the end of 1999 and to
continue to extend coverage within existing metropolitan service areas. Copper
Mountain products are an integral part of NorthPoint's deployment strategy.
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Rhythms NetConnections. Rhythms NetConnections is a provider of high-speed
local access networking solutions using DSL technology. Rhythms provides its
customers a high-speed "always on" local connection to the Internet and to
private local and wide area networks. Rhythms also recognized Copper
Mountain's products would enable it to broaden its service platform to include
both IDSL and SDSL services. Rhythms expects that its DSL-based solutions will
be available in 50 major metropolitan markets by the end of the year 2000.
Services are currently available in San Diego, San Francisco, San Jose,
Oakland/East Bay, Chicago, Los Angeles, Orange County, Boston, Sacramento and
New York.
MCI Worldcom/UUNET. When UUNET, an MCI WorldCom Company and a global leader
in Internet communications solutions, wanted to deploy a new SDSL service, it
selected Copper Mountain's end-to-end DSL solution. Now, Copper Mountain is in
more than 50 of UUNET's central offices nationwide, helping to bring their 768
Kbps dedicated DSL service to small and medium-sized businesses in the United
States. UUNET offers a comprehensive range of services to businesses, online
service providers and telecommunications firms. UUNET's network is comprised
of more than 1,000 points of presence throughout the United States and in
Canada, Europe and the Asia-Pacific region, as well as connections to Internet
service providers around the world.
STRATEGIC RELATIONSHIPS AND INTEROPERABILITY PARTNERSHIPS
We have established several strategic partnerships and licensing agreements
with leading CPE companies to facilitate the deployment of our products and
technology.
. Lucent. Under a recently signed original equipment manufacturer
agreement, Lucent will combine our DSL equipment with its NetCare(R)
installation, network management and customer support professional
services to create turnkey DSL solutions for CLECs. Lucent will co-brand
and market our DSL equipment for a period of up to four years. We have
agreed to manufacture, co-brand and sell our products to Lucent and to
provide Lucent with training, installation and technical support for
these products. Lucent also plans to offer the new DSL equipment in
combination with some of its existing data networking, switching and
access products to enable service providers to create broader voice and
data network solutions that can evolve and grow with their business.
. 3Com. 3Com will market our DSL CPE for up to three years. Under this
agreement we have agreed to manufacture, co-brand and sell our products
to 3Com and to collaborate on future development projects. Additionally,
this agreement calls for both companies to co-market their DSL products.
Moreover, 3Com may request to manufacture its own DSL CPE products. Both
parties have agreed to use good faith efforts to effect such
manufacturing license.
We have established several CPE licensing relationships with certain vendors
through our CopperCompatible interoperability program in order to promote the
interoperability of our CopperEdge DSL Access Concentrators with such
equipment. Under this interoperability program, licensees are allowed access
to our technology which can be used in the design of their CPE. These CPE
licensing relationships have been established with ADC Kentrox, Netopia,
Cayman Systems, Escalate Networks, FlowPoint Corporation and Ramp Networks,
among others.
. ADC Kentrox. ADC Kentrox, a leading provider of managed frame relay data
service units and channel service units, is developing and will be
introducing an SDSL version of their newest innovation, the
ServicePoint(TM) service delivery unit. The ServicePoint(TM) service
delivery unit will enable subscribers to use their pre-existing, non-
SDSL routers with our telecommunications service provider customers'
SDSL service. The ServicePoint(TM) service delivery unit also can be
upgraded to provide ADC Kentrox's frame relay performance and bandwidth
usage monitoring, which would enable our service provider customers to
provide the most sophisticated level of frame relay services, including
service level agreements and traffic management reports.
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. Netopia. Through a development and co-marketing contract, Netopia, a
market leader in developing Internet/intranet communication tools,
licensed our DSL networking technology, including integrated DSL
management functionality, to provide business class customer premise
equipment for small-to-medium sized companies. Since June 1998, Netopia
has developed, announced and is shipping three products incorporating
our licensed technology, including an IDSL router and an SDSL router. In
addition, Netopia markets the CopperRocket SDSL modem under Netopia's
own brand name through an original equipment manufacturer reseller
agreement with Copper Mountain.
SALES AND MARKETING
We sell and market our products through a direct sales force. Additionally,
we have relationships with selected original equipment manufacturers and
distributors in order to expand our sales and distribution capabilities.
Direct Sales. Our direct sales responsibilities are divided into three North
American geographic regions: West, Central and East. Our sales effort is
directed by regional directors and sales managers who are responsible for
relationships with targeted customers. A key feature of our selling effort is
the relationships we establish at various levels in our customer's
organization. The sales management team for each customer is responsible for
maintaining contact with key individuals who have planning and policy
responsibility within the customer's organization. At the same time, our sales
engineers work with customers to sell our products at key levels throughout
the customer's organization. Direct sales accounted for approximately 98% of
our revenue in 1998.
Original Equipment Manufacturer Sales. We have established key original
equipment manufacturer relationships with leaders in the telecommunications
equipment and customer premise equipment markets. We intend to maintain a
limited number of relationships with key strategic original equipment
manufacturers who may offer products or have existing customer relationships
which may complement ours. In line with our strategy to offer our
telecommunications service provider customers and their subscribers a broad
line of CPE, we have entered into several original equipment manufacturer
relationships for our CopperRocket product line and a number of
interoperability partnerships with CPE providers. We receive sales revenues
from our original equipment manufacturer partners, but do not currently
receive royalty revenue from interoperability arrangements.
Marketing is structured along product and distribution channel lines for
each of our major product areas. For each major product area, we employ
dedicated product marketing and marketing program management specialists. The
corporate marketing staff coordinates activities among our various business
units and provides marketing support services, including marketing
communications, marketing research, trademark administration and other support
functions. Our marketing organization performs the following functions:
. develops specific marketing strategies for each product line;
. works with our direct sales force and Lucent to develop key account and
segmented market strategies; and
. defines the functions and features of our product and service offerings.
Marketing is responsible for sales support, contract negotiations, in-depth
product presentations, interfacing with operations, setting price levels to
achieve targeted margins, developing new services and business opportunities
and writing proposals in response to customer requests for information or
quotations.
As of March 31, 1999, our sales and marketing organization included 29
individuals. We have offices in Palo Alto and San Diego, California.
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CUSTOMER SERVICE AND SUPPORT
A high level of continuing service and support is critical to our objective
of developing long-term customer relationships. The majority of our service
and support activities are related to installation support and network
configuration issues. These services are provided by telephone and directly at
customer installations with resources from our customer support group based in
San Diego, California. To date, our revenues from on-site installation and
technical assistance have been immaterial.
We provide technical support for our products which have warranties of up to
12 months, both directly and through our selected service subcontractors. We
have a variety of comprehensive and flexible hardware and software maintenance
and support programs available for products no longer under warranty, with
services ranging from time and materials remote service support to 24-hour on-
site support, depending on our customer's preferences. We also offer various
training courses for our third-party resellers and telecommunications service
provider customers. To date, revenues attributable to customer service and
support services have been immaterial.
In June 1998, we engaged Lucent NetCare(R), Lucent's data communications
service organization, to provide field installation and maintenance support
for our products. Other than service and support provided by our personnel
located in San Diego, we do not intend to recruit and train our own direct
field service and support organization.
RESEARCH AND DEVELOPMENT
We believe that our future success depends on our ability to adapt to the
rapidly changing telecommunications environment, to maintain our significant
expertise in core technologies, and to continue meeting and anticipating our
customers' needs. We continually review and evaluate technological changes
affecting the telecommunications market and invest substantially in
applications-based research and development. We are committed to an ongoing
program of new product development that combines internal development efforts
with acquisitions, joint ventures and licensing or marketing arrangements
relating to new products and technologies from outside sources.
We have focused our recent research and development expenditures on
commercializing our DSL systems, including our CopperEdge solutions and
CopperRocket modems along with CopperView network management tools which
support these technologies. We believe that our extensive experience designing
and implementing high-quality network components has enabled us to develop
high-value integrated systems solutions. As a result of these development
efforts, we believe we have created an industry-leading platform for cost-
effective DSL delivery.
We are currently investing significant resources in network management
product enhancements, development of a new chassis for multi-tenant units,
development of line cards delivering UADSL and HDSL2, and enhancements to the
CopperEdge DSL access concentrators enabling packet-based voice traffic.
COMPETITION
The telecommunications equipment industry is highly competitive, and we
believe that competition may increase substantially as the introduction of new
technologies, deployment of broadband networks and potential regulatory
changes create new opportunities for established and emerging companies in the
industry. In addition, a number of our competitors have significantly greater
financial and other resources than us to meet new competitive opportunities.
We compete directly with other providers of DSL access concentrators
including, Cisco Systems, Inc., Ascend Communications, Inc. (acquisition by
Lucent pending), Alcatel S.A. and Diamond Lane Communications Corporation
(acquisition by Nokia Corporation pending) and Paradyne Corporation, among
others. In addition, DSL as a technology for deploying broadband connections
is competing with alternative technologies including ISDN, T-1 and wireless
solutions. To the extent we expand into the residential
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market, we will compete against certain other companies, including companies
relying on coaxial cable infrastructure and cable modem technology.
The rapid technological developments within the telecommunications industry
have resulted in frequent changes to our group of competitors. The principal
competitive factors in our market include:
. brand recognition;
. key product features;
. system reliability and performance;
. price;
. ease of installation and use;
. technical support and customer service; and
. size and stability of operations.
We believe our success in competing with other manufacturers of
telecommunications products depends primarily on our engineering,
manufacturing and marketing skills, the price, quality and reliability of our
products and our delivery and service capabilities. We may face increasing
pricing pressures from current and future competitors in certain or all of the
markets for our products and services.
We believe that technological change, the increasing addition of voice,
video and other services to networks, continuing regulatory change and
industry consolidation or new entrants will continue to cause rapid evolution
in the competitive environment of the telecommunications equipment market, the
full scope and nature of which is difficult to predict. Increased competition
could result in price reductions, reduced margins and loss of market share by
us. We believe regulatory change in the industry may create new opportunities
for suppliers of telecommunications equipment; however, we expect that such
opportunities may attract increased competition from others as well. We also
believe that the rapid technological changes which characterize the data
communications industry will continue to make the markets in which we compete
attractive to new entrants. There can be no assurance that we will be able to
compete successfully with our existing or new competitors or that competitive
pressures faced by us will not materially and adversely affect our business,
financial condition and results of operations.
MANUFACTURING
Our manufacturing operations consist primarily of supporting prototype
development, materials planning and procurement, final assembly, testing and
quality control. We use several independent suppliers to provide certain
printed circuit boards, chassis and subassemblies. We have historically
subcontracted substantially all of our manufacturing to one company, SMS
Technology, located in San Diego, California. We recently entered into a
letter of intent with Flextronics International Ltd. located in San Jose,
California and expect to have a formal agreement in place by April 30, 1999.
Under the letter of intent, Flextronics will be the sole source of contract
manufacturing for our products.
Our manufacturing process enables us to configure our products to meet a
wide variety of individual customer requirements. We have initiated the
process of seeking International Standard Organization 9002 registration for
quality assurance in production, installation and service. We plan to
strengthen manufacturing capability both in our existing facilities and
through expansion of activities with independent suppliers and manufacturers.
Our future growth will require an extension of existing internal and external
manufacturing resources, hiring of additional technical personnel, improved
coordination of supplier relationships with our inventory ordering and
management practices, and expansion of information systems to accommodate
planned growth across these areas.
We use a combination of standard parts and components, which are generally
available from more than one vendor, and three key components that are
purchased from sole or single source vendors for which alternative
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sources are not currently available: a semi-conductor chip, a power supply and
a system control module. If supply of these key components should cease, we
would be required to redesign our products. We are evaluating alternate source
vendors for each of these key components but these vendors may not meet our
quality standards for component vendors. While we work closely with some well-
established vendors, we have no supply commitments from our vendors and we
generally purchase components on a purchase order basis, as opposed to
entering into long term procurement agreements with vendors. To date, we have
generally been able to obtain adequate supplies in a timely manner from
vendors or, when necessary, to meet production needs from alternative vendors.
We believe that, in most cases, alternative supplies of standard parts and
components can be identified if current vendors are unable to fulfill our
needs. However, delays or failure to identify an alternate vendor, if
required, or a reduction or interruption in supply, or a significant increase
in the price of components would materially and adversely affect our business,
financial condition and results of operations and could impact customer
relationships.
INTELLECTUAL PROPERTY
We rely on a combination of copyright, trademark, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect
our trade secrets and know-how. We presently have no patents, although we do
have one patent application pending which we intend to pursue but which is not
central to our business. Although we employ a variety of intellectual property
in the development and manufacturing of our products, we believe that none of
such intellectual property is individually critical to our current operations.
Taken as a whole, we believe our intellectual property rights are significant
and that the loss of all or a substantial portion of such rights could have a
material adverse effect on our results of operations. There can be no
assurance that our intellectual property protection measures will be
sufficient to prevent misappropriation of our technology. In addition, the
laws of many foreign countries do not protect our intellectual properties to
the same extent as the laws of the United States. From time to time, we may
desire or be required to renew or to obtain licenses from others in order to
further develop and market commercially viable products effectively. There can
be no assurance that any necessary licenses will be available on reasonable
terms.
PROPERTIES
We lease an approximately 11,000 square foot facility in Palo Alto,
California for executive offices and for administrative, sales and marketing
purposes. The lease for this facility expires in April 2001. We also lease an
approximately 17,000 square foot facility in San Diego, California, which
serves as our principal engineering and product development facility as well
as for executive offices. The current lease for this facility expires in
October 2001. In addition, we lease an approximately 11,000 square foot
facility in San Diego, California which is used primarily for manufacturing.
The lease for this facility expires in August 2003. On March 31, 1999 we
signed a lease for a new facility in San Diego which expires in July 2005. As
a result, we intend to combine our existing San Diego offices into this new
larger facility in order to accommodate our growth.
EMPLOYEES
As of March 31, 1999 we employed approximately 154 full-time employees,
including 29 in sales and marketing, 23 in manufacturing, 70 in engineering,
23 in finance and administration and 9 in customer service. All of our
employees are located in the United States. None of our employees is
represented by collective bargaining agreements, and management considers
relations with its employees to be good.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Copper Mountain, the positions held
by them and their ages as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard S. Gilbert...... 46 President, Chief Executive Officer and Director
John A. Creelman........ 42 Vice President of Finance, Chief Financial Officer and Secretary
Joseph D. Markee........ 45 Chief Technical Officer and Chairman of the Board of Directors
Mark Handzel............ 43 Vice President of Quality and Customer Support
Steven Hunt............. 41 Vice President of Engineering
Michael Kelly........... 48 Vice President of Sales
Bryan Long.............. 40 Vice President of Marketing
Michael Staiger......... 34 Vice President of Business Development
Joseph Harrington....... 49 Vice President of Operations
Diana Helfrich.......... 38 Vice President of Marketing Communications
Robert L. Bailey........ 41 Director
Tench Coxe(1)........... 41 Director
Roger Evans(1).......... 53 Director
Richard H. Kimball(2)... 42 Director
Raymond V. Thomas....... 56 Director
Andrew W. Verhalen(2)... 42 Director
</TABLE>
- --------
(1) Member of compensation committee
(2) Member of audit committee
Richard S. Gilbert has served as President and Chief Executive Officer of
Copper Mountain since April 1998, and as a director of Copper Mountain since
August 1998. From July 1992 to April 1998, he worked for ADC
Telecommunications Inc., most recently as Senior Vice President and,
concurrently, as President and General Manager of its subsidiary, ADC Kentrox,
a provider of high-speed access equipment for global networks. Mr. Gilbert
holds an MS in Computer Science from Stanford University and a BA in
Mathematics from the University of California at Berkeley.
John A. Creelman has served as Vice President of Finance and Chief Financial
Officer of Copper Mountain since March 1998 and as Secretary of Copper
Mountain since February 1999. From July 1997 to March 1998, he worked as a
Financial Consultant to DataWorks Corporation, a developer of Enterprise
Resource Planning software. From July 1995 to May 1997, he served as Vice
President Finance and Chief Financial Officer of ESI Software, Inc., a
provider of Internet authoring software and services. From July 1994 to June
1995 he served as Financial Controller at Western Digital Corporation, a
manufacturer of hard disk drives. From February 1992 to June 1994, he served
as Director of Finance at MTI Technology Corporation, a manufacturer of high-
end storage systems. Mr. Creelman holds an MBA and a BA in Social Sciences
from the University of California at Irvine.
Joseph D. Markee co-founded Copper Mountain in March 1996 and has served as
Chief Technical Officer of Copper Mountain since December 1998 and as Chairman
of the board of directors since inception. From Copper Mountain's inception in
March 1996 to April 1998, he served as its President and Chief Executive
Officer and from inception to February 1999, he served as Secretary of Copper
Mountain. In June 1987, he co-founded Primary Access, a remote access server
company acquired by 3Com Corporation. From June 1987 to January 1996, he
served as Vice President of Operations and Vice President of Support of 3Com
Primary Access. Mr. Markee holds a BS in Electrical Engineering from the
University of California at Davis.
Mark Handzel co-founded Copper Mountain in March 1996 and has served as Vice
President of Quality and Customer Support since May 1998. From March 1996 to
May 1998, he served as Vice President of Product
46
<PAGE>
Management of Copper Mountain. From June 1994 to March 1996, he served as
Director of Marketing and Sales at Orckit Communications, a manufacturer of
advanced DSL modems. From May 1993 to June 1994, he served as Vice President
of Product Development at Coral Systems, a provider of software products for
the wireless telecommunications industry. Mr. Handzel holds an MBA from the
University of California at Irvine, a MS in Computer Science from the
University of California at Los Angeles and a BA in Computer Science from the
State University of New York at Potsdam.
Steven Hunt has served as Vice President of Engineering of Copper Mountain
since August 1996. From June 1980 to August 1996, he held various positions
with AT&T Bell Laboratories, most recently as Department Head of the
Internetworking Technology Department of Paradyne Corporation, which was then
a subsidiary of AT&T. Paradyne is a provider of internetworking product
definition, development and support. While at Paradyne, Mr. Hunt was
responsible for the development of broadband DSL products. Mr. Hunt holds an
MSEE from Stanford University and a BSEE from Drexel University.
Michael Kelly has served as Vice President of Sales of Copper Mountain since
April 1997. From November 1995 to March 1997, he served as Vice President of
Sales at Ramp/Trancell Networks, a developer of small business network
solutions. From September 1994 to October 1995, he served as Vice President of
Sales at CoroNet Systems, a developer of network management software. From
January 1994 to September 1994, Mr. Kelly served as Vice President of Sales at
Brixton Systems, a developer of software. Mr. Kelly holds an MS in Computer
Science from George Washington University, and a BA in General Studies from
the University of Maryland.
Bryan Long has served as Vice President of Marketing of Copper Mountain
since May 1998. From June 1997 to May 1998, he founded and served as marketing
consultant for the Apheta Group, a marketing consultant company. From January
1997 to June 1997, he served as Vice President, Marketing and Customer Support
of Verilink, Inc., a supplier of wide-area network access products. From July
1996 to December 1996, he served as Director, Global Alliance Business
Development of Cisco Systems Inc., a manufacturer of networking products. From
May 1991 until its acquisition by Cisco Systems, Inc. in July 1996, he served
in various positions at StrataCom, Inc., a developer of networking products,
most recently serving as Director, Business Development and previously serving
as Director of Marketing, Channel Development and Product Line Director,
Enterprise Networks. Mr. Long holds an MS in Management from the Massachusetts
Institute of Technology, and a BA in Mathematics from the University of
Colorado.
Michael Staiger has served as Vice President of Business Development of
Copper Mountain since June 1998. From June 1996 to June 1998, he worked at
Shiva Corporation, a provider of direct-dial business access solutions,
serving most recently as Vice President of Business Development and previously
as Senior Director of Business Development. From its inception in August 1993
until its acquisition by Shiva Corporation in June 1996, he served as a co-
founder and Vice President of Business Development of AirSoft, Inc., a
developer of remote access software. Mr. Staiger holds an MBA from the
University of Chicago Graduate School of Business and a BA in English from the
University of Michigan.
Joseph Harrington has served as Vice President of Operations of Copper
Mountain since October 1998. From February 1996 to October 1998, he served as
Director of Operations of the Corollary Division of Intel Corporation, a
manufacturer of symmetric multi-processing computers and network
communications equipment. From June 1995 to February 1996, Mr. Harrington
served as Director of Production of the Symtak Division of Aetrium, Inc., a
manufacturer of handlers and test equipment for the integrated circuit
industry. From September 1992 to August 1994, he served as Manufacturing
Manager of IDT/Alston, a manufacturer of magnetic tape units and digital
emulation systems for the telecommunications industry.
Diana Helfrich has served as Vice President of Marketing Communications of
Copper Mountain since July 1997. From April 1996 to July 1997, she was the
principal of her own direct marketing and management consulting firm. From
November 1991 to March 1996, she served as President and Managing Director of
the
47
<PAGE>
Council on Education in Management, an employment law educator. Ms. Helfrich
holds an MBA from St. Mary's College and a BA in English Literature from the
University of California at Berkeley.
Robert L. Bailey has served as a director of Copper Mountain since March
1999. Mr. Bailey has served as President and Chief Executive Officer of PMC-
Sierra, Inc., formerly Sierra Semiconductor, a leading maker of high speed
internetworking semiconductor products since July 1997. From November 1993 to
July 1997, Mr. Bailey served as President and Chief Executive Officer of PMC-
Sierra Ltd, a predecessor of PMC-Sierra, Inc. Mr. Bailey holds a BSEE from the
University of Bridgeport in Connecticut and an MBA from the University of
Dallas in Texas.
Tench Coxe has served as a director of Copper Mountain since March 1996. Mr.
Coxe joined Sutter Hill Ventures, a venture capital firm, in October 1987 and
is currently a Managing Director of the General Partner of Sutter Hill
Ventures. Mr. Coxe currently serves as a director of Clarus Corporation, Edify
Corporation and NVIDIA Corporation and several privately-held companies. Mr.
Coxe holds an MBA from Harvard University and a BA in Economics from Dartmouth
College.
Roger Evans has served as a director of Copper Mountain since March 1996.
Mr. Evans joined Greylock Management Corporation in 1989 and is currently a
General Partner of Greylock Limited Partnership, Greylock Equity Limited
Partnership and Greylock IX Limited Partnership, each a venture capital firm.
Mr. Evans is a director of Ascend Communications and several privately-held
companies. Mr. Evans holds an MA in Economics from King's College, Cambridge.
Richard H. Kimball has served as a director of Copper Mountain since October
1998. Since 1995, Mr. Kimball has been a founding General Partner of
Technology Crossover Ventures II, L.P. ("Technology Crossover"), a venture
capital firm. Preceding Technology Crossover, Mr. Kimball spent more than ten
years at Montgomery Securities, where he was a Managing Director from 1991
until his departure. He also serves on the board of directors of several
privately-held technology companies. Mr. Kimball holds an MBA from the
University of Chicago and an AB in History from Dartmouth College.
Raymond V. Thomas has served as a director of Copper Mountain since March
1999. Mr. Thomas has served as Vice President, Finance and Chief Financial
Officer of HNC Software Inc., a software company, since February 1995 and as
secretary of HNC Software since May 1995. From May 1993 to February 1995, he
served as Executive Vice President and Chief Financial Officer of Golden
Systems Inc., a power supply manufacturer, and from September 1994 to February
1995 he also served as Chief Operating Officer of Golden Systems. Mr. Thomas
holds a BS degree in industrial management from Purdue University.
Andrew W. Verhalen has served as a director of Copper Mountain since
February 1999. Mr. Verhalen has been a partner of Matrix Partners, a venture
capital firm, since April 1992. He also serves on the board of directors of
several privately-held technology companies. Prior to Matrix Partners, Mr.
Verhalen held senior management positions at 3Com Corporation and Intel
Corporation. Mr. Verhalen holds BSEE, MEng and MBA degrees from Cornell
University.
Messrs. Markee and Handzel are brothers-in-law. There are no other family
relationships between any of the directors or executive officers of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an audit committee and a compensation
committee. The audit committee consists of Andrew W. Verhalen and Richard H.
Kimball. The audit committee makes recommendations to the board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors and
reviews and evaluates our audit and control functions.
48
<PAGE>
The compensation committee consists of Tench Coxe and Roger Evans. The
compensation committee makes recommendations regarding our 1996 Equity
Incentive Plan and makes decisions concerning salaries and incentive
compensation for our employees and consultants.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services on
the Board of Directors or any committee thereof, but directors may be
reimbursed for certain expenses in connection with attendance at board of
directors and committee meetings. All directors are eligible to participate in
our 1996 Equity Incentive Plan. Non-employee directors are eligible to
participate in our 1999 Non-Employee Director's Plan.
BOARD-COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
awarded to, earned by, or accrued for services rendered to us in all
capacities during the fiscal year ended December 31, 1998 by our Chief
Executive Officer and four other most highly compensated executive officers.
The compensation described in this table does not include medical, group life
insurance or other benefits which are available generally to all our salaried
employees and certain perquisites and other personal benefits received which
do not exceed the lesser of $50,000 or 10% of any officer's salary and bonus
disclosed in this table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
SECURITIES
NAME AND PRINCIPAL ALL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION SALARY($) BONUS($) COMPENSATION ($) OPTIONS(#) COMPENSATION ($)
- ------------------ --------- -------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Richard S. Gilbert...... $185,358 $ 74,330 844,645 $65,177(1)
President and Chief
Executive Officer
Michael Kelly........... 130,863 160,000 $559,230(2) 150,000
Vice President of Sales
Joseph D. Markee........ 157,256 40,000
Chief Technical Officer
and Chairman of the
Board of Directors
Bryan Long.............. 99,840 90,000 338,292
Vice President of
Marketing
Steven Hunt............. 138,572 30,000 75,000
Vice President of
Engineering
</TABLE>
- --------
(1) Represents relocation expenses.
(2) Represents sales commissions.
49
<PAGE>
STOCK OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
The following table sets forth certain information regarding options granted
to certain of our executive officers during the fiscal year ended December 31,
1998. The number of shares underlying options granted, and the exercise price
per share, have been adjusted to reflect the three-for-two stock split of our
common stock effective November 25, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK APPRECIATION
SHARES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM($)(4)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------
NAME GRANTED (#)(1) YEAR(%)(2) SHARE($)(3) DATE 5% 10%
- ---- -------------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Gilbert...... 844,645 27.4% .32 06/11/08 $ 169,982 $ 430,767
Michael Kelly........... 150,000 4.9 .53 09/23/08 50,312 127,499
Bryan Long.............. 338,292 11.0 .32 06/11/08 68,080 172,528
Steven Hunt............. 75,000 2.4 .53 09/23/08 25,156 63,750
</TABLE>
Twenty-five percent of these options vest on the first anniversary of the
date of hire and the remainder vest in equal installments each month over the
three-year period following the first anniversary of the date of hire. Options
were granted at an exercise price equal to the fair market value of our common
stock, as determined by the board of directors on the date of grant. In making
this determination, the board considered a number of factors, including:
. our historical and prospective future revenue and profitability,
. our cash balance and rate of cash consumption,
. the development and size of the market for our products,
. the status of our financing activities,
. the stability and tenure of our management team, and
. the breadth of our product offerings.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC. There can be no assurance provided to any
executive officer or any other holder of our securities that the actual stock
price appreciation over the option term will be at the assumed 5% and 10%
levels or at any other defined level.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information as of December 31, 1998
regarding options held by certain of our executive officers. There were no
stock appreciation rights outstanding at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998(#) DECEMBER 31, 1998($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Gilbert...... -- $ -- -- 844,645 $ -- $3,952,939
Michael Kelly........... -- -- 155,216 200,284 693,298 894,602
Bryan Long.............. -- -- -- 338,292 -- 1,583,207
Steven Hunt............. 15,000 19,000 160,000 200,000 714,667 893,333
</TABLE>
In the table above, the value of unexercised in-the-money options is based on
the fair market value of the Company's common stock, determined by the board
of directors as discussed above to be $5.00 per share on or
50
<PAGE>
about December 31, 1998, minus the per share exercise price multiplied by the
number of shares. The value realized for Mr. Hunt's option exercise is equal
to the fair market value of the purchased shares determined by the board as
described above, on the option exercise date, less the exercise price paid for
such shares.
1996 EQUITY INCENTIVE PLAN
In August 1996, the board of directors adopted our 1996 Equity Incentive
Plan (the "1996 Plan"). A total of 7,873,383 shares of common stock, plus
annual increases (beginning in 2000) equal to the least of: (i) 4% of the
outstanding shares on a fully diluted basis taking into account stock options
and warrants and (ii) a lesser amount determined by the board of directors,
are currently reserved for issuance pursuant to the 1996 Plan. The 1996 Plan
provides for the grant of options to our directors, officers, key employees,
consultants and certain advisors.
The 1996 Plan permits the granting of options intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code to employees (including officers and employee directors) and
nonstatutory stock options to employees (including officers and employee
directors), directors and consultants (including non-employee directors). In
addition, the 1996 Plan permits the granting of stock appreciation rights in
conjunction with or independently of options, as well as stock bonuses and
rights to purchase restricted stock. No person is eligible to be granted
options and SARs covering more than 500,000 shares of common stock in any
calendar year.
The 1996 Plan is administered by the board of directors or a committee
appointed by the board of directors. Subject to the limitations set forth in
the 1996 Plan, the board of directors has the authority to select the persons
to whom grants are to be made, to designate the number of shares to be covered
by each stock award, to determine whether an option is to be an incentive
stock option or a nonstatutory stock option, to establish vesting schedules,
to specify the option exercise price and the type of consideration to be paid
to us upon exercise and, subject to certain restrictions, to specify other
terms of stock awards.
The maximum term of options granted under the 1996 Plan is ten years. The
aggregate fair market value, determined at the time of grant, of the shares of
common stock with respect to which incentive stock options are exercisable for
the first time by an optionee during any calendar year (under all such plans
of the Company and its affiliates) may not exceed $100,000, or the options or
portion thereof which exceed such limit (according to the order in which they
are granted) shall be treated as nonstatutory stock options. Incentive stock
options granted under the 1996 Plan generally are non-transferable.
Nonstatutory stock options are generally transferable. Options expire three
months after the termination of an optionee's service. In general, if an
optionee is permanently disabled or dies during his or her service, such
person's options may be exercised up to 12 months following such disability or
18 months following such death.
The exercise price of options granted under the 1996 Plan is determined by
the board of directors in accordance with the guidelines set forth in the 1996
Plan. The exercise price of an incentive stock option cannot be less than 100%
of the fair market value of the common stock on the date of the grant. The
exercise price of a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of grant. Options granted
under the 1996 Plan vest at the rate specified in the option agreement. The
exercise price of incentive stock options granted to any person who at the
time of grant owns stock representing more than 10% of the total combined
voting power of all classes of capital stock must be at least 110% of the fair
market value of such stock on the date of grant and the term of such incentive
stock options cannot exceed five years.
Any stock bonuses or restricted stock purchase awards granted under the 1996
Plan shall be in such form and will contain such terms and conditions as the
board of directors deems appropriate. The purchase price under any restricted
stock purchase agreement will not be less than 85% of the fair market value of
the common stock on the date of grant. Stock bonuses and restricted stock
purchase agreements awarded under the 1996 Plan are generally transferable.
51
<PAGE>
Pursuant to the 1996 Plan, shares subject to stock awards that have expired
or otherwise terminated without having been exercised in full again become
available for grant, but exercised shares that we repurchase pursuant to a
right of repurchase will not again become available for grant.
Upon certain changes in control, all outstanding stock awards under the 1996
Plan must either be assumed or substituted by the surviving entity. In the
event the surviving entity does not assume or substitute such stock awards,
such stock awards will be terminated to the extent not exercised prior to such
change in control.
As of March 31, 1999, we had issued and outstanding options to purchase
4,582,225 shares of common stock under the 1996 Plan.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In March 1999, we adopted our 1999 Non-Employee Directors' Stock Option Plan
to provide for the automatic grant of options to purchase shares of common
stock to our non-employee directors. The directors' plan is administered by
the board, unless the board delegates administration to a committee of at
least two disinterested directors.
A total of 360,000 shares of common stock has been reserved for issuance
under the directors' plan. Pursuant to the terms of the directors' plan:
. on the effective date of the Plan, each person who was then a non-
employee director was granted an option to purchase 30,000 shares of
common stock;
. each person who, after the effective date of the plan, for the first
time becomes a non-employee director automatically will be granted, upon
the date of his or her initial appointment or election to be a non-
employee director, a one-time option to purchase 30,000 shares of common
stock; and
. on the date of each annual meeting of our stockholders commencing with
the 2000 annual meeting of stockholders, each person who was initially
elected or appointed to be a non-employee director at least six months
prior to the date of such annual meeting automatically will be granted
an option to purchase 10,000 shares of common stock.
Options granted under the directors' plan shall be fully vested and
exercisable on the date of grant and must be exercised within five years from
the date they are granted. The exercise price of options under the directors'
plan will equal 100% of the fair market value of the common stock on the date
of grant. Options granted under the directors' plan are generally transferable
to family members and trusts under which the director or members of the
director's family are beneficiaries. Unless otherwise terminated by the board
of directors, the directors' plan automatically terminates when all of our
common stock reserved for issuance under the directors' plan has been issued.
As of the date hereof, options to purchase 180,000 shares of common stock have
been granted under the directors' plan.
EMPLOYEE STOCK PURCHASE PLAN
In February 1999, we adopted the 1999 Employee Stock Purchase Plan. A total
of 300,000 shares of common stock has been reserved for issuance under the
purchase plan. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
Under the purchase plan, the board of directors may authorize participation by
eligible employees, including officers, in periodic offerings following the
commencement of the purchase plan. The initial offering under the purchase
plan will commence on the effective date of this offering and terminate on
July 31, 2000.
Unless otherwise determined by the board, employees are eligible to
participate in the purchase plan only if they are employed by us or one of our
subsidiaries designated by the board of directors for at least 20 hours per
week and are customarily employed for at least five months per calendar year.
Employees who participate in an offering may have up to 10% of their earnings
withheld pursuant to the purchase plan. The amount withheld is then used to
purchase shares of common stock on specified dates determined by the board of
directors. The price
52
<PAGE>
of common stock purchased under the purchase plan will be equal to 85% of the
lower of the fair market value of the common stock at the commencement date of
each offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment.
In the event of a merger, reorganization, consolidation or liquidation, the
board of directors has discretion to provide that each right to purchase
common stock will be assumed or an equivalent right substituted by the
successor corporation or the board of directors may provide for all sums
collected by payroll deductions to be applied to purchase stock immediately
prior to such merger or other transaction. The board of directors has the
authority to amend or terminate the purchase plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase common
stock.
401(K) PLAN
We have established a tax-qualified employee savings and retirement plan
commonly known as a 401(k) Plan. The 401(k) plan provides that each
participant may contribute up to 10% of his or her pre-tax gross compensation
(up to a statutorily prescribed annual limit of $10,000 in 1999). Employees
must be twenty-one years old to participate and are eligible on the first day
of the first quarter following commencement as an employee. All amounts
contributed by employee participants and earnings on these contributions are
fully vested at all times. Employee participants may elect to invest their
contributions in various established funds.
EMPLOYMENT AGREEMENTS
On July 26, 1996, we entered into an employment offer letter with Steven
Hunt, our Vice President, Engineering, pursuant to which Mr. Hunt's annual
compensation was initially set at $130,000. In addition, we granted Mr. Hunt
an option to purchase 300,000 shares of common stock. This option vests 25% on
the first anniversary of the date of hire with the remainder vesting monthly
over the following three years. Pursuant to his employment offer letter, in
the event Mr. Hunt's employment is terminated without cause, he will receive
severance compensation equal to three months salary.
On March 18, 1998, we entered into an employment agreement with Richard S.
Gilbert, our President and Chief Executive Officer. Mr. Gilbert's annual
compensation was initially set at a base salary of $200,000 and an on-target
bonus of $100,000 for the 1998 calendar year, prorated from April 6, 1998. In
addition, we granted Mr. Gilbert an option to purchase 844,645 shares of
common stock. This option vests 25% on the first anniversary of the date of
hire with the remainder vesting monthly over the following three years.
Pursuant to Mr. Gilbert's employment agreement, in the event Mr. Gilbert's
employment is terminated by us without cause or by Mr. Gilbert for good
reason, as defined in his option agreement, following the occurrence of a
change in control, as defined in his option agreement, the vesting of his
option accelerates such that one half of the unvested portion of the option
becomes immediately exercisable. Pursuant to Mr. Gilbert's employment
agreement, we reimbursed Mr. Gilbert for relocation expenses of $65,177, and
we loaned Mr. Gilbert $1 million pursuant to an interest-free promissory note
for the purchase of his principal residence in California. The principal
amount of such note is due on March 30, 2003. The note is secured by a second
trust deed on Mr. Gilbert's residence. Mr. Gilbert's obligation to repay the
note may be accelerated upon the occurrence of certain events, including the
termination of Mr. Gilbert's employment.
On March 12, 1999, we entered into an employment agreement with Joseph D.
Markee, our Chairman of the Board and Chief Technical Officer. Pursuant to the
terms of his agreement, if the board of directors removes him, elects someone
else as Chief Technical Officer, or assigns him to work outside San Diego
County, and he subsequently resigns, Mr. Markee is entitled to certain
severance benefits. These benefits include pay equal to six months of his base
salary and twelve months of accelerated vesting of his unvested stock options.
53
<PAGE>
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND
INDEMNIFICATION
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to
the fullest extent permitted by Delaware law, except with respect to certain
proceedings initiated by such persons. We are also empowered under our bylaws
to enter into indemnification contracts with our directors and executive
officers and to purchase insurance on behalf of any person we are required or
permitted to indemnify. Pursuant to this provision, we have entered into
indemnification agreements with each of our directors and certain of our
executive officers.
In addition, our certificate of incorporation, as it will be amended and
restated upon the close of this offering, provides that our directors will not
be personally liable to us or our stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability
. for any breach of the director's duty of loyalty to us or our
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 or
. for any transaction from which the director derives an improper personal
benefit.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of the
restated certificate to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of our
directors shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. The provision does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
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<PAGE>
CERTAIN TRANSACTIONS
The following is a description of transactions since inception (March 1996),
to which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest other than compensation arrangements which are otherwise required to
be described under "Management."
In April 1996, we sold 2,723,000 shares of series A preferred stock in a
private placement at a purchase price of $1.00 per share, pursuant to a Series
A Preferred Stock Agreement dated April 10, 1996. See Note 5 of Notes to
Financial Statements for a description of the series A preferred stock. Upon
the closing of this offering, each share of series A preferred stock will
automatically convert into one and one-half shares of common stock. The
following directors and beneficial owners of more than 5% of our common stock
(assuming the conversion of all shares of preferred stock into common stock)
acquired beneficial ownership of series A preferred stock pursuant to the
Series A Preferred Stock Agreement.
<TABLE>
<CAPTION>
DIRECTORS / 5% STOCKHOLDERS NO. OF SHARES
- --------------------------- -------------
<S> <C>
Roger Evans/Greylock Equity Limited Partnership................... 1,250,000
Tench Coxe/Entities Affiliated with Sutter Hill Ventures.......... 1,250,000
Joseph D. Markee.................................................. 50,000
Tench Coxe........................................................ 42,350
</TABLE>
In January 1997, we sold 1,850,063 shares of series B preferred stock in a
private placement at a purchase price of $3.39 per share, pursuant to a Series
B Preferred Stock Agreement dated January 14, 1997. See Note 5 of Notes to
Financial Statements for a description of the series B preferred stock. Upon
the closing of this offering, each share of series B preferred stock will
automatically convert into one and one-half shares of common stock. The
following directors and beneficial owners of more than 5% of our common stock
(assuming the conversion of all shares of preferred stock into common stock)
acquired beneficial ownership of series B preferred stock pursuant to the
Series B Preferred Stock Agreement.
<TABLE>
<CAPTION>
DIRECTORS / 5% STOCKHOLDERS NO. OF SHARES
- --------------------------- -------------
<S> <C>
Andrew W. Verhalen/Entities Affiliated with Matrix Partners...... 739,725
Roger Evans/Greylock Equity Limited Partnership.................. 368,732
Tench Coxe/Entities Affiliated with Sutter Hill Ventures......... 368,731
Intel Corporation................................................ 294,802
Joseph D. Markee................................................. 50,000
Tench Coxe....................................................... 12,492
</TABLE>
In January 1997, in connection with the execution of an ATM Technology
Agreement with Intel Corporation, we issued Intel a warrant to purchase up to
147,401 shares of series B preferred stock at an exercise price of $3.39 per
share. This warrant expires on January 14, 2004. Upon the closing of this
offering this warrant will become exercisable for common stock at the rate of
one and one-half shares of common stock for each share of series B preferred
stock underlying the warrant.
55
<PAGE>
In October 1997, we sold 2,422,361 shares of series C preferred stock in a
private placement at a purchase price of $4.75 per share, pursuant to a Series
C Preferred Stock Agreement, dated October 29, 1997. See Note 5 of Notes to
Financial Statements for a description of the series C preferred stock. Upon
the closing of this offering, each share of series C preferred stock will
automatically convert into one and one-half shares of common stock. The
following directors and beneficial owners of more than 5% of our common stock
(assuming the conversion of all shares of preferred stock into common stock)
acquired beneficial ownership of series C preferred stock pursuant to the
Series C Preferred Stock Agreement.
<TABLE>
<CAPTION>
DIRECTORS / 5% STOCKHOLDERS NO. OF SHARES
- --------------------------- -------------
<S> <C>
Canaan Equity, L.P............................................... 736,843
Entities Affiliated with InterWest Partners VI, L.P.............. 736,843
Roger Evans/Greylock Equity Limited Partnership.................. 242,106
Tench Coxe/Entities Affiliated with Sutter Hill Ventures......... 242,106
Andrew W. Verhalen/Entities Affiliated with Matrix Partners...... 210,527
Intel Corporation................................................ 42,106
Tench Coxe....................................................... 8,059
</TABLE>
In October 1998, we sold 3,225,806 shares of series D preferred stock in a
private placement at a purchase price of $7.75 per share, pursuant to a Series
D Preferred Stock Agreement dated October 9, 1998. See Note 5 of Notes to
Financial Statements for a description of the series D preferred stock. Upon
the closing of this offering, each share of series D preferred stock will
automatically convert into one and one-half shares of common stock. The
following directors and beneficial owners of more than 5% of our common stock
(assuming the conversion of all shares of preferred stock into common stock)
acquired beneficial ownership of series D preferred stock pursuant to the
Series D Preferred Stock Agreement.
<TABLE>
<CAPTION>
DIRECTORS / 5% STOCKHOLDERS NO. OF SHARES
- --------------------------- -------------
<S> <C>
Richard H. Kimball/Entities Affiliated with Technology Crossover
Ventures....................................................... 774,194
Roger Evans/Greylock Equity Limited Partnership................. 147,805
Tench Coxe/Entities Affiliated with Sutter Hill Ventures........ 147,805
Intel Corporation............................................... 135,989
Andrew W. Verhalen/Entities Affiliated with Matrix Partners..... 75,478
Entities Affiliated with Canaan Equity, L.P..................... 58,527
Entities Affiliated with InterWest Partners VI, L.P............. 58,527
Tench Coxe/Wells Fargo Bank, Trustee SHV M/P/T FBO Tench Coxe... 4,918
Richard S. Gilbert.............................................. 1,422
</TABLE>
Pursuant to the Amended and Restated Investors' Rights Agreement between us
and certain of our stockholders, the underwriters have reserved for sale to
the holders of our series D preferred stock in this offering, an aggregate of
$2 million worth of shares of Copper Mountain common stock at the price per
share set forth on the cover page of this prospectus.
All of the securities referenced above were sold and purchased at prices
equal to the fair market value of the securities, as determined by our board
of directors, on the date of issuance.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 1999 and as adjusted
to reflect our sale of shares for
. each person who we know to own beneficially more than five percent of the
common stock,
. each of our directors,
. certain of our executive officers, and
. all directors and executive officers as a group.
Except as indicated, and subject to community property laws where
applicable, the persons named have sole voting and investment power with respect
to all shares shown as beneficially owned by them. Percentage of beneficial
ownership is based on 18,387,005 shares of common stock outstanding on an as-
converted basis as of March 31, 1999. This assumes no exercise of the
underwriters' over-allotment option. If the underwriters' over-allotment option
is exercised in full, we will sell up to an aggregate of 4,600,000 shares of
common stock and up to 22,987,005 shares of common stock will be outstanding
after the completion of this offering.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual or entity
has sole or shared voting power or investment power and any shares as to which
the individual or entity has the right to acquire beneficial ownership within
60 days after March 31, 1999 through the exercise of any stock option or other
right. The inclusion herein of such shares, however, does not constitute an
admission that the named stockholder is a direct or indirect beneficial owner
of, or receives the economic benefit from, such shares.
Unless otherwise indicated in the table set forth below, each person or
entity named below has an address in care of Copper Mountain's principal
executive offices.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially Owned
Shares -------------------
Beneficially Prior to After
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ --------- ---------
<S> <C> <C> <C>
Greylock Equity Limited Partnership(1).. 3,042,964 16.5% 13.6%
755 Page Mill Road, Suite A-100
Palo Alto, CA 94304
Roger Evans(2).......................... 3,042,964 16.5% 13.6%
Greylock Equity Limited Partnership
755 Page Mill Road, Suite A-100
Palo Alto, CA 94304
Entities Affiliated with................ 3,042,956 16.5% 13.6%
Sutter Hill Ventures(3)
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Tench Coxe(4)........................... 2,391,455 13.0% 10.7%
Sutter Hill Ventures
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Entities Affiliated with................ 1,568,594 8.5% 7.0%
Matrix Partners IV, L.P. (5)
2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned (1)(2)
Shares -------------------------
Beneficially Prior to After
Name and Address of Beneficial Owner Owned (1)(2) Offering Offering
- ------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Andrew W. Verhalen(6)................... 1,568,594 8.5% 7.0%
Matrix Partners IV, L.P.
2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
Entities Affiliated with................ 1,193,054 6.5% 5.3%
InterWest Partners VI, L.P.(7)
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Cannan Equity, L.P...................... 1,193,054 6.5% 5.3%
2884 Sand Hill Road, Ste. 115
Menlo Park, CA 94025
Entities Affiliated with................ 1,191,290 6.5% 5.3%
Technology Crossover Ventures (8)
575 High Street, Suite 400
Palo Alto, CA 94301
Richard H. Kimball(9)................... 1,191,290 6.5% 5.3%
Technology Crossover Ventures II, L.P.
575 High Street, Suite 400
Palo Alto, CA 94301
Joseph D. Markee(10).................... 961,739 5.2% 4.3%
Intel Corporation(11)................... 930,446 5.1% 4.2%
2200 Mission College Boulevard
Santa Clara, CA 950520
Mark Handzel(12)........................ 781,635 4.3% 3.5%
Richard Gilbert(13)..................... 230,892 1.2% 1.0%
Steve Hunt(14).......................... 206,250 1.1% *
Mike Kelly(15).......................... 177,986 1.0% *
Raymond V. Thomas(16)................... 30,000 * *
Robert L. Bailey(17).................... 30,000 * *
All directors and officers as a group
(16 persons)(18)....................... 10,799,378 58.0% 47.7%
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) Includes 30,000 shares issuable upon exercise of options held by Roger
Evans exercisable within 60 days of March 31, 1999. Mr. Evans, a director
of Copper Mountain, is a general partner of the general partner of
Greylock.
(2) Includes 3,012,964 shares held by Greylock and 30,000 shares issuable
upon exercise of options held by Mr. Evans exercisable within 60 days of
March 31, 1999. Mr. Evans, a director of Copper Mountain, is a general
partner of the general partner of Greylock.
(3) Includes 101,728 shares held by or for the benefit of Tench Coxe, a
director of Copper Mountain and a managing director of the general
partner of Sutter Hill Ventures, a California Limited Partnership
("Sutter Hill") and 30,000 shares issuable upon exercise of options held
by Mr. Coxe exercisable within 60 days of March 31, 1999. Mr. Coxe shares
voting and investing power with four other managing directors of Sutter
Hill Ventures LLC, the general partner of Sutter Hill. Also includes
624,911 shares held of record by the five managing directors of Sutter
Hill Ventures LLC and their related family entities and 26,590 shares
held by other individuals associated with Sutter Hill.
58
<PAGE>
(4) Includes 2,259,727 shares held by Sutter Hill, 7,377 shares held in Mr.
Coxe's Keogh account, and 30,000 shares issuable upon exercise of options
held by Mr. Coxe exercisable within 60 days of March 31, 1999. Mr. Coxe
is a managing director of the general partner of Sutter Hill.
(5) Of the total shares indicated as beneficially owned, Matrix Partners IV,
L.P. ("Matrix Partners") owns 1,461,664 shares, which represent 8.0% and
6.5% of total shares before and after this offering, respectively. Matrix
IV Entrepreneurs Fund, L.P. owns 76,930 shares which represent less than
1% of total shares before and after this offering, respectively. Also
includes 30,000 shares issuable upon exercise of options held by Mr.
Verhalen exercisable within 60 days of March 31, 1999. Mr. Verhalen, a
director, is a general partner of Matrix Partners.
(6) Includes 1,538,594 shares held by entities affiliated with Matrix
Partners and 30,000 shares issuable upon exercise of options held by Mr.
Verhalen exercisable within 60 days of March 31, 1999. See Note 5 above.
Mr. Verhalen is a general partner of Matrix Partners.
(7) Of the total shares indicated as beneficially owned, Interwest Partners
VI, L.P. owns 1,157,261 shares, which represent 6.3% and 5.2% of total
shares before and after this offering, respectively. Interwest Investors
VI, L.P. owns 35,793 shares which represent less than 1% of total shares
before and after this offering, respectively.
(8) Includes:
. 18,046 shares held by TCV II, V.O.F., which represent less than 1% of
total shares before and after this offering, respectively;
. 555,531 shares held by Technology Crossover Ventures II, L.P. which
represent 3.0% and 2.5% of total shares before and after this offering,
respectively;
. 427,099 shares held by TCV II (Q), L.P. which represent 2.3% and 1.9%
of total shares before and after this offering, respectively;
. 75,795 shares held by TCV II Strategic Partners, L.P. which represent
less than 1% of total shares before and after this offering,
respectively;
. 84,819 shares held by Technology Crossover Ventures II, C.V. which
represent less than 1% of total shares before and after this offering,
respectively; and
. 30,000 shares issuable upon exercise of options held by Mr. Kimball
exercisable within 60 days of March 31, 1999.
Mr. Kimball, a director of Copper Mountain, is a managing member of the
general partner of each of these entities.
(9) Includes 1,161,290 shares held by the entities listed in note 8 above and
30,000 shares issuable upon exercise of options exercisable within 60
days of March 31, 1999. Mr. Kimball is a managing member of the general
partner of these entities.
(10) Includes 28,437 shares of common stock held by Teresa L. Boley, Mr.
Markee's spouse, 5,000 shares issuable upon exercise of options
exercisable within 60 days of March 31, 1999, and 194,576 shares subject
to repurchase by Copper Mountain as of March 31, 1999.
(11) Includes 221,101 shares of common stock issuable upon the exercise of a
warrant.
(12) Includes 194,576 shares subject to repurchase by Copper Mountain as of
March 31, 1999, and 3,333 shares issuable upon exercise of options
exercisable within 60 days of March 31, 1999.
(13) Includes 228,759 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1999.
(14) Includes 18,750 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 31, 1999.
(15) Includes 18,216 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1999.
(16) Includes 30,000 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1999.
(17) Includes 30,000 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1999.
(18) Includes 602,006 shares subject to options exercisable within 60 days of
March 31, 1999.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, the authorized capital stock
consists of 100,000,000 shares of common stock, $.001 par value, and 5,000,000
shares of preferred stock, $.001 par value.
COMMON STOCK
As of March 31, 1999, there were 18,387,005 shares of common stock
outstanding, after giving effect to the conversion of all outstanding shares
of preferred stock into 15,334,824 shares of common stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably such dividends as may be declared by the
board of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive, conversion, subscription or other
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of this offering will be, fully
paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted at a rate of one and one half shares of common stock for
each share of preferred stock into an aggregate of 15,334,824 shares of common
stock. See Note 5 of Notes to Financial Statements for a description of the
currently outstanding preferred stock. Following the conversion, our
certificate of incorporation will be amended and restated to delete all
references to such shares of preferred stock. Under the restated certificate,
the board has the authority, without further action by stockholders, to issue
up to 5,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges, qualifications and restrictions granted to or
imposed upon such preferred stock, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preference
and sinking fund terms, any or all of which may be greater than the rights of
the common stock. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and reduce the likelihood that such
holders will receive dividend payments and payments upon liquidation. Such
issuance could have the effect of decreasing the market price of the common
stock. The issuance of preferred stock could have the effect of delaying,
deterring or preventing a change in control of Copper Mountain. We have no
present plans to issue any shares of preferred stock.
WARRANTS
In October 1996, in conjunction with the execution of an equipment financing
agreement, we issued ten-year warrants to purchase up to 10,000 shares and
40,000 shares of series A preferred stock at an exercise price of $1.00 per
share. In January 1997, in connection with the execution of a license
agreement with Intel, we issued a seven-year warrant to purchase up to 147,401
shares of series B preferred stock at an exercise price of $3.39 per share. In
October 1997 and in April 1998, in connection with the execution of an
equipment financing agreement, we issued ten-year warrants to purchase 8,421
and 6,316 shares of series C preferred stock at an exercise price of $4.75 per
share. In August 1998, in connection with the execution of a loan agreement,
we issued a five-year warrant to purchase up to 25,000 shares of series C
preferred stock at an exercise price of $4.75 per share.
Upon the closing of this offering, all warrants described herein will become
exercisable for common stock at the rate of one and one-half shares of common
stock for each share of preferred stock underlying the warrants.
60
<PAGE>
REGISTRATION RIGHTS
After this offering, the holders of 15,690,530 shares of common stock issued
upon conversion of our preferred stock, including shares issuable upon
exercise of warrants, or their permitted transferees, are entitled to certain
rights with respect to the registration of such shares under the Securities
Act. If we propose to register any of its securities under the Securities Act
for its own account or the account of any of its stockholders other than the
holders of the registrable shares, holders of such registrable shares are
entitled, subject to certain limitations and conditions, to notice of such
registration and are, subject to certain conditions and limitations, entitled
to include registrable shares therein, provided, among other conditions, that
the underwriters of any such offering have the right to limit the number of
shares included in such registration. In addition, commencing 180 days after
the effective date of the registration statement of which this prospectus is a
part, we may be required to prepare and file a registration statement under
the Securities Act at its expense if requested to do so by the holders of at
least 25% of the registrable shares, provided the reasonably expected
aggregate offering price will equal or exceed $5,000,000 including
underwriting discounts and commissions. We are required to use its best
efforts to effect such registration, subject to certain conditions and
limitations. We are not obligated to effect more than two of such stockholder-
initiated registrations. Further, holders of registrable securities may
require us to file additional registration statements on Form S-3, subject to
certain conditions and limitations.
We are required to bear substantially all costs incurred in connection with
any such registrations, other than underwriting discounts and commissions. The
foregoing registration rights could result in substantial future expenses and
adversely affect any future equity or debt offerings.
DELAWARE ANTI-TAKEOVER LAW
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sale or other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. The statute could have the
effect of delaying, deferring or preventing a change in control of Copper
Mountain.
Our restated certificate, which will become effective upon the effective
date of this offering, provides that any action required or permitted to be
taken by stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing. In
addition, our bylaws provide that special meetings of the stockholders may be
called only by the Chairman of the board of directors, the Chief Executive
Officer, by the board of directors pursuant to a resolution adopted by a
majority of the total number of authorized directors, or by the holders of 10%
of the outstanding voting stock. Our restated certificate also specifies that
the authorized number of directors may be changed only by resolution of the
board of directors and does not include a provision for cumulative voting for
directors. Under cumulative voting, a minority stockholder holding a
sufficient percentage of a class of shares may be able to ensure the election
of one or more directors. These and other provisions contained in the restated
certificate and our bylaws could delay or discourage certain types of
transactions involving an actual or potential change in control or its
management (including transactions in which stockholders might otherwise
receive a premium for their shares over then current prices) and may limit the
ability of stockholders to remove current management or approve transactions
that stockholders may deem to be in their best interests and, therefore, could
adversely affect the price of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the
public market could adversely affect the market price of the common stock.
Upon completion of this offering, Copper Mountain will have outstanding
22,387,005 shares of common stock, assuming the issuance of 4,000,000 shares
of common stock offered hereby and no exercise of options after March 31,
1999. Of these shares, the 4,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act (whose sales would be subject
to certain limitations and restrictions described below).
We issued and sold the remaining 18,387,005 shares of common stock held by
existing stockholders in reliance on exemptions from the registration
requirements of the Securities Act. All of these shares will be subject to
"lock-up" agreements described below on the effective date of this offering.
Upon expiration of the lock-up agreements 180 days after the effective date of
this offering, all of these shares will become eligible for sale, subject in
most cases to the limitations of Rule 144. In addition, holders of stock
options could exercise such options and sell certain of the shares issued upon
exercise as described below.
<TABLE>
<CAPTION>
SHARES
DAYS AFTER DATE OF ELIGIBLE
THIS PROSPECTUS FOR SALE COMMENT
------------------ ---------- ---------------------------------------------
<C> <C> <S>
Upon Effectiveness 4,000,000 Shares sold in this offering
180 days Lock-up released; saleable shares under Rules
18,387,005 144 and 701
</TABLE>
As of March 31, 1999, there were a total of 4,962,225 shares of common stock
subject to outstanding options under our stock option plans and outside our
stock option plans, 439,177 of which were vested. However, all of these shares
are subject to lock-up agreements. Immediately after the completion of this
offering, we intend to file registration statements on Form S-8 under the
Securities Act to register all of the shares of common stock issued or
reserved for future issuance under our stock option plans. On the date 180
days after the effective date of this offering, a total of 1,475,555 shares of
common stock subject to outstanding options will be vested. After the
effective date of the registration statement on Form S-8, shares purchased
upon exercise of options granted pursuant to the 1996 Equity Incentive Plan
and Employee Stock Purchase Plan generally would be available for resale in
the public market.
The officers, directors and stockholders of Copper Mountain have agreed not
to sell or otherwise dispose of any of their shares for a period of 180 days
after the date of this offering. Morgan Stanley & Co. Incorporated, however,
may in its sole discretion, at any time without notice, release all or any
portion of the shares subject to lock-up agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of
Copper Mountain's common stock for at least one year would be entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of
(a) 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
(b) the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about Copper Mountain.
62
<PAGE>
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of Copper
Mountain's "affiliates," as defined in Rule 144, at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years, including the holding period of any prior
owner other than an "affiliate," is entitled to sell such shares without
complying with the manner of sale, notice filing, volume limitation or notice
provisions of Rule 144. Therefore, unless otherwise restricted, "144(k)
shares" may be sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701, any Copper Mountain employee, director, officer,
consultant or advisor who purchases shares from Copper Mountain in connection
with a compensatory stock or option plan or other written agreement before the
effective date of the offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.
Rule 701 applies to typical stock options granted by an issuer to employees
and certain consultants and advisers before it becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, along with the
shares acquired upon exercise of such options (including exercises after the
date of this prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than "affiliates" (as defined in Rule 144) subject only to the
manner of sale provisions of Rule 144 and by "affiliates" under Rule 144
without compliance with its one-year minimum holding period requirement.
63
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, BancBoston Robertson Stephens, Inc. and Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated are acting as
representatives, have severally agreed to purchase, and we have agreed to sell
to them an aggregate of 4,000,000 shares of common stock. The number of shares
of common stock that each underwriter has agreed to purchase is set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
BancBoston Robertson Stephens, Inc.................................
Dain Rauscher Wessels..............................................
---------
Total............................................................ 4,000,000
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered hereby are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby, other than those covered by the over-
allotment option described below, if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering
price. Any underwriters may allow, and such dealers may reallow, a concession
not in excess of $ a share to other underwriters or to certain other
dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.
Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to
purchase up to an aggregate of 600,000 additional shares of common stock at
the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock offered hereby. To
the extent such option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares of common stock as the number set forth next to such
underwriter's name in the preceding table bears to the total number of shares
of common stock set forth next to the names of all underwriters in the
preceding table. If the underwriter's over-allotment option is exercised in
full, the total price to public would be $ , the total underwriters'
discounts and commissions would be $ , and the total proceeds to us would be
$ .
We, the directors, officers, stockholders and certain optionholders of
Copper Mountain have each agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, during the
period ending 180 days after the date of this prospectus, we will not,
directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock,
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock, whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of common stock or such other securities, in cash or
otherwise.
64
<PAGE>
The restrictions described in the previous paragraph do not apply to (a) the
sale to the underwriters of the shares of common stock under the underwriting
agreement, (b) the issuance by Copper Mountain of shares of common stock upon
the exercise of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus which is described in this
prospectus, (c) transactions by any person other than Copper Mountain relating
to shares of common stock or other securities acquired in open market
transactions after the completion of the offering of the shares, or (d)
issuances of certain shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans as in existence on the
date of this prospectus.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have submitted an application to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "CMTN."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
Of the 4,000,000 shares of common stock to be offered in this offering, the
underwriters have reserved for sale, at the price set forth on the cover page
of this prospectus, at the request of the Company, up to 153,846 shares of the
Company's common stock. As a result, the number of shares of common stock
available for sale to the general public will be reduced to the extent such
persons purchase the reserved shares. The underwriters will offer to the
general public (on the same basis as the other shares to be sold in this
offering) any reserved shares that are not so purchased.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
Morgan Stanley & Co. Incorporated acted as the placement agent of our series
D preferred stock financing, and in connection with that placement, received a
fee for their services. In addition, entities affiliated with Morgan Stanley &
Co. Incorporated purchased an aggregate of 338,709 shares of our series D
preferred stock, and an affiliate of BancBoston Robertson Stephens, Inc.
purchased 58,065 shares of our series D preferred stock.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the public offering price for the shares of common stock
will be determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be our record of operations, our current financial
position and future prospects, the experience of our management, sales,
earnings and certain of our other financial and operating information in
recent periods, the price-earnings ratios, price-sales ratios, market prices
of securities and certain financial and operating information of companies
engaged in activities similar to ours. The estimated public offering price
range set forth on the cover page of this prospectus is subject to change as a
result of market conditions and other factors.
65
<PAGE>
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward llp, San Diego, California. Certain legal
matters will be passed upon for the underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. As of the date of
this prospectus, certain partners and associates of Cooley Godward LLP and
certain partners and associates of Wilson Sonsini Goodrich & Rosati
beneficially own an aggregate of approximately 60,943 and 15,790 shares of
common stock, respectively, through investment partnerships.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998 and for the period from March 11,
1996 (inception) to December 31, 1996 and for the years ended December 31,
1997 and 1998, as set forth in their report. We've included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the common stock offered hereby. As permitted
by the rules and regulations of the SEC, this prospectus, which is a part of
the Registration Statement, omits certain information, exhibits, schedules and
undertakings set forth in the registration statement. For further information
pertaining to Copper Mountain and the common stock offered hereby, reference
is made to such registration statement and the exhibits and schedules thereto.
Statements contained in this prospectus as to the contents or provisions of
any contract or other document referred to herein are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. A copy of the
registration statement may be inspected without charge at the office of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of all or any part of the registration
statement may be obtained from such offices upon the payment of the fees
prescribed by the SEC. In addition, registration statements and certain other
filings made with the SEC through its Electronic Data Gathering, Analysis and
Retrieval, or EDGAR, system are publicly available through the SEC's Web site
on the Internet's World Wide Web, located at http://www.sec.gov. The
registration statement, including all exhibits thereto and amendments thereof,
was filed with the SEC through EDGAR.
66
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONTENTS
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statement of Stockholders' Equity......................................... F-5
Statements of Cash Flows.................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Copper Mountain Networks, Inc.
We have audited the accompanying balance sheets of Copper Mountain Networks,
Inc. as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity and cash flows for the period March 11, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Copper Mountain Networks,
Inc. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for the period March 11, 1996 (inception) to December 31, 1996 and
for the years ended December 31, 1997 and 1998, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
San Diego, California
February 25, 1999,
except for Note 10, as to which the date is
April 13, 1999
F-2
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
PRO FORMA
STOCKHOLDER'S
1997 1998 1999 EQUITY
------------ ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
ASSETS (NOTE 1)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents........... $ 9,517,000 $ 7,631,000 $ 8,474,000
Short-term
investments........... -- 10,898,000 10,033,000
Accounts receivable.... 183,000 8,026,000 7,262,000
Inventory.............. 383,000 4,668,000 5,067,000
Other current assets... 98,000 476,000 915,000
------------ ------------ ------------
Total current assets.... 10,181,000 31,699,000 31,751,000
Property and equipment,
net.................... 1,905,000 3,214,000 4,239,000
Other assets............ 246,000 1,296,000 1,403,000
------------ ------------ ------------
Total assets............ $ 12,332,000 $ 36,209,000 $ 37,393,000
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 748,000 $ 4,371,000 $ 3,555,000
Accrued liabilities.... 1,435,000 2,219,000 3,493,000
Current portion of
obligations under
capital leases and
equipment notes
payable............... 345,000 783,000 898,000
------------ ------------ ------------
Total current
liabilities............ 2,528,000 7,373,000 7,946,000
Obligations under
capital leases and
equipment notes
payable, less current
portion................ 735,000 1,965,000 1,828,000
Other accrued........... -- 28,000 34,000
Stockholders' equity:
Convertible preferred
stock, no par value,
10,602,464 shares
authorized, 6,997,424,
10,223,230 and
10,223,230 shares
issued and outstanding
at December 31, 1997,
1998 and March 31,
1999 (unaudited),
respectively; $.001
par value, 5,000,000
shares authorized,
none issued and
outstanding in pro
forma (unaudited)
(liquidation
preference of
$45,508,000 at
December 31, 1998).... 20,425,000 44,502,000 44,502,000 $ --
Common stock, $.001 par
value, 29,397,536
shares authorized,
2,230,679, 2,516,873,
3,052,181 and
18,387,005 shares
issued and outstanding
at December 31, 1997,
1998, March 31, 1999
(unaudited), and pro
forma (unaudited),
respectively.......... 2,000 3,000 3,000 18,000
Notes receivable from
stockholders.......... (69,000) (41,000) (41,000) (41,000)
Paid-in capital........ 229,000 1,416,000 1,501,000 45,988,000
Deferred compensation.. -- (1,068,000) (998,000) (998,000)
Accumulated deficit.... (11,518,000) (17,969,000) (17,382,000) (17,382,000)
------------ ------------ ------------ ------------
Total stockholders'
equity................. 9,069,000 26,843,000 27,585,000 27,585,000
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity... $ 12,332,000 $ 36,209,000 $ 37,393,000 $ 37,393,000
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM MARCH YEAR ENDED THREE MONTHS ENDED
11, 1996 DECEMBER 31, MARCH 31,
(INCEPTION) TO ------------------------ ------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............. $ -- $ 211,000 $21,821,000 $ 317,000 $13,217,000
Cost of revenue......... -- 1,717,000 12,400,000 217,000 6,384,000
----------- ----------- ----------- ----------- -----------
Gross profit (loss)..... -- (1,506,000) 9,421,000 100,000 6,833,000
Operating expenses:
Research and
development.......... 1,483,000 4,753,000 7,225,000 1,773,000 2,564,000
Sales and marketing... -- 1,510,000 5,363,000 724,000 2,581,000
General and
administrative....... 553,000 1,928,000 3,428,000 535,000 1,130,000
Amortization of
deferred stock
compensation......... -- -- 49,000 -- 70,000
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 2,036,000 8,191,000 16,065,000 3,032,000 6,345,000
----------- ----------- ----------- ----------- -----------
Income (loss) from
operations............. (2,036,000) (9,697,000) (6,644,000) (2,932,000) 488,000
Interest income......... 47,000 268,000 406,000 113,000 202,000
Interest expense........ (3,000) (97,000) (213,000) (33,000) (55,000)
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... (1,992,000) (9,526,000) (6,451,000) (2,852,000) 635,000
Provision for income
taxes.................. -- -- -- -- 48,000
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $(1,992,000) $(9,526,000) $(6,451,000) $(2,852,000) $ 587,000
=========== =========== =========== =========== ===========
Basic net income (loss)
per share.............. $ (10.66) $ (13.51) $ (4.84) $ ( 2.67) $ .27
=========== =========== =========== =========== ===========
Diluted net income
(loss) per share....... $ (10.66) $ (13.51) $ (4.84) $ (2.67) $ .03
=========== =========== =========== =========== ===========
Shares used to compute
basic net income (loss)
per share.............. 186,938 705,236 1,333,036 1,068,260 2,208,833
=========== =========== =========== =========== ===========
Shares used to compute
diluted net income
(loss) per share....... 186,938 705,236 1,333,036 1,068,260 22,113,672
=========== =========== =========== =========== ===========
Pro forma basic net
income (loss) per share
(unaudited)............ $ (.39) $ .03
=========== ===========
Pro forma diluted net
income (loss) per share
(unaudited)............ $ (.39) $ .03
=========== ===========
Shares used in computing
basic pro forma net
loss per share
(unaudited)............ 16,667,860 17,543,657
=========== ===========
Shares used in computing
pro forma diluted net
income (loss) per share
(unaudited)............ 16,667,860 22,113,672
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
---------------------- ----------------- FROM PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS CAPITAL COMPENSATION DEFICIT EQUITY
---------- ----------- --------- ------ ------------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock at
$0.03 per share
for notes
receivable..... -- $ -- 1,556,604 $2,000 $(42,000) $ 40,000 $ -- $ -- $ --
Issuance of
Series A
convertible
preferred stock
at $1.00 per
share for
cash........... 2,723,000 2,723,000 -- -- -- -- -- -- 2,723,000
Issuance of
Series A
convertible
preferred stock
warrants in
connection with
note payable... -- -- -- -- -- 18,000 -- -- 18,000
Issuance of
common stock at
$0.07 per share
for notes
receivable..... -- -- 408,000 -- (27,000) 27,000 -- -- --
Net loss........ -- -- -- -- -- -- -- (1,992,000) (1,992,000)
---------- ----------- --------- ------ -------- ---------- ---------- ------------ -----------
Balance at
December 31,
1996........... 2,723,000 2,723,000 1,964,604 2,000 (69,000) 85,000 -- (1,992,000) 749,000
Issuance of
Series B
convertible
preferred stock
at $3.39 per
share for cash
and conversion
of convertible
bridge note
payable, net of
offering
expenses of
$76,000........ 1,850,063 6,196,000 -- -- -- -- -- -- 6,196,000
Issuance of
Series C
convertible
preferred stock
at $4.75 per
share for
cash........... 2,422,361 11,506,000 -- -- -- -- -- -- 11,506,000
Exercise of
options to
purchase common
stock.......... -- -- 238,437 -- -- 16,000 -- -- 16,000
Stock grants for
consulting
services....... 2,000 -- 27,638 -- -- 15,000 -- -- 15,000
Issuance of
warrants to
purchase
convertible
preferred stock
in connection
with technology
agreement,
notes payable,
and consulting
services....... -- -- -- -- -- 113,000 -- -- 113,000
Net loss........ -- -- -- -- -- -- -- (9,526,000) (9,526,000)
---------- ----------- --------- ------ -------- ---------- ---------- ------------ -----------
Balance at
December 31,
1997........... 6,997,424 20,425,000 2,230,679 2,000 (69,000) 229,000 -- (11,518,000) 9,069,000
Exercise of
options to
purchase common
stock.......... -- -- 514,635 1,000 -- 60,000 -- -- 61,000
Stock grants for
consulting
services....... -- -- 9,560 -- -- 5,000 -- -- 5,000
Deferred
compensation
related to the
grant of
certain stock
options........ -- -- -- -- -- 1,117,000 (1,117,000) -- --
Amortization
related to
deferred
compensation... -- -- -- -- -- -- 49,000 -- 49,000
Stock forfeited
by employee.... -- -- (238,001) -- 16,000 (16,000) -- -- --
Repayment of
stockholder
note........... -- -- -- -- 12,000 -- -- -- 12,000
Issuance of
Series C
convertible
preferred stock
warrants in
connection with
a financing
agreement...... -- -- -- -- -- 21,000 -- -- 21,000
Issuance of
Series D
convertible
preferred stock
at $7.75 per
share for cash,
net of offering
expenses of
$923,000....... 3,225,806 24,077,000 -- -- -- -- -- -- 24,077,000
Net loss........ -- -- -- -- -- -- -- (6,451,000) (6,451,000)
---------- ----------- --------- ------ -------- ---------- ---------- ------------ -----------
Balance at
December 31,
1998........... 10,223,230 44,502,000 2,516,873 3,000 (41,000) 1,416,000 (1,068,000) (17,969,000) 26,843,000
Exercise of
options to
purchase common
stock
(unaudited).... -- -- 534,933 -- -- 83,000 -- -- 83,000
Stock grants for
consulting
services
(unaudited).... -- -- 375 -- -- 2,000 -- -- 2,000
Amortization
related to
deferred
compensation
(unaudited).... -- -- -- -- -- -- 70,000 -- 70,000
Net income
(unaudited).... -- -- -- -- -- -- -- 587,000 587,000
---------- ----------- --------- ------ -------- ---------- ---------- ------------ -----------
Balance at March
31, 1999
(unaudited).... 10,223,230 $44,502,000 3,052,181 $3,000 $(41,000) $1,501,000 $ (998,000) $(17,382,000) $27,585,000
========== =========== ========= ====== ======== ========== ========== ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 11,
1996 THREE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
TO DECEMBER ------------------------- -----------------------
31, 1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $(1,992,000) $(9,526,000) $ (6,451,000) $(2,852,000) $ 587,000
Adjustments to reconcile
net income (loss) to
net cash used in
operating activities:
Depreciation and
amortization.......... 109,000 511,000 1,231,000 233,000 489,000
Noncash compensation... 1,000 13,000 54,000 -- 72,000
Changes in operating
assets and
liabilities:
Accounts receivable... -- (183,000) (7,843,000) (142,000) 764,000
Inventory............. -- (383,000) (4,285,000) (466,000) (399,000)
Other current assets
and other assets..... (58,000) (155,000) (1,469,000) (194,000) (551,000)
Accounts payable and
accrued liabilities.. 448,000 1,735,000 4,435,000 (567,000) 464,000
----------- ----------- ------------ ----------- ----------
Net cash provided by
(used in) operating
activities............. (1,492,000) (7,988,000) (14,328,000) (3,988,000) 1,426,000
INVESTING ACTIVITIES
Purchases of short-term
investments, net....... -- -- (10,898,000) -- 865,000
Purchases of property
and equipment.......... (682,000) (1,515,000) (1,171,000) -- (1,509,000)
----------- ----------- ------------ ----------- ----------
Net cash used for
investing activities... (682,000) (1,515,000) (12,069,000) -- (644,000)
FINANCING ACTIVITIES
Proceeds from issuance
of equipment notes
payable................ 367,000 615,000 921,000 566,000 82,000
Proceeds from
convertible bridge note
payable................ 2,500,000 -- -- -- --
Payments on capital
lease obligations...... -- (18,000) (293,000) (40,000) (33,000)
Payments on equipment
notes payable.......... (10,000) (201,000) (267,000) (70,000) (71,000)
Proceeds from issuance
of preferred stock..... 2,723,000 15,202,000 24,077,000 -- --
Proceeds from issuance
of common stock........ -- 16,000 73,000 12,000 83,000
----------- ----------- ------------ ----------- ----------
Net cash provided by
financing activities... 5,580,000 15,614,000 24,511,000 468,000 61,000
----------- ----------- ------------ ----------- ----------
Net increase (decrease)
in cash and cash
equivalents............ 3,406,000 6,111,000 (1,886,000) (3,520,000) 843,000
Cash and cash
equivalents at
beginning of the
period................. -- 3,406,000 9,517,000 9,517,000 7,631,000
----------- ----------- ------------ ----------- ----------
Cash and cash
equivalents at end of
the period............. $ 3,406,000 $ 9,517,000 $ 7,631,000 $ 5,997,000 $8,474,000
=========== =========== ============ =========== ==========
SUPPLEMENTAL SCHEDULE OF
INVESTING AND FINANCING
ACTIVITIES:
Interest paid........... $ -- $ 74,000 $ 150,000 $ 21,000 $ 46,000
=========== =========== ============ =========== ==========
Capital lease
obligations entered
into for equipment..... $ -- $ 327,000 $ 1,307,000 $ 832,000 $ --
=========== =========== ============ =========== ==========
Conversion of
convertible bridge note
payable to preferred
stock.................. $ -- $ 2,500,000 $ -- $ -- $ --
=========== =========== ============ =========== ==========
Stock issued (forfeited)
for notes receivable... $ 69,000 $ -- $ (16,000) $ (16,000) $ --
=========== =========== ============ =========== ==========
Issuance of convertible
preferred stock
warrants............... $ 18,000 $ 113,000 $ 21,000 $ -- $ --
=========== =========== ============ =========== ==========
Issuance of stock for
consulting services.... $ 1,000 $ 13,000 $ 5,000 $ -- $ 2,000
=========== =========== ============ =========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 AND PERTAINING TO MARCH 31, 1999
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
Copper Mountain Networks, Inc. (the "Company" or "Copper Mountain") was
incorporated in California on March 11, 1996, and is a supplier of high-speed
DSL-based communication solutions for the broadband access market. The
Company's solutions enable telecommunication service providers to provide high
speed, cost effective connectivity over the existing copper wire
infrastructure to the business, multiple tenant unit and residential markets.
During the period from March 11, 1996 to December 31, 1997, Copper Mountain
was a developmental stage company as defined in Financial Accounting Standards
Board Statement No. 7 "Development Stage Enterprises." Planned principal
operations commenced as of January 1, 1998 and, accordingly, Copper Mountain
is no longer considered a developmental stage company.
Management Estimates and Assumptions
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 at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Interim Financial Data
The financial statements for the three months ended March 31, 1998 and 1999
are unaudited. The unaudited financial statements have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary to state fairly the financial information set forth
therein, in accordance with generally accepted accounting principles.
The results of operations for the interim period ended March 31, 1999 are
not necessarily indicative of the results which may be reported for any other
interim period or for the year ending December 31, 1999.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. The carrying value of these instruments approximates fair value.
The Company generally invests its excess cash in debt instruments of the U.S.
Treasury, government agencies and corporations with strong credit ratings.
Such investments are made in accordance with the Company's investment policy,
which establishes guidelines relative to diversification and maturities
designed to maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest
rates. The Company has not experienced any losses on its cash and cash
equivalents.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, short-term investments,
accounts receivable, accounts payable, accrued liabilities, short-term bank
borrowings and notes payable approximates fair value.
F-7
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Investments
At December 31, 1998, the Company held investments in investment grade debt
securities with various maturities through August 1999. Management determines
the appropriate classification of its investments in debt securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. The Company's total investments in these securities as of December 31,
1998 totaled $12,896,000. The Company has included $1,998,000 of these
securities in cash and cash equivalents, as of December 31, 1998, as they have
original maturities of less than 90 days. The remaining $10,898,000 as of
December 31, 1998 has been classified as short-term investments. The Company
has designated all of its investments as held to maturity.
Concentration of Credit Risk
The Company operates in one business segment, developing, marketing and
supporting advanced communications products which enable high-speed data
access to business, multi-tenant unit and residential users. The markets for
high-speed data access products are characterized by rapid technological
developments, frequent new product introductions, changes in end user
requirements and evolving industry standards. The Company's future success
will depend on its ability to develop, introduce and market enhancements to
its existing products, to introduce new products in a timely manner which meet
customer requirements and to respond to competitive pressures and
technological advances. Further, the emergence of new industry standards,
whether through adoption by official standards committees or widespread use by
telephone companies or other telecommunications service providers, could
require the Company to redesign its products.
A relatively small number of customers account for a significant percentage
of the Company's revenues. The Company expects that the sale of its products
to a limited number of customers may continue to account for a high percentage
of revenues for the foreseeable future. The Company's revenues for the year
ended December 31, 1998 include sales to two significant customers totaling
$13,227,000 and $3,995,000, respectively. The Company's four largest customers
(by revenues) generated approximately 95% of the Company's total revenues for
the year ended December 31, 1998.
The Company performs ongoing credit evaluations of its customers and
generally requires no collateral. The Company had significant accounts
receivable balances due from three customers individually representing 63%,
11% and 10% of total accounts receivable at December 31, 1998.
The Company from time to time maintains a substantial portion of its cash
and cash equivalents in money market accounts with one financial institution.
The Company invests its excess cash in debt instruments of the U.S. Treasury,
governmental agencies and corporations with strong credit ratings. The Company
has established guidelines relative to diversification and maturities that
attempt to maintain safety and liquidity. The Company has not experienced any
significant losses on its cash equivalents or short-term investments.
Inventory
Inventory is stated at the lower of cost, principally standard costs, which
approximate actual costs on a first-in, first-out basis, or market. The
Company recorded charges to reduce the carrying costs of inventory totaling
$897,000 and $504,000 for the years ended December 31, 1997 and 1998,
respectively. The reduction in the value of the inventory was primarily due to
the discontinuance of certain product lines, which was the result of the
development and introduction of new products. Included in the 1997 charge were
commitments totaling $582,000 to purchase inventory used in the production of
the discontinued product lines, which had not yet been received by December
31, 1997. Such commitments are included in accrued liabilities. The charges
for the years ended December 31, 1997 and 1998 are included in cost of
revenues.
F-8
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets, ranging from three to seven years, using the
straight-line method.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment or, in some
cases, on customer receipt if collection of the resulting receivable is
probable and product returns can be reasonably estimated. Sales returns are
estimated based on historical experience and management's expectations and are
recorded at the time product revenue is recognized.
Revenue from service and support arrangements is recognized ratably as
services are performed. Annual service and support arrangements can be
purchased by customers for products no longer under warranty and are billed
quarterly.
The Company may extend limited stock rotation, product return and price
protection rights to certain distributors and resellers. The Company may not
be able to estimate product returns if the relationship with the distributor
is new or if there is limited historical basis to determine product returns.
Deferred revenue, which is included in accrued liabilities, represents the
margin on shipments of products to distributors or resellers that will be
recognized when the Company can reasonably estimate product returns.
Research and Development Costs
Costs incurred in connection with research and development are charged to
operations as incurred.
Software Costs
Software product development costs incurred from the time technological
feasibility is reached until the product is available for general release to
customers are capitalized and reported at the lower of cost or net realizable
value. Through December 31, 1998, no significant amounts were expended
subsequent to reaching technological feasibility.
Impairment of Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery
of the asset's carrying value unlikely. An impairment loss would be measured
and recognized when the sum of the expected future undiscounted net cash flows
is less than the carrying amount of the asset. The Company has identified no
such impairment losses.
Warranty Reserves
The Company provides limited warranties on certain of its products for
periods of up to one year. The Company recognizes warranty reserves when
products are shipped based upon an estimate of total warranty costs, and such
reserves are included in current liabilities.
Income Taxes
Deferred income taxes result primarily from temporary differences between
financial and tax reporting. Deferred tax assets and liabilities are
determined based on the difference between the financial statement bases
F-9
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and the tax bases of assets and liabilities using enacted tax rates. A
valuation allowance is established to reduce a deferred tax asset to the
amount that is expected more likely than not to be realized.
The provision for income taxes for the three months ending March 31, 1999 is
based on an estimate of the effective tax rate for the entire year.
Stock Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss and net loss per share as if the fair value method had
been applied in measuring compensation expense (See Note 5). Options or stock
awards issued to non-employees are valued using the fair value method and
expensed over the period services are provided.
Net Income (Loss) Per Share and Pro Forma Stockholders' Equity
Historical basic and diluted net loss per share has been computed in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share," using the weighted-average number of shares of common
stock outstanding during the period. Options, warrants, and preferred stock
were not included in the computation of diluted net loss per share because the
effect would be anti-dilutive.
Pro forma net income (loss) per share has been computed as described above
and also gives effect to common equivalent shares from preferred stock that
will automatically convert upon the closing of the Company's initial public
offering (using the as-if-converted method). If the offering contemplated by
this Prospectus is consummated, all of the convertible preferred stock
outstanding as of the closing date will automatically be converted into an
aggregate of 15,334,824 shares of common stock based on the shares of
convertible preferred stock outstanding at December 31, 1998. Unaudited pro
forma stockholders' equity at December 31, 1998, as adjusted for the
conversion of the convertible preferred stock, is disclosed on the balance
sheet.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
98, common shares issued in each of the periods presented for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No such shares have been
issued.
A reconciliation of shares used in the calculation of historical and pro
forma basic and diluted net income (loss) per share attributable to common
shareholders is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------ -----------------------------------
PRO FORMA PRO FORMA
1996 1997 1998 1998 1998 1999 1999
------- ------- --------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average shares
outstanding............ 186,938 705,236 1,333,036 1,333,036 1,068,260 2,208,833 2,208,833
Adjustment to reflect
the assumed conversion
of outstanding
preferred stock........ -- -- -- 15,334,824 -- -- 15,334,824
------- ------- --------- ---------- --------- ---------- ----------
Shares used in computing
basic net income (loss)
per common share....... 186,938 705,236 1,333,036 16,667,860 1,068,260 2,208,833 17,543,657
Dilutive securities..... -- -- -- -- -- 19,904,839 4,570,015
------- ------- --------- ---------- --------- ---------- ----------
Shares used in computing
diluted net income
(loss) per common
share.................. 186,938 705,236 1,333,036 16,667,860 1,068,260 22,113,672 22,113,672
======= ======= ========= ========== ========= ========== ==========
</TABLE>
Dilutive securities include options, warrants, preferred stock as if
converted and restricted stock subject to vesting. Potentially dilutive
securities totaling 6,933,441, 13,812,858 and 20,442,440 for the years end
F-10
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1996, 1997 and 1998, respectively, and 13,826,375 and none for
the three month periods ended March 31, 1998 and 1999, respectively, were
excluded from historical diluted earnings per share because of their anti-
dilutive effect.
Recapitalization
In November 1998, the Company filed a Certificate of Amendment to its
Articles of Incorporation to effect a three for two forward stock split of all
outstanding shares of common stock and stock options. The Amended and Restated
Certificate of Incorporation increases the authorized stock of the Company
such that the Company is authorized to issue 10,602,464 shares of no par value
preferred stock, and 29,397,536 shares of no par value common stock. The
conversion ratio of the Company's preferred stock is automatically modified to
reflect this common stock split. All common shares, common stock options and
related per share data in the accompanying financial statements have been
adjusted retroactively to give effect to the stock split.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components
of comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. There was no difference
between the Company's net loss and its total comprehensive loss for the years
ended December 31, 1996, 1997 and 1998.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs, which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company has adopted the provisions of SOP 98-1 during
the three months ended March 31, 1999 with no material effect.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities"(SOP
98-5). This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company has
adopted the provisions of SOP 98-5 during the three months ended March 31,
1999 with no material effect.
F-11
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Inventory:
Raw materials.......................... $ 332,000 $ 2,582,000 $2,636,000
Work in process........................ -- 790,000 1,178,000
Finished goods......................... 51,000 1,296,000 1,253,000
---------- ----------- ----------
$ 383,000 $ 4,668,000 $5,067,000
========== =========== ==========
Property and Equipment:
Laboratory equipment and software...... $ 868,000 $ 2,265,000 $3,258,000
Computer equipment and software........ 1,296,000 1,885,000 2,291,000
Office furniture and equipment......... 360,000 840,000 950,000
---------- ----------- ----------
2,524,000 4,990,000 6,499,000
Less accumulated depreciation and
amortization............................ (619,000) (1,776,000) (2,260,000)
---------- ----------- ----------
$1,905,000 $ 3,214,000 $4,239,000
========== =========== ==========
Accrued Liabilities:
Accrued compensation................... $ 294,000 $ 621,000 $946,000
Accrued vacation....................... 278,000 493,000 408,000
Accrued warranty....................... 2,000 418,000 685,000
Accrued purchase commitments........... 582,000 -- --
Other.................................. 279,000 687,000 1,454,000
---------- ----------- ----------
$1,435,000 $ 2,219,000 $3,493,000
========== =========== ==========
</TABLE>
3. SHORT-TERM BANK BORROWINGS
In August 1998, the Company entered into a $4,000,000 line of credit
agreement with a bank which allows it to borrow an amount equal to 80% of
eligible accounts receivable plus the lesser of 25% of the Company's eligible
inventory or $500,000. Interest accrues at the bank's prime rate plus .25%
(8.0% at December 31, 1998). The credit agreement includes covenants, which,
among other things, require the Company to maintain stated net worth amounts
plus specific liquidity and long-term solvency ratios. The line of credit
expires on August 13, 1999. Amounts borrowed are secured by substantially all
of the Company's assets. There were no borrowings outstanding as of December
31, 1998.
In connection with this financing agreement, the Company granted warrants to
the bank to purchase an aggregate of 25,000 shares of Series C convertible
preferred stock at $4.75 per share. The warrants are exercisable for five
years from the date of issuance. The estimated fair value of the warrants was
approximately $21,000, which has been capitalized as debt issuance costs and
is being amortized over the life of the financing agreement.
4. NOTES PAYABLE
In August 1998, the Company entered into an equipment line of credit with a
bank that allows the Company to borrow up to $1,000,000 for the purchase of
equipment. All borrowings under the equipment line must be made before August
14, 1999, at which time all unpaid principal under such loan will be converted
into a fully amortizing loan for a period of 36 months with a maturity date of
August 14, 2002. As of December 31, 1998 there was $921,000 outstanding under
the equipment line of credit.
F-12
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In 1996, the Company entered into an equipment financing agreement with a
bank and leasing company that allows the Company to borrow up to $1,000,000
for purchases of equipment. The notes are secured by the related equipment. As
of December 31, 1998 the full amount of funds available under the equipment
financing agreement was utilized.
In connection with the equipment financing agreement, the Company agreed to
make a final payment equal to 12.5% of the equipment financed at the end of
the amortization period. Additionally, the Company granted warrants to the
bank and leasing company to purchase an aggregate of 50,000 shares of Series A
convertible preferred stock at $1.00 per share. The warrants are exercisable
for the longer of ten years from the date of issuance or five years after an
initial public offering. The estimated fair value of the warrants was
approximately $18,000, which has been capitalized as debt issuance costs and
is being amortized over the life of the equipment financing agreement.
In December 1996, the Company received $2,500,000 in connection with a
convertible bridge note payable that accrued interest at 8.0% per annum.
During 1997, the note was converted into Series B convertible preferred stock
at a rate of $3.39 per share.
A summary of the notes payable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank and leasing company installment loans,
with various maturity dates through
December 2000, total monthly payments of
$27,000 with interest rates ranging between
8.99% and 9.76%, collateralized by
equipment.................................. $ 771,000 $ 504,000 $ 508,000
Bank installment loan, with a maturity date
of August 2002, interest only payments
until August 1999 with a variable interest
rate at the bank prime rate plus 0.25%,
collateralized by equipment................ -- 921,000 1,000,000
--------- ---------- ----------
771,000 1,425,000 1,508,000
Less current portion........................ (267,000) (395,000) (497,000)
--------- ---------- ----------
$ 504,000 $1,030,000 $1,011,000
========= ========== ==========
</TABLE>
At December 31, 1998, future aggregate annual principal payments on the
notes payable are $395,000, $519,000, $307,000 and $204,000 for 1999, 2000,
2001 and 2002, respectively.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
A summary of convertible preferred stock issued and outstanding at December
31, 1998 is as follows:
<TABLE>
<CAPTION>
SHARES
ISSUED AND LIQUIDATION
OUTSTANDING PREFERENCE
----------- -----------
<S> <C> <C>
Series A............................................. 2,723,000 $ 2,723,000
Series B............................................. 1,852,063 6,279,000
Series C............................................. 2,422,361 11,506,000
Series D............................................. 3,225,806 25,000,000
---------- -----------
10,223,230 $45,508,000
========== ===========
</TABLE>
F-13
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has authorized for issuance 10,602,464 shares of preferred stock
of which 2,773,000, 1,999,464, 2,530,000 and 3,300,000 shares have been
authorized for Series A, Series B, Series C and Series D convertible preferred
stock, respectively. At the option of the holder, the outstanding shares of
Series A, Series B, Series C and Series D convertible preferred stock are
convertible into common shares, subject to adjustment for antidilution, on a
three-for-two basis. The preferred stockholders have voting rights equal to
the common shares they would own upon conversion.
The Series A and Series B convertible preferred stock will automatically
convert into common shares upon the earlier of the closing of an underwritten
public offering of common stock under the Securities Act of 1933 in which the
Company receives at least $5,000,000 in gross proceeds at a price of at least
$5.00 per share, or on the date specified by written consent or agreement of
the holders of 66 2/3% of the then outstanding shares of each of the Series A
and Series B convertible preferred stock.
The Series C convertible preferred stock will automatically convert into
common shares upon the earlier of the closing of an underwritten public
offering of common stock under the Securities Act of 1933 in which the Company
receives at least $10,000,000 in gross proceeds at a price of at least $9.50
per share, or on the date specified by written consent or agreement of the
holders of 66 2/3% of the then outstanding shares of Series C convertible
preferred stock.
The Series D convertible preferred stock will automatically convert into
common shares upon the earlier of the closing of an underwritten public
offering of common stock under the Securities Act of 1933 in which the Company
receives at least $20,000,000 in gross proceeds at a price of at least $12.00
per share if the closing of such public offering occurs on or before March 30,
2000, and at a per share issuance price of at least $15.50 per share if the
closing of such public offering occurs after March 30, 2000. Additionally, the
Series D convertible preferred stock will automatically convert on the date
specified by written consent or agreement of the holders of more than a
majority of the then outstanding shares of Series D convertible preferred
stock.
In the event of a liquidation of the Company, holders of Series A, Series B,
Series C and Series D convertible preferred stock are entitled to a
liquidation preference of $1.00, $3.39, $4.75 and $7.75 per share,
respectively, plus any declared but unpaid dividends on such shares. If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of the convertible preferred stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, the entire
assets and funds of the corporation legally available for distribution shall
be distributed ratably among the holders of the convertible preferred stock in
proportion to the aggregate liquidation preferences of the respective shares,
and ratably among the holders of that series in proportion to the amount of
such stock owned by each such holder. Any remaining assets of the Company are
to be distributed to the common stockholders.
The holders of Series A, Series B, Series C and Series D convertible
preferred stock are entitled to receive annual noncumulative dividends of
$.08, $.27, $.38 and $.62 per share, respectively, when, as and if declared by
the Board of Directors, prior and in preference to holders of common stock. As
of December 31, 1998, no dividends have been declared.
Common Stock
The Company has issued 1,964,604 shares of common stock to the founders of
the Company at prices ranging from $.03 to $.07 per share in exchange for
promissory notes bearing interest at rates ranging from 5.5% to 10% and
maturing March 12, 2000. The Company has the option to repurchase, at the
original issue price, unvested shares in the event of termination of
employment. In 1998, 238,001 unvested common shares were forfeited upon the
termination of one of the founders. Shares issued under these agreements
generally vest over four years. At December 31, 1998, 486,439 shares of common
stock are subject to repurchase by the Company.
F-14
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Stock Options
In August 1996, the Company adopted the 1996 Equity Incentive Plan (the
"Plan") and reserved 2,190,720 shares of common stock for grants under the
Plan. The Company has amended the plan to reserve an additional 3,932,663
shares of common stock under the Plan. The Plan provides for the grant of
incentive and nonstatutory stock options, stock bonuses and rights to purchase
stock to employees, directors or consultants of the Company. The Plan provides
that incentive stock options will be granted only to employees at no less than
the fair value of the Company's common stock (no less than 85% of the fair
value for nonstatutory stock options), as determined by the Board of Directors
at the date of the grant. Options generally vest 25% one year from date of
grant and ratably each month thereafter for a period of 36 months, and are
exercisable up to ten years from date of grant.
Certain option grants under the Plan are subject to an early exercise
provision. Common shares obtained on early exercise of unvested options are
subject to repurchase by the Company at the original issue price and will vest
according to the respective option agreement. At December 31, 1998, 105,000
shares are subject to repurchase by the Company.
The purchase price under each stock purchase agreement resulting from stock
bonuses and purchase rights granted will be at no less than 85% of the fair
value of the Company's common stock on the award date. Shares of stock sold or
awarded under the Plan may be subject to repurchase by the Company.
All stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Granted................................................. 1,160,700 $ .07
Exercised............................................... -- --
Cancelled............................................... -- --
---------
Balance at December 31, 1996............................. 1,160,700 $ .07
Granted................................................. 1,069,725 $ .23
Exercised............................................... (238,437) $ .07
Cancelled............................................... (115,563) $ .07
---------
Balance at December 31, 1997............................. 1,876,425 $ .16
Granted................................................. 3,086,812 $ .66
Exercised............................................... (514,641) $ .12
Cancelled............................................... (183,125) $ .23
---------
Balance at December 31, 1998............................. 4,265,471 $ .52
Granted (unaudited)..................................... 1,232,500 $10.22
Exercised (unaudited)................................... (534,933) $ .16
Cancelled (unaudited)................................... (813) $ 1.25
---------
Balance at March 31, 1999 (unaudited).................... 4,962,225 $ 2.97
=========
</TABLE>
As of December 31, 1996, 1997, and 1998 there were 735,450, 614,734 and
630,139, options, respectively, exercisable at weighted average exercise
prices of $.07, $.08 and $.17, respectively.
F-15
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes all options outstanding and exercisable by
price range as of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------
WEIGHTED WEIGHTED
RANGE OF WEIGHTED AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
----------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.07 455,144 7.84 $ .07 291,241 $.07
$.23-$.32 2,950,827 9.20 $ .30 328,896 $.25
$.53-$1.33 712,500 9.77 $ .82 10,002 $.53
$5.00 147,000 9.96 $5.00 -- --
</TABLE>
The following table summarizes all options outstanding and exercisable by
price range as of March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------
WEIGHTED WEIGHTED
RANGE OF WEIGHTED AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
----------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.07 195,138 7.61 $ .07 55,374 $ .07
$.23-$.32 2,688,340 9.02 $ .31 198,802 $ .29
$.53-$1.33 699,247 9.53 $ .83 5,001 $ .53
$5.00-$7.00 538,500 9.80 $ 6.45 -- --
$8.50-$12.00 841,000 8.55 $11.72 180,000 $12.00
</TABLE>
Stock Based Compensation
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" to account for their employee stock option plans. Under
APB No. 25, when the exercise price of the Company's employee stock options
equals the fair value price of the underlying stock on the date of grant, no
compensation expense is recognized in the Company's financial statements. With
respect to certain options granted during 1998, the Company has recorded
deferred compensation of $1,117,000, for the difference at the grant date
between the exercise price per share and the fair value per share, based upon
the Board of Directors' estimate of the fair value of the Company's stock on
the various grant dates of the common stock underlying the options. This
amount is being amortized over the vesting period of the individual options,
generally four years.
Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net loss would have
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss as reported................ $(1,992,000) $(9,526,000) $(6,451,000)
Pro forma net loss under SFAS No.
123................................ (2,006,000) (9,540,000) (6,462,000)
Pro forma basic and diluted net loss
under SFAS No. 123................. $ (10.73) $ (13.53) $ (4.85)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted-average assumptions: no
dividend yield; risk free interest rate of 5.7% to 6.5%; and expected life for
the option of five years.
The weighted-average estimated fair value of employee stock options granted
during 1996, 1997 and 1998 was $.02, $.06 and $.16 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the vesting period.
F-16
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Warrants
In January 1997, the Company entered into an agreement with a corporate
partner, whereby the two companies exchanged certain technology and services.
In addition, the Company issued a warrant to such corporate partner to
purchase 147,401 shares of Series B convertible preferred stock at a price of
$3.39 per share. The warrant is exercisable for four years following the date
of issuance. The estimated fair value of the warrant was $88,000, which has
been capitalized as an intangible asset and is being amortized over the two-
year term of the agreement.
Common Shares Reserved for Future Issuance
At December 31, 1998, common shares reserved for future issuance consist of
the following:
<TABLE>
<S> <C>
Conversion of convertible preferred stock......................... 15,334,824
Preferred stock warrants.......................................... 355,706
Shares reserved for future option exercises....................... 5,370,305
----------
21,060,835
==========
</TABLE>
6. COMMITMENTS
The Company leases its facilities under noncancelable operating leases
expiring in 2001. The leases contain renewal options and are subject to cost
increases. Included in the minimum payments under the noncancelable operating
leases for the year ending December 31, 1999 is $147,000 due from the sub-
lease of certain facilities. Rent expense totaled $69,000 $219,000 and
$501,000 for the period from March 11, 1996 (inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998, respectively.
Future minimum payments under the noncancelable operating leases and
equipment under capital leases consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
Year ending December 31,
1999................................................ $ 791,000 $ 471,000
2000................................................ 928,000 471,000
2001................................................ 568,000 443,000
2002................................................ 156,000 98,000
2003................................................ 106,000 --
---------- ----------
Total minimum lease payments.......................... $2,549,000 1,483,000
==========
Less amount representing interest..................... (160,000)
----------
Total present value of minimum payments............... 1,323,000
Less current portion.................................. (388,000)
----------
Non-current portion................................... $ 935,000
==========
</TABLE>
During September 1997, the Company entered into a capital lease agreement,
which allows for the Company to borrow up to $1,750,000 to finance capital
expenditures. As of December 31, 1998, the Company has $116,000 available for
future borrowings under the capital lease agreement. Equipment held under the
capital leases totaled $327,000 and $1,743,000 and the related accumulated
amortization totaled $45,000 and $559,000 at December 31, 1997 and 1998,
respectively. The obligations under the capital leases are secured by the
related equipment.
F-17
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the capital lease agreement, the Company issued a
warrant to the lessor to purchase 14,737 shares of Series C convertible
preferred stock at a price of $4.75 per share. The warrant is exercisable for
the longer of ten years from the date of issuance or five years after an
initial public offering. The estimated fair value of the warrant was $25,000,
which has been capitalized as debt issuance costs and is being amortized over
the life of the financing agreement.
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1997 and 1998 are shown below. A valuation allowance of $7,781,000 has
been recorded at December 31, 1998 to offset the net deferred tax assets as
realization is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax liability:
Depreciation.................................... $ (21,000) $ (12,000)
Deferred tax assets:
Tax credit carryforwards........................ 571,000 1,185,000
Net operating loss carryforwards................ 4,000,000 5,757,000
Other, net...................................... 456,000 851,000
----------- -----------
Total deferred tax assets......................... 5,027,000 7,793,000
Valuation allowance............................... (5,006,000) (7,781,000)
----------- -----------
Net deferred tax assets........................... $ -- $ --
=========== ===========
</TABLE>
The Company had federal and California tax net operating loss carryforwards
at December 31, 1998 of approximately $14,368,000 and $15,168,000,
respectively. The federal and California tax loss carryforwards will begin to
expire in 2011 and 2004, respectively, unless previously utilized. The Company
also has federal and California research tax credit carryforwards of
approximately $876,000 and $475,000, respectively, which will begin to expire
in 2011 unless previously utilized.
Pursuant to Internal Revenue Service Code Sections 382 and 383, use of the
Company's net operating loss carryforwards may be limited because of a
cumulative change in ownership of more than 50% which occurred in prior years.
However, the Company does not believe such limitations will have a material
impact on the Company's ability to use these carryforwards.
8. EMPLOYEE SAVINGS PLAN
The Company has a 401(k) plan, which allows participating employees to
contribute up to 15% of their salary, subject to annual limits. The Board of
Directors may, at its sole discretion, approve Company contributions. No such
contributions have been approved or made.
9. RELATED PARTY TRANSACTIONS
At December 31, 1998, the Company had a note receivable from an officer with
a face value of $1,000,000 included in other assets. This note was issued in
connection with the officer's employment and relocation agreement. The note
bears no interest, is secured by the officer's residence and is due at the
earlier of March 30, 2003, or 15 days from the date the officer ceases to be
an employee of the Company.
F-18
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. RECENT EVENTS (UNAUDITED)
In April 1999, the Company reincorporated as a Delaware corporation. The
authorized shares of the Company was set at 100,000,000 shares of common stock
($.001 par value) and 5,000,000 shares of preferred stock ($.001 par value).
Under the restated certificate, the board has the authority, without further
action by stockholders, to issue up to 5,000,000 shares of preferred stock in
one or more series and to fix the rights, preferences, privileges,
qualifications and restrictions granted to or imposed upon such preferred
stock. The issuance of preferred stock could adversely affect the voting power
of holders of common stock. All common share data in the accompanying
financial statements have been adjusted retroactively to give effect to the
reincorporation.
In February 1999, the Company adopted the 1999 Employee Stock Purchase Plan.
The purchase plan is intended to qualify under Section 423 of the Internal
Revenue Code. A total of 300,000 shares of common stock are reserved for
issuance under the purchase plan. The price of shares purchased under the
purchase plan is equal to 85% of the fair market value of the common stock on
the first or last day of the offering period, whichever is lower.
In March 1999, the Company entered into an operating lease for its San Diego
operations. The lease has a commencement date of June 1, 1999 with an initial
term of six years. The Company has one option to extend the lease term for a
period of five years. Initial future minimum lease payments total $113,000 per
year, and are subject to cost increases of 3% per year.
In March 1999, the Company adopted the 1999 Non-Employee Directors' Stock
Option Plan to provide for the automatic grant of options to purchase shares
of common stock to non-employee directors. A total of 360,000 shares have been
reserved for issuance under this plan. As of March 31, 1999, 180,000 options
had been granted under this plan at a exercise price of $12 per share.
In March 1999, the Company amended the 1996 Equity Incentive Plan to reserve
for an additional 1,750,000 shares for future grants.
F-19
<PAGE>
[COPPER MOUNTAIN NETWORKS, INC. LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
Registration fee.............................................. $ 17,904
NASD filing fee............................................... 6,500
Nasdaq Stock Market Listing Application fee................... 95,000
Blue sky qualification fees and expenses...................... 5,000
Printing and engraving expenses............................... 125,000
Legal fees and expenses....................................... 275,000
Accounting fees and expenses.................................. 150,000
Transfer agent and registrar fees............................. 10,000
Miscellaneous................................................. 65,596
--------
Total....................................................... 750,000
========
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception (March 11, 1996), the Registrant has sold and issued the
following unregistered securities:
(a) On April 10, 1996 the Registrant issued and sold 2,723,000 shares of
its Series A Preferred Stock to certain accredited investors for an
aggregate purchase price of $2,723,000. Upon the closing of this offering,
the shares of Series A Preferred Stock will automatically convert into
4,084,500 shares of common stock. The Registrant relied on the exemption
provided by Section 4(2) under the Act.
(b) On October 4, 1996, in connection with the execution of an equipment
financing agreement with Silicon Valley Bank ("SVB") and MMC/GATV
Partnership 1 ("MMC"), the Registrant issued to SVB and MMC warrants to
purchase up to 10,000 and 40,000 shares, respectively, of Series A
Preferred Stock. These two warrants have an exercise price of $1.00 per
share and expire on October 4, 2006. Upon the closing of this offering,
these warrants will become exercisable for common stock at the rate of one
and one-half shares of common stock for each share of preferred stock
underlying the warrants. The Registrant relied on the exemption provided by
Section 4(2) under the Act.
(c) On January 14, 1997, the Registrant issued and sold 1,852,063 shares
of Series B Preferred Stock to certain accredited investors for an
aggregate purchase price of $6,278,493. Upon the closing of this offering
the shares of Series B Preferred Stock will automatically convert into
2,778,092 shares of common stock. The Registrant relied on the exemption
provided by Section 4(2) under the Act.
(d) On January 14, 1997, in connection with the execution of the ATM
Technology Agreement between the Company and Intel Corporation ("Intel"),
the Company issued to Intel a warrant to purchase up to 147,401 shares of
Series B Preferred Stock at an exercise price of $3.39 per share. This
warrant expires on January 14, 2004. Upon the closing of this offering,
this warrant will become exercisable for common stock at the rate of one
and one-half shares of common stock for each share of preferred stock
underlying the warrant. The Registrant relied on the exemption provided by
Section 4(2) under the Act.
(e) On October 29, 1997, the Registrant issued and sold 2,422,361 shares
of its Series C Preferred Stock to certain accredited investors for an
aggregate purchase price of $11,506,215. Upon the closing of this offering,
the shares of Series C Preferred Stock will automatically convert into
3,633,534 shares of common stock. The Registrant relied on the exemption
provided by Section 4(2) under the Act.
II-1
<PAGE>
(f) On August 14, 1998, in connection with the execution of the Loan and
Security Agreement with SVB, the Company issued to SVB a warrant to
purchase up to 25,000 shares of Series C Preferred Stock at an exercise
price of $4.75 per share. Upon the closing of this offering, this warrant
will become exercisable for common stock at the rate of one and one-half
shares of common stock for each share of preferred stock underlying the
warrant. This warrant expires on August 14, 2003. The Registrant relied on
the exemption provided by Section 4(2) under the Act.
(g) On October 29, 1997 and on April 27, 1998, in connection with the
execution of the Master Lease Agreement with Comdisco, Inc. ("Comdisco")
the Company issued to Comdisco warrants to purchase 8,421 and 6,316 shares
of Series C Preferred Stock at an exercise price of $4.75 per share. These
warrants expire on October 29, 2007 and on April 27, 2008. Upon the closing
of this offering, these warrants will become exercisable for common stock
at the rate of one and one-half shares of common stock for each share of
preferred stock underlying the warrants. The Registrant relied on the
exemption provided by Section 4(2) under the Act.
(h) On October 9, 1998, the Registrant issued and sold 3,225, 806 shares
of its Series D Preferred Stock to certain to certain accredited investors
for an aggregate purchase price of $24,999,997. Upon the closing of this
offering, the shares of Series D Preferred Stock will automatically convert
into 4,838,698 shares of common stock. The Registrant relied on the
exemption provided by Section 4(2) under the Act.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. All recipients had adequate access,
through employment or other relationships, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation effective prior to reincorporation of the
Company in Delaware.*
3.2 Bylaws effective prior to reincorporation of the Company in
Delaware.*
3.3 Amended and Restated Certificate of Incorporation of the Company, as
filed with the Delaware Secretary of State on April 9, 1999.
3.4 Form of Bylaws to become effective prior to effectiveness of this
Registration Statement.*
3.5 Restated Certificate of Incorporation, to be filed and become
effective upon the closing of this offering.*
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.*
5.1 Opinion of Cooley Godward LLP.
10.1 Amended and Restated 1996 Equity Incentive Plan (the "1996 Plan").
10.2 Form of Stock Option Agreement pursuant to the 1996 Plan.*
10.3 1999 Employee Stock Purchase Plan and related offering documents.*
10.4 Employment Offer Letter between the Company and Steve Hunt, dated
July 31, 1996.*
10.5 Employment Offer Letter between the Company and Richard S. Gilbert,
dated March 22, 1998.*
10.6 Master Equipment Lease between the Company and Comdisco, Inc., dated
September 30, 1997.*
10.7 Loan and Security Agreement between the Company and Silicon Valley
Bank, dated August 14, 1998.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.8 Loan and Security Agreement between the Company and Silicon Valley
Bank and MMC/GATX Partnership No. 1, dated October 4, 1996.*
10.9 Office Lease between the Company and Public Storage Properties
XVIII, Inc., dated June 14, 1996.*
10.10 Office Lease between the Company and R.G. Harris & Company, dated
August 12, 1997.*
10.11 Office Sublease between the Company and Stuart Leeb and Associates,
dated May 1, 1998.*
10.12 Office Lease between the Company and Palomar Enterprises, Inc.,
dated July 20, 1998.*
10.13 Warrant Agreement between the Company and MMC/GATX Partnership No.
1, dated October 4, 1996.*
10.14 Warrant Agreement between the Company and Silicon Valley Bank, dated
October 4, 1996.*
10.15 Warrant Agreement between the Company and Comdisco, Inc., dated
October 29, 1997.*
10.16 Warrant Agreement between the Company and Comdisco, Inc., dated
April 27, 1998.*
10.17 Warrant Agreement between the Company and Silicon Valley Bank, dated
August 14, 1998.*
10.18 Amended and Restated Investors' Rights Agreement by and among the
Company and certain stockholders of the Company, dated October 9,
1998.*
10.19 Right of First Refusal and Co-Sale Agreement by and among the
Company and certain stockholders of the Company, dated October 9,
1998.*
10.20 Voting Agreement by and among the Company and certain stockholders
of the Company, dated October 9, 1998.*
10.21 Founder Stock Purchase Agreement between the Company and Joseph D.
Markee, dated March 11, 1996.*
10.22 First Amendment to Founder Stock Purchase Agreement between the
Company and Joseph D. Markee, dated June 12, 1998.*
10.23 Founder Stock Purchase Agreement between the Company and Mark
Handzel, dated March 11, 1996.*
10.24 First Amendment to Founder Stock Purchase Agreement between the
Company and Mark Handzel, dated January 27, 1999.*
+10.25 General Agreement for the Procurement of Products and Services and
the Licensing of Software between the Company and Lucent
Technologies Inc., dated November 17, 1998.*
+10.26 OEM Purchase and Development Agreement between the Company an 3COM
Corporation, dated November 24, 1998.*
+10.27 Development, Manufacturing and Supply Agreement between the Company
and Netopia, Inc., dated May 19, 1998.*
10.28 Employment Agreement between the Company and Joseph D. Markee, dated
March 12, 1999.
10.29 Warrant Agreement between the Company and Intel Corporation, dated
January 14, 1997.
10.30 1999 Non-Employee Directors' Stock Option Plan.
10.31 Form of Nonqualified Stock Option for use with 1999 Non-Employee
Directors' Stock Option Plan.
10.32 Form of Indemnification Agreement.
+10.33 Equipment Purchase Agreement between the Company and NorthPoint
Communications, Inc. dated April 8, 1999.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney.*
27 Financial Data Schedule.
</TABLE>
- --------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
* Previously filed.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II--Valuation and Qualifying Accounts.
All other schedules are omitted because they are not required, are not
applicable or the information is included in our financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be 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 the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
County of San Diego, State of California, on April 13, 1999.
By:
John A. Creelman
----------------------------------
JOHN A. CREELMAN
VICE PRESIDENT OF FINANCE,
CHIEF FINANCIAL OFFICER AND
SECRETARY
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Richard S. Gilbert* President, Chief Executive April 13, 1999
____________________________________ Officer and Director
RICHARD S. GILBERT (Principal Executive
Officer)
John A. Creelman Vice President of Finance, April 13, 1999
____________________________________ Chief Financial Officer and
JOHN A. CREELMAN Secretary (Principal
Financial and Accounting
Officer)
Joseph D. Markee* Chief Technical Officer and April 13, 1999
____________________________________ Chairman of the Board
JOSEPH D. MARKEE
Director
____________________________________
ROBERT L. BAILEY
Tench Coxe* Director April 13, 1999
____________________________________
TENCH COXE
Roger Evans* Director April 13, 1999
____________________________________
ROGER EVANS
Richard H. Kimball* Director April 13, 1999
____________________________________
RICHARD H. KIMBALL
Director
____________________________________
RAYMOND V. THOMAS
Andrew W. Verhalen* Director April 13, 1999
____________________________________
ANDREW W. VERHALEN
</TABLE>
John A. Creelman
*By:
----------------------------
JOHN A. CREELMAN Attorney-in-Fact
II-5
<PAGE>
Schedule II
COPPER MOUNTAIN NETWORKS, INC.
Valuation And Qualifying Accounts
<TABLE>
<CAPTION>
Additions
----------
Balance at Charged to Balance at
Beginning Costs and End of
Accrued Warranty of Year Expenses Deductions Year
- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997....... $ -- $ 2,000 $ -- $ 2,000
Year ended December 31, 1998....... 2,000 426,000 10,000 418,000
</TABLE>
NOTE: The Company had no activity in accrued warranty prior to 1997.
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation effective prior to reincorporation of the
Company in Delaware.*
3.2 Bylaws effective prior to reincorporation of the Company in Delaware.*
3.3 Amended and Restated Certificate of Incorporation of the Company, as
filed with the Delaware Secretary of State on April 9, 1999.
3.4 Form of Bylaws to become effective prior to effectiveness of this
Registration Statement.*
3.5 Restated Certificate of Incorporation, to be filed and become
effective upon the closing of this offering.*
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.*
5.1 Opinion of Cooley Godward LLP.
10.1 Amended and Restated 1996 Equity Incentive Plan (the "1996 Plan").
10.2 Form of Stock Option Agreement pursuant to the 1996 Plan.*
10.3 1999 Employee Stock Purchase Plan and related offering documents.*
10.4 Employment Offer Letter between the Company and Steve Hunt, dated July
31, 1996.*
10.5 Employment Offer Letter between the Company and Richard S. Gilbert,
dated March 22, 1998.*
10.6 Master Equipment Lease between the Company and Comdisco, Inc., dated
September 30, 1997.*
10.7 Loan and Security Agreement between the Company and Silicon Valley
Bank, dated August 14, 1998.*
10.8 Loan and Security Agreement between the Company and Silicon Valley
Bank and MMC/GATX Partnership No. 1, dated October 4, 1996.*
10.9 Office Lease between the Company and Public Storage Properties XVIII,
Inc., dated June 14, 1996.*
10.10 Office Lease between the Company and R.G. Harris & Company, dated
August 12, 1997.*
10.11 Office Sublease between the Company and Stuart Leeb and Associates,
dated May 1, 1998.*
10.12 Office Lease between the Company and Palomar Enterprises, Inc., dated
July 20, 1998.*
10.13 Warrant Agreement between the Company and MMC/GATX Partnership No. 1,
dated October 4, 1996.*
10.14 Warrant Agreement between the Company and Silicon Valley Bank, dated
October 4, 1996.*
10.15 Warrant Agreement between the Company and Comdisco, Inc., dated
October 29, 1997.*
10.16 Warrant Agreement between the Company and Comdisco, Inc., dated April
27, 1998.*
10.17 Warrant Agreement between the Company and Silicon Valley Bank, dated
August 14, 1998.*
10.18 Amended and Restated Investors' Rights Agreement by and among the
Company and certain stockholders of the Company, dated October 9,
1998.*
10.19 Right of First Refusal and Co-Sale Agreement by and among the Company
and certain stockholders of the Company, dated October 9, 1998.*
10.20 Voting Agreement by and among the Company and certain stockholders of
the Company, dated October 9, 1998.*
10.21 Founder Stock Purchase Agreement between the Company and Joseph D.
Markee, dated March 11, 1996.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.22 First Amendment to Founder Stock Purchase Agreement between the
Company and Joseph D. Markee, dated June 12, 1998.*
10.23 Founder Stock Purchase Agreement between the Company and Mark J.
Handzel, dated March 11, 1996.*
10.24 First Amendment to Founder Stock Purchase Agreement between the
Company and Mark J. Handzel, dated January 27, 1999.*
+10.25 General Agreement for the Procurement of Products and Services and the
Licensing of Software between the Company and Lucent Technologies
Inc., dated November 17, 1998.*
+10.26 OEM Purchase and Development Agreement between the Company an 3COM
Corporation, dated November 24, 1998.*
+10.27 Development, Manufacturing and Supply Agreement between the Company
and Netopia, Inc., dated May 19, 1998.*
10.28 Employment Agreement between the Company and Joseph D. Markee, dated
March 12, 1999.
10.29 Warrant Agreement between the Company and Intel Corporation, dated
January 14, 1997.
10.30 1999 Non-Employee Directors' Stock Option Plan.
10.31 Form of Nonqualified Stock Option for use with 1999 Non-Employee
Directors' Stock Option Plan.
10.32 Form of Indemnification Agreement.
+10.33 Equipment Purchase Agreement between the Company and NorthPoint
Communications, Inc. dated April 8, 1999.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney.*
27 Financial Data Schedule.
</TABLE>
- --------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
* Previously filed.
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COPPER MOUNTAIN NETWORKS, INC.
Copper Mountain Networks, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
hereby certifies as follows:
1. The name of the corporation is Copper Mountain Networks, Inc.
2. The corporation's original Certificate of Incorporation was filed
with the Secretary of State on February 19, 1999.
3. The Amended and Restated Certificate of Incorporation of this
corporation, in the form attached hereto as Exhibit A, has been duly adopted by
the Board of Directors and by the stockholders of the corporation in accordance
with Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
4. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and hereby incorporated
by reference.
In Witness Whereof, Copper Mountain Networks, Inc. has caused this
Amended and Restated Certificate of Incorporation to be signed by its President
and Chief Executive Officer and attested to by its Secretary this 8th day of
April, 1999.
/s/ Richard Gilbert
--------------------------------------------
Richard Gilbert
President and Chief Executive Officer
Attest:
/s/ John Creelman
- -------------------------------------
John Creelman
Secretary and Chief Financial Officer
<PAGE>
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COPPER MOUNTAIN NETWORKS, INC.
I.
The name of this corporation is Copper Mountain Networks, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is 40,000,000 shares,
each having a par value of one-tenth of one cent ($0.001). 29,397,536 shares
shall be Common Stock, $0.001 par value, and 10,602,464 shares shall be
Preferred Stock, $0.001 par value. The Preferred Stock may be issued from time
to time in one or more series.
B. 2,773,000 of the authorized shares of Preferred Stock are hereby
designated "Series A Preferred Stock."
C. 1,999,464 of the authorized shares of Preferred Stock are hereby
designated "Series B Preferred Stock."
D. 2,530,000 of the authorized shares of Preferred Stock are hereby
designated "Series C Preferred Stock."
E. 3,300,000 of the authorized shares of Preferred Stock are hereby
designated "Series D Preferred Stock." The Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred stock are
collectively referred to herein as the "Preferred Stock."
F. The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and Preferred Stock are as follows:
<PAGE>
1. Dividends.
a. The holders of the Preferred Stock shall be entitled, when and if
declared by the Board of Directors of the Corporation, to dividends out of the
retained earnings of the Corporation at the rate of the $0.08 per share of
Series A Preferred Stock per annum, $0.27 per share of Series B Preferred Stock
per annum, $0.38 per share of Series C Preferred Stock per annum and $0.62 per
share of Series D Preferred Stock per annum. Dividends on the Preferred Stock
shall be payable on a pari passu basis and in preference and prior to any
payment of any dividend on the Common Stock of the Corporation. No dividends
(other than those payable solely in the Common Stock of the Corporation) shall
be paid on the Common Stock of the Corporation during any fiscal year of the
Corporation until all declared dividends on the Preferred Stock are paid or set
aside. The right to dividends on shares of the Common Stock or Preferred Stock
shall not be cumulative, and no right shall accrue to holders of Common Stock or
Preferred Stock by reason of the fact that dividends on said shares are not
declared in any prior period.
In the event the Corporation shall declare a distribution (other
than any distribution described in Section F.2) payable in securities of other
persons, evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights to purchase any such
securities or evidences of indebtedness, then, in each such case the holders of
the Preferred Stock shall be entitled to a proportionate share of any such
distribution as though the holders of the Preferred Stock were the holders of
the number of shares of Common Stock of the Corporation into which their
respective shares of Preferred Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Corporation entitled
to receive such distribution.
2. Liquidation Preference.
a. Preference. In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntarily or involuntarily, the holders of
Preferred Stock shall be entitled to receive, on a pari passu basis and prior
and in preference to any distribution of any of the assets or surplus funds of
the Corporation to the holders of Common Stock of the Corporation, an amount
equal to $1.00 per share of Series A Preferred Stock, $3.39 per share of Series
B Preferred Stock, $4.75 per share of Series C Preferred Stock and $7.75 per
share of Series D Preferred Stock, plus a further amount equal to any dividends
declared but unpaid on such shares.
If upon such liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation are insufficient to provide for the cash payment
described above to the holders of Preferred Stock, then all of such assets shall
be paid ratably among the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock in
proportion to the preferential amounts each such holder would have been entitled
to receive pursuant to this Section 2(a) if such distribution had been
sufficient to permit the full payment of such preferential amounts.
2.
<PAGE>
After the payment or setting apart of payment to the holders of Preferred
Stock of the preferential amounts so payable to them, the holders of Common
Stock shall be entitled to receive pro rata the remaining assets of the
Corporation.
b. Consolidation or Merger. Any of the following shall be deemed to be
a liquidation, dissolution or winding up within the meaning of this Section 2:
(i) any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation) which will
result in the Corporation's shareholders immediately prior to such transaction
not holding (by virtue of such shares or securities issued solely with respect
thereto) at least 50% of the voting power of the surviving or continuing entity;
(ii) a sale of all or substantially all of the assets of the
Corporation, unless the Corporation's shareholders immediately prior to such
sale will, as a result of such sale, hold (by virtue of securities issued as
consideration for the Corporation's sale) at least 50% of the voting power of
the purchasing entity; or
(iii) any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
c. Noncash Distributions. If any of the assets of the Corporation are
to be distributed other than in cash under this Section 2 or for any purpose,
then the Board of Directors of the Corporation shall promptly engage independent
competent appraisers to determine the value of the assets to be distributed to
the holders of Preferred Stock or Common Stock. The Corporation shall, upon
receipt of such appraiser's valuation, give prompt written notice to each holder
of shares of Preferred Stock or Common Stock of the appraiser's valuation.
d. Consent for Certain Repurchases. Each holder of an outstanding
share of Preferred Stock shall be deemed to have consented, for purposes of
applicable laws, to distributions made by the Corporation in connection with the
repurchase of shares of Common Stock (at a price no greater than the original
issuance price thereof) issued to or held by employees or consultants upon
termination of their employment or services pursuant to agreements approved by
the Board of Directors providing for the right of said repurchase between the
Corporation and such persons.
e. Notice to Holders of Preferred Stock. Written notice of any such
liquidation, dissolution or winding up, stating a payment date, the place where
such payment shall be made, an estimate of the net value that would be received
by each such holder of Preferred Stock if all such holders converted all of
their Preferred Stock immediately prior to such liquidation, dissolution or
winding up of the Corporation, and containing a statement of or reference to
applicable conversion rights, shall be given by first-class mail, postage
prepaid, not less than thirty (30) days prior to the payment date stated
therein, to each holder of record of Preferred Stock at such holder's address as
shown in the records of the Corporation.
3. Conversion. The holders of the Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
3.
<PAGE>
a. Right to Convert.
(i) Each share of Series A Preferred Stock shall be convertible,
without payment of any additional consideration by the holder thereof and at the
option of such holder, at any time after the date of issuance of such share at
the office of the Corporation or any transfer agent for such share, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $1.00 by the Series A Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The conversion price for the
Series A Preferred Stock (the "Series A Conversion Price") shall initially be
$.66666. Such initial Series A Conversion Price shall be subject to adjustment,
as hereinafter provided. The number of shares of Common Stock into which a share
of Series A Preferred Stock is convertible is hereinafter referred to as the
"Series A Conversion Rate."
(ii) Each share of Series B Preferred Stock shall be convertible,
without payment of any additional consideration by the holder thereof and at the
option of such holder, at any time after the date of issuance of such share at
the office of the Corporation or any transfer agent for such share, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $3.39 by the Series B Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The conversion price for the
Series B Preferred Stock (the "Series B Conversion Price") shall initially be
$2.26. Such initial Series B Conversion Price shall be subject to adjustment, as
hereinafter provided. The number of shares of Common Stock into which a share of
Series B Preferred Stock is convertible is hereinafter referred to as the
"Series B Conversion Rate."
(iii) Each share of Series C Preferred Stock shall be
convertible, without payment of any additional consideration by the holder
thereof and at the option of such holder, at any time after the date of issuance
of such share at the office of the Corporation or any transfer agent for such
share, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $4.75 by the Series C Conversion Price, determined
as hereinafter provided, in effect at the time of conversion. The conversion
price for the Series C Preferred Stock (the "Series C Conversion Price") shall
initially be $3.1667. Such initial Series C Conversion Price shall be subject to
adjustment, as hereinafter provided. The number of shares of Common Stock into
which a share of Series C Preferred Stock is convertible is hereinafter referred
to as the "Series C Conversion Rate."
(iv) Each share of Series D Preferred Stock shall be convertible,
without payment of any additional consideration by the holder thereof and at the
option of such holder, at any time after the date of issuance of such share at
the office of the Corporation or any transfer agent for such share, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $7.75 by the Series D Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The conversion price for the
Series D Preferred Stock (the "Series D Conversion Price") shall initially be
$5.1667. Such initial Series D Conversion Price shall be subject to adjustment,
as hereinafter provided. The number of shares of Common Stock into which a share
of Series D Preferred Stock is convertible is hereinafter referred to as the
"Series D Conversion Rate."
4.
<PAGE>
b. Automatic Conversion.
(i) Each share of Series A and Series B Preferred Stock shall
automatically be converted into shares of Common Stock at its then effective
Conversion Rate immediately upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock,
the aggregate gross proceeds of which equal or exceed $5,000,000 at a per share
issuance price of at least $3.34 per share (as adjusted for stock splits, stock
dividends, subdivisions, reclassifications, reorganizations, or other similar
transactions).
(ii) Each share of Series C Preferred Stock shall automatically
be converted into shares of Common Stock at its then effective Conversion Rate
immediately upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock, the aggregate
gross proceeds of which equal or exceed $10,000,000 at a per share issuance
price of at least $6.34 per share (as adjusted for stock splits, stock
dividends, subdivisions, reclassifications, reorganizations, or other similar
transactions).
(iii) Each share of Series D Preferred Stock shall automatically
be converted into shares of Common Stock at its then effective Conversion Rate
immediately upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock, the aggregate
gross proceeds of which equal or exceed $20,000,000 at a per share issuance
price of at least $8.00 per share (as adjusted for stock splits, stock
dividends, subdivisions, reclassifications, reorganizations, or other similar
transactions) if the closing of such public offering occurs on or before March
30, 2000 and at a per share issuance price of at least $10.34 per share (as
adjusted for stock splits, stock dividends, subdivisions, reclassifications,
reorganizations, or other similar transactions) if the closing of such public
offering occurs after March 30, 2000.
(iv) Each share of Series A Preferred Stock shall automatically
be converted into shares of Common Stock at its then effective Conversion Rate
immediately upon the Corporation's receipt of the written consent or vote of
holders of more than two-thirds of the then outstanding shares of Series A
Preferred Stock.
(v) Each share of Series B Preferred Stock shall automatically be
converted into shares of Common Stock at its then effective Conversion Rate
immediately upon the Corporation's receipt of the written consent or vote of
holders of more than two-thirds of the then outstanding shares of Series B
Preferred Stock.
(vi) Each share of Series C Preferred Stock shall automatically
be converted into shares of Common Stock at its then effective Conversion Rate
immediately upon the Corporation's receipt of the written consent or vote of
holders of more than two-thirds of the then outstanding shares of Series C
Preferred Stock.
(vii) Each share of Series D Preferred Stock shall automatically
be converted into shares of Common Stock at its then effective Conversion Rate
immediately
5.
<PAGE>
upon the Corporation's receipt of the written consent or vote of holders of more
than a majority of the then outstanding shares of Series D Preferred Stock.
c. Mechanics of Conversion. Before any holder of Preferred Stock shall
be entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock and shall
give written notice to the Corporation at such office that he elects to convert
the same (except that no such written notice of election to convert shall be
necessary in the event of an automatic conversion pursuant to Section 3.b.
hereof). The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to such holder in the amount of any
declared but unpaid dividends on the converted Preferred Stock to which the
holder may be entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted (except that in the case of an
automatic conversion pursuant to Sections 3.b.(i), 3.b.(ii) or 3.b.(iii) hereof,
such conversion shall be deemed to have been made immediately prior to the
closing of the offering referred to in Sections 3.b.(i), 3.b.(ii) and 3.b.(iii))
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
d. Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section 3, the
following definitions shall apply:
(a) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(b) "Series D Original Issue Date" shall mean the date on
which a share of Series D Preferred Stock was first issued.
(c) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(d) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 3.d.(iii), deemed to be
issued) by the Corporation after the Series D Original Issue Date, other than:
(1) shares of Common Stock issued or issuable upon
conversion of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock authorized herein;
(2) shares of Common Stock issued or issuable to
officers, directors or employees of, or consultants to, the Corporation pursuant
to a stock grant or option plan or other employee stock incentive program
approved by the Board of Directors;
6.
<PAGE>
(3) up to 50,000 shares of Series A Preferred Stock, up
to 147,401 shares of Series B Preferred Stock and up to 39,737 shares of Series
C Preferred Stock issuable upon the exercise of warrants outstanding on the date
of filing hereof;
(4) shares of Common Stock issued or issuable in
connection with commercial lending arrangements, equipment leases, venture
leasing arrangements or similar transactions on terms approved by the Board of
Directors;
(5) up to 100,000 shares of Common Stock issued or
issuable in connection with corporate partnering arrangements, joint ventures,
technology licensing, and strategic alliances with the Company's suppliers,
vendors, distributors or customers on terms approved by the Board of Directors;
(6) shares of Common Stock issued or issuable as a
dividend or distribution on the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock (provided that such
dividend is paid on all such series of Preferred Stock in proportion to the
number of shares of Common Stock issuable upon conversion thereof), or any event
for which adjustment is made pursuant to Sections 3.e. or 3.f. hereof; or
(7) shares of Common Stock issued or issuable by way of
dividend or other distribution on shares excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (1) through (6) or
this clause (7) or on shares of Common Stock so excluded.
(ii) No Adjustment of Conversion Price. No adjustment in the
Conversion Price of a particular share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
respectively, shall be made in respect of the issuance of Additional Shares of
Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price or the Series D Conversion Price, respectively, in effect on
the date of, and immediately prior to, the issue of such Additional Share of
Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares
of Common Stock.
(a) Options and Convertible Securities. In the event
the Corporation at any time or from time to time after the Series D Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that such
7.
<PAGE>
shares would not otherwise be excluded from the definition of "Additional Shares
of Common Stock" by Sections 3.d.(i)(d)(1), (2), (3), (4), (5), (6) and (7)
above, provided further that, in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(1) no further adjustment in the applicable Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decreases in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the applicable Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities; provided, however, that no
readjustment pursuant to the foregoing clause shall have the effect of
increasing the applicable Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price to an amount which
exceeds the lower of (i) such Conversion Price on the original adjustment date
(prior to such adjustment), or (ii) such Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date (without giving effect for
such original adjustment); and
(3) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any decrease in
the consideration payable to the Corporation, or increases in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the applicable Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
decrease or increase becoming effective, be recomputed to reflect such decrease
or increase insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities; provided, however, that no
readjustment pursuant to the foregoing clause shall have the effect of
decreasing the applicable Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price to an amount which
exceeds the greater of (i) such Conversion Price on the original adjustment date
(prior to such adjustment), or (ii) such Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date (without giving effect for
such original adjustment).
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event this Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued
8.
<PAGE>
pursuant to Section 3.d.(iii)) without consideration or for a consideration per
share less than the applicable Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price in effect on the
date of and immediately prior to such issue, then and in such event, such Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as applicable, shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price, as applicable; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued; and
provided further that, for the purposes of this Section 3.d.(iv), all shares of
Common Stock issuable upon exercise or conversion of outstanding Options and
Preferred Stock shall be deemed to be outstanding, and immediately after any
Additional Shares of Common Stock are deemed issued pursuant to Section
3.d.(iii), such Additional Shares of Common Stock shall be deemed to be
outstanding.
(v) Determination of Consideration. For purposes of this
Section 3.d., the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(b) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 3.d.(iii)(a),
relating to Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the
9.
<PAGE>
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to the Corporation
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
e. Adjustment for Stock Splits, Dividends and Combinations. If the
Corporation shall at any time or from time to time effect a subdivision of the
outstanding Common Stock, or shall issue a dividend of Common Stock on its
outstanding Common Stock, the Conversion Price for each series of Preferred
Stock then in effect immediately before that subdivision or dividend shall be
proportionately decreased, and conversely, if the Corporation shall combine the
outstanding shares of Common Stock, the Conversion Price for each series of
Preferred Stock then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 3.e. shall become
effective at the close of business on the date the subdivision or combination
becomes effective or on the date on which the dividend is declared.
f. Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time shall make or issue, or
fix a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, then and in each such event the holders of
Preferred Stock shall receive at the time of payment of such dividend or other
distribution, the amount of securities of the Company that they would have
received pursuant to such dividend or distribution had their Preferred Stock
been converted into Common Stock on the date of such event.
g. Adjustment for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or different number of shares of any class or series of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend, provided for in
Section 3.e. above, or a merger, consolidation, sale of assets or other
transaction provided for in Section 2 above), then and in each such event the
holder of each share of Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change by holders of the number of shares of Common Stock into which such
shares of Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
h. Calculations. All calculations under this Section 3 shall be
made to the nearest cent or to the nearest one hundredth (1/100) of a share, as
the case may be.
10.
<PAGE>
i. Minimal Adjustments. No adjustment in the Conversion Price for
any series of Preferred Stock need be made if such adjustment would result in a
change in the Conversion Price for such series of Preferred Stock of less than
$0.01. Any adjustment of less than $0.01 which is not made shall be carried
forward and shall be made at the time of and together with any subsequent
adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or
more in the Conversion Price for such series of Preferred Stock.
j. No Impairment. The Corporation will not through any amendment
of these Amended and Restated Articles of Incorporation, amendment of its
Bylaws, reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 3
and in the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of Preferred Stock against
impairment.
k. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate for each series of Preferred
Stock pursuant to this Section 3, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Preferred Stock a certificate executed by
its Chief Executive Officer or Chief Financial Officer, setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon written request
at any time of any holder of Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) all such adjustments and
readjustments, (ii) the Conversion Rate for each series of Preferred Stock at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of such holder's shares of Preferred Stock.
l. Fractional Shares. No fractional share shall be issued upon the
conversion of any share or shares of Preferred Stock. If the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors of the Corporation).
m. Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock at least 20 days prior to such
record date, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution or right, and the amount
and character of such dividend, distribution or right.
n. Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock
11.
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on conversion of shares of Preferred Stock pursuant hereto; provided, however,
that the Corporation shall not be obligated to pay any transfer taxes resulting
from any transfer requested by any holder in connection with any such
conversion.
o. Common Stock Reserved. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock solely for the purpose of effecting the conversion of the shares of
Preferred Stock such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Preferred Stock, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
p. Notices. Any notice required by the provisions of this Section
3 to be given to the holder of shares of Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Corporation.
q. Reissuance of Converted Shares. No shares of Preferred Stock
which have been converted into Common Stock after the original issuance thereof
shall ever again be reissued and all such shares so converted shall upon such
conversion cease to be a part of the authorized shares of the Corporation.
4. Voting Rights. The holder of each share of Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which each share of Preferred Stock could be converted on the record date
for the vote or written consent of shareholders and, except as otherwise
required by law, shall have voting rights and powers equal to the voting rights
and powers of Common Stock. The holder of each share of Preferred Stock shall be
entitled to notice of any shareholders' meeting in accordance with the bylaws of
the Corporation and shall vote with holders of Common Stock upon the election of
directors and upon any other matter submitted to a vote of shareholders, except
those matters required by law to be submitted to a class vote. Fractional votes
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares of Common Stock into which
shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half rounded upward to one).
5. Protective Provisions.
a. In addition to any other class vote that may be required by
law, so long as any series of Preferred Stock shall be outstanding, the
Corporation shall not without obtaining the approval (by vote or written
consent, as provided by law) of the holders of more than 50% of the outstanding
shares of the Preferred Stock, voting together as a single class (on an as-
converted to Common Stock basis):
(i) increase the authorized number of shares of any class or
series of the Corporation's capital stock;
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(ii) create any new class or series of shares having
preferences or priorities (including, without limitation, with regard to
dividends, liquidation and voting) superior to or on parity with any outstanding
series of the Preferred Stock;
(iii) reclassify any outstanding shares into shares having
preferences or priorities (including, without limitation, with regard to
dividends, liquidation and voting) superior to or on parity with any outstanding
series of the Preferred Stock;
(iv) amend the Corporation's Articles of Incorporation or
Bylaws to adversely affect the rights, preferences or privileges of any
outstanding series of the Preferred Stock;
(v) repurchase or redeem any outstanding shares of Common
Stock or of the Preferred Stock except as contemplated by Section 2.d. hereof;
provided, however, that with respect to any repurchase or redemption of shares
of Preferred Stock, any approval required hereunder shall include the approval
of holders of more than 50% of the outstanding shares of Series D Preferred
Stock voting together as a single series; or
(vi) change the authorized number of Directors on the Board
from the current range of five (5) to nine (9).
b. Except as otherwise required by law, so long as any of the
Preferred Stock shall be outstanding, the Corporation shall not without
obtaining the approval (by vote or written consent, as provided by law) of the
holders of more than 66 2/3% of the outstanding shares of the Preferred Stock
voting together as a single class (on an as-converted to Common Stock basis):
effect any sale, material encumbrance or other conveyance of all or
substantially all of the assets of the Corporation (excluding any security
interest or other encumbrance in favor of a commercial lending institution or
similar entity in connection with commercial lending arrangements, equipment
leases, venture leasing arrangements or similar transactions on terms approved
by the Board of Directors but including any grant of an exclusive license to all
or substantially all of the intellectual property owned by the Corporation) or
any consolidation or merger involving the Corporation or its subsidiaries if the
shareholders of the Corporation immediately prior to such consolidation or
merger shall not represent a majority of the voting power of the outstanding
stock of the continuing or surviving entity of such consolidation or merger
following such consolidation or merger; provided, however, that if any such
transaction pursuant to this Section 5b. results in a per share price to holders
of the Series D Preferred Stock of less than $8.00 per share if the closing of
such transaction occurs on or before March 30, 2000, or a per share price to
holders of the Series D Preferred Stock of less than $10.34 per share if the
closing of such transaction occurs after March 30, 2000, any approval required
hereunder shall include the approval of holders of more than 50% of the
outstanding shares of Series D Preferred Stock voting together as a single
series.
c. In addition to any other class vote that may be required by
law, so long as any of the Series A Preferred Stock shall be outstanding, the
Corporation shall not without obtaining the approval (by vote or written
consent, as provided by law) of the holders of more than 50% of the outstanding
shares of Series A Preferred Stock:
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(i) amend the Company's Articles of Incorporation or Bylaws
to adversely affect solely the rights, preferences or privileges of the Series A
Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
Series A Preferred Stock.
d. In addition to any other class vote that may be required by
law, so long as any of the Series B Preferred Stock shall be outstanding, the
Corporation shall not without obtaining the approval (by vote or written
consent, as provided by law) of the holders of more than 50% of the outstanding
shares of Series B Preferred Stock:
(i) amend the Company's Articles of Incorporation or Bylaws
to adversely affect solely the rights, preferences or privileges of the Series B
Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
Series B Preferred Stock.
e. In addition to any other class vote that may be required by
law, so long as any of the Series C Preferred Stock shall be outstanding, the
Corporation shall not without obtaining the approval (by vote or written
consent, as provided by law) of the holders of more than 50% of the outstanding
shares of Series C Preferred Stock:
(i) amend the Company's Articles of Incorporation or Bylaws
to adversely affect solely the rights, preferences or privileges of the Series C
Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
Series C Preferred Stock.
f. In addition to any other class vote that may be required by
law, so long as any of the Series D Preferred Stock shall be outstanding, the
Corporation shall not without obtaining the approval (by vote or written
consent, as provided by law) of the holders of more than 50% of the outstanding
shares of Series D Preferred Stock:
(i) amend the Company's Articles of Incorporation or Bylaws
to adversely affect solely the rights, preferences or privileges of the Series D
Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
Series D Preferred Stock.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
14.
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A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. Subject to the rights
of the holders of any series of Preferred Stock, the number of directors which
shall constitute the whole Board of Directors shall be fixed exclusively by one
or more resolutions adopted by the Board of Directors.
2. a. Directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting. Each director shall
hold office either until the expiration of the term for which elected or
appointed and until a successor has been elected and qualified, or until such
director's death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
b. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the California
General Corporation Law (" CGCL") and is not a "listed" corporation or ceases to
be a "listed" corporation under Section 301.5 of the CGCL. During this time,
every stockholder entitled to vote at an election for directors may cumulate
such stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up to
the number of directors to be elected, are elected.
3. Subject to the rights of the holders of any series of Preferred
Stock, the Board of Directors or any individual director may be removed from
office at any time (i) with cause by the affirmative vote of the holders of a
majority of the voting power of all the then outstanding shares of voting stock
of the corporation, entitled to vote at an election of directors (the "Voting
Stock") or (ii) without cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all the then-
outstanding shares of the Voting Stock.
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full
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term of the director for which the vacancy was created or occurred and until
such director's successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 42 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except by written consent to the extent provided for in the Bylaws or at an
annual or special meeting of stockholders called in accordance with the Bylaws;
and following the closing of the Initial Public Offering no action shall be
taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any 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 Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. 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, except as provided in Section VII.B., and all
rights conferred upon the stockholders herein are granted subject to this
reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any
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affirmative vote of the holders of any particular class or series of the Voting
Stock required by law, this Certificate of Incorporation or any document
relating thereto filed with the Delaware Secretary of State, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or repeal
Articles V, VI, and VII.
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LETTERHEAD OF COOLEY GODWARD LLP
April 13, 1999
Copper Mountain Networks, Inc.
2470 Embarcadero Way
Palo Alto, CA 94303
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Copper Mountain Networks, Inc. (the "Company") of a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission, including a related prospectus filed with
Registration Statement No. 333-73153, and the underwritten public offering of up
to 4,600,000 shares of the Company's Common Stock (the "Common Stock")
(including 600,000 shares of Common Stock for which the underwriters have been
granted an over allotment option) covering the offering of an aggregate of up
to 4,600,000 shares of the Company's Common Stock, $.001 par value (the
"Shares").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and Bylaws, and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below, (ii) assumed that the shares of Common Stock
will be sold by the underwriters at a price established by the Pricing Committee
of the Board of Directors of the Company, and (iii) assumed that the
reincorporation of the Company referred to in the Registration Statement will be
effective prior to the issuance of the Common Stock.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid, and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
/s/ Lance W. Bridges
Lance W. Bridges
<PAGE>
EXHIBIT 10.1
Copper Mountain Networks, Inc.
Amended and Restated
1996 Equity Incentive Plan
Adopted August 12, 1996
Approved By Stockholders August 12, 1996
Amended October 5, 1998
Amended and Restated February 24, 1999
Approved by Stockholders March 25, 1999
1. Purposes.
(a) Eligible Stock Award Recipients. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) Available Stock Awards. The purpose of the Plan is to provide a means by
which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock appreciation rights, (iv) stock bonuses and (v)
rights to acquire restricted stock.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to
secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of the
Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c).
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Copper Mountain Networks, Inc., a Delaware corporation.
(g) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a right
granted pursuant to subsection 7(c)(2) of the Plan.
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(h) "Consultant" means any person, including an advisor, (1) engaged by the
Company or an Affiliate to render consulting or advisory services and who
is compensated for such services or (2) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not
include either Directors of the Company who are not compensated by the
Company for their services as Directors or Directors of the Company who are
paid a director's fee or otherwise compensated by the Company solely for
their services as Directors.
(i) "Continuous Service" means that the Participant's service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not
be deemed to have terminated merely because of a change in the capacity in
which the Participant renders service to the Company or an Affiliate as an
Employee, Consultant or Director or a change in the entity for which the
Participant renders such service, provided that there is no interruption or
termination of the Participant's Continuous Service. For example, a change
in status from an Employee of the Company to a Consultant of an Affiliate
or a Director of the Company will not constitute an interruption of
Continuous Service. The Board or the chief executive officer of the
Company, in that party's sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of any leave of absence
approved by that party, including sick leave, military leave or any other
personal leave.
(j) "Covered Employee" means the chief executive officer and the four (4) other
highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as
determined for purposes of Section 162(m) of the Code.
(k) "Director" means a member of the Board of Directors of the Company.
(l) "Disability" means the permanent and total disability of a person within
the meaning of Section 22(e)(3) of the Code.
(m) "Employee" means any person employed by the Company or an Affiliate. Mere
service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company
or an Affiliate.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of the Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded
on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on
such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the
day of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable.
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(ii) In the absence of such markets for the Common Stock, the Fair Market Value
shall be determined in good faith by the Board.
(p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(q) "Independent Stock Appreciation Right" or "Independent Right" means a right
granted pursuant to subsection 7(c)(3) of the Plan.
(r) "Listing Date" means the first date upon which any security of the Company
is listed (or approved for listing) upon notice of issuance on any security
exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system
if such securities exchange or interdealer quotation system has been
certified in accordance with the provisions of the Section 25100(o) of the
California Corporate Securities Law of 1968.
(s) "Non-Employee Director" means a Director of the Company who either (i) is
not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant
or in any capacity other than as a Director (except for an amount as to
which disclosure would not be required under Item 404(a) of Regulation S-K
promulgated pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which disclosure would
be required under Item 404(a) of Regulation S-K, and is not engaged in a
business relationship as to which disclosure would be required under Item
404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee
director" for purposes of Rule 16b-3.
(t) "Nonstatutory Stock Option" means an Option not intended to qualify as an
Incentive Stock Option.
(u) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(w) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.
(x) "Optionholder" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
(y) "Outside Director" means a Director of the Company who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury
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Regulations promulgated under Section 162(m) of the Code), is not a former
employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services
in any capacity other than as a Director or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(z) "Participant" means a person to whom a Stock Award is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Stock Award.
(aa) "Plan" means this Copper Mountain Networks, Inc. Amended and Restated 1996
Equity Incentive Plan.
(bb) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(cc) "Securities Act" means the Securities Act of 1933, as amended.
(dd) "Stock Appreciation Right" means any of the various types of rights which
may be granted under subsection 7(c) of the Plan.
(ee) "Stock Award" means any right granted under the Plan, including an Option,
a stock appreciation right, a stock bonus and a right to acquire restricted
stock.
(ff) "Stock Award Agreement" means a written agreement between the Company and a
holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(gg) "Tandem Stock Appreciation Right" or "Tandem Right" means a right granted
pursuant to subsection 7(c)(1) of the Plan.
(hh) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.
3. Administration.
(a) Administration by Board. The Board will administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the Plan
shall be granted Stock Awards; when and how each Stock Award shall be
granted; what type or combination of types of Stock Award shall be granted;
the provisions of each Stock Award granted (which need not be identical),
including the time or times when a person shall be
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<PAGE>
permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted under it, and
to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as the Board
deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.
(v) Any interpretation of the Plan by the Board of any decision made by it
under the Plan shall be final and binding on all persons.
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan to a Committee
or Committees of one or more members of the Board, and the term "Committee"
shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized
to exercise (and references in this Plan to the Board shall thereafter be
to the Committee or subcommittee), subject, however, to such resolutions,
not inconsistent with the provisions of the Plan, as may be adopted from
time to time by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded. At such time
as the Common Stock is publicly traded, in the discretion of the Board, a
Committee may consist solely of two (2) or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two (2) or
more Non-Employee Directors, in accordance with Rule 16b-3. Within the
scope of such authority, the Board or the Committee may (i) delegate to a
committee of one (1) or more members of the Board who are not Outside
Directors, the authority to grant Stock Awards to eligible persons who are
either (a) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Stock
Award or (b) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code and/or (ii) delegate to a committee of one
(1) or more members of the Board who are not Non-Employee Directors the
authority to grant Stock Awards to eligible persons who are not then
subject to Section 16 of the Exchange Act.
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4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate seven million eight hundred
seventy three thousand three hundred eighty-three (7,873,383) shares of
Common Stock, plus an annual increase to be added on the day of each Annual
Stockholders Meeting beginning with the Annual Stockholders Meeting in 2000
equal to the least of the following amounts (i) 7,873,383 shares, (ii) 4%
of the Company's outstanding shares on such date (rounded to the nearest
whole share and calculated on a fully diluted basis, that is assuming the
exercise of all outstanding stock options and warrants to purchase common
stock) or (iii) an amount determined by the Board.
(b) Reversion of Shares to the Share Reserve. If any Stock Award shall for any
reason expire or otherwise terminate, in whole or in part, without having
been exercised in full (or vested in the case of Restricted Stock), the
stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Shares subject to stock
appreciation rights exercised in accordance with the Plan shall not be
available for subsequent issuance under the Plan. If any Common Stock
acquired pursuant to the exercise of an Option shall for any reason be
repurchased by the Company under an unvested share repurchase option
provided under the Plan, the stock repurchased by the Company under such
repurchase option shall not revert to and again become available for
issuance under the Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. Eligibility.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options and Stock
Appreciation Rights appurtenant thereto may be granted only to Employees.
Stock Awards other than Incentive Stock Options and Stock Appreciation
Rights appurtenant thereto may be granted to Employees, Directors and
Consultants.
(b) Ten Percent Stockholders. No Ten Percent Stockholder shall be eligible for
the grant of an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock at the date of grant and the Option is not exercisable
after the expiration of five (5) years from the date of grant.
(c) Section 162(m) Limitation. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be
eligible to be granted Options and/or stock appreciation rights covering
more than five hundred thousand (500,000) shares of the Common Stock during
any calendar year.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock
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Options or Nonstatutory Stock Options at the time of grant, and a separate
certificate or certificates will be issued for shares purchased on exercise of
each type of Option. The provisions of separate Options need not be identical,
but each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent
Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions of
subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive
Stock Option may be granted with an exercise price lower than that set
forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) Exercise Price of a Nonstatutory Stock Option. The exercise price of each
Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption
or substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.
(d) Consideration. The purchase price of stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii)
at the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Participant or in any
other form of legal consideration that may be acceptable to the Board;
provided, however, that at any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment,
whether issuing a promissory note or otherwise.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at no less than the
minimum rate of interest necessary to avoid the treatment as interest,
under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(e), the Optionholder may, by delivering
written
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notice to the Company, in a form satisfactory to the Company, designate a
third party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Optionholder only by the
Optionholder. Notwithstanding the foregoing provisions of this subsection
6(f), the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the
event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock subject to
an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may
be exercised (which may be based on performance or other criteria) as the
Board may deem appropriate. The vesting provisions of individual Options
may vary. The provisions of this subsection 6(g) are subject to any Option
provisions governing the minimum number of shares as to which an Option may
be exercised.
(h) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of
(i) the date three (3) months following the termination of the
Optionholder's Continuous Service (or such longer or shorter period
specified in the Option Agreement), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination,
the Optionholder does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate.
(i) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of termination),
but only within such period of time ending on the earlier of (i) the date
twelve (12) months following such termination (or such longer or shorter
period specified in the Option Agreement) or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate.
(j) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service
for a reason other than death, then the Option may be exercised (to the
extent the Optionholder was entitled to exercise the Option as of the date
of death) by the Optionholder's estate, by a person who acquired the right
to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionholder's death
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pursuant to subsection 6(e) or 6(f), but only within the period ending on
the earlier of (1) the date eighteen (18) months following the date of
death (or such longer or shorter period specified in the Option Agreement)
or (2) the expiration of the term of such Option as set forth in the Option
Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
(k) Extension of Termination Date. An Optionholder's Option Agreement may also
provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service would be prohibited at any time solely
because the issuance of shares would violate the registration requirements
under the Securities Act, then the Option shall terminate no earlier than
(i) the expiration of the term of the Option set forth in subsection 6(a)
or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(l) Early Exercise. The Option may, but need not, include a provision whereby
the Optionholder may elect at any time before the Optionholder's Continuous
Service terminates to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board
determines to be appropriate.
(m) Re-Load Options. Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a
"Re-Load Option") in the event the Optionholder exercises the Option
evidenced by the Option Agreement, in whole or in part, by surrendering
other shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option shall (i)
provide for a number of shares equal to the number of shares surrendered as
part or all of the exercise price of such Option; (ii) have an expiration
date which is the same as the expiration date of the Option the exercise of
which gave rise to such Re-Load Option; and (iii) have an exercise price
which is equal to one hundred percent (100%) of the Fair Market Value of
the Common Stock subject to the Re-Load Option on the date of exercise of
the original Option. Notwithstanding the foregoing, a Re-Load Option shall
be subject to the same exercise price and term provisions heretofore
described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred
thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 10(d) and in Section 422(d)
of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient
shares under subsection 4(a) and the "Section 162(m) Limitation" on the
grants of Options under subsection 5(c) and shall be subject to such
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<PAGE>
other terms and conditions as the Board may determine which are not
inconsistent with the express provisions of the Plan regarding the terms of
Options.
7. Provisions of Stock Awards other than Options.
(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form and
shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change
from time to time, and the terms and conditions of separate stock bonus
agreements need not be identical, but each stock bonus agreement shall
include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. A stock bonus shall be awarded in consideration for past
services actually rendered to the Company for its benefit.
(ii) Vesting. Shares of Common Stock awarded under the stock bonus agreement
may, but need not, be subject to a share reacquisition option in favor of
the Company in accordance with a vesting schedule to be determined by the
Board.
(iii) Termination of Participant's Continuous Service. In the event a
Participant's Continuous Service terminates, the Company may reacquire any
or all of the shares of Common Stock held by the Participant which have
not vested as of the date of termination under the terms of the stock
bonus agreement.
(iv) Transferability. Rights to acquire shares under the stock bonus agreement
shall be transferable by the Participant only upon such terms and
conditions as are set forth in the stock bonus agreement, as the Board
shall determine in its discretion, so long as stock awarded under the stock
bonus agreement remains subject to the terms of the stock bonus agreement.
(b) Restricted Stock Awards. Each restricted stock purchase agreement shall be
in such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and
conditions of separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall include
(through incorporation of provisions hereof by reference in the agreement
or otherwise) the substance of each of the following provisions:
(i) Purchase Price. The purchase price under each restricted stock purchase
agreement shall be such amount as the Board shall determine and designate
in such restricted stock purchase agreement. The purchase price shall not
be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated.
(ii) Consideration. The purchase price of stock acquired pursuant to the
restricted stock purchase agreement shall be paid in one or a combination
of the following forms:
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<PAGE>
(i) in cash or by check at the time of purchase; (ii) at the discretion of
the Board, according to a deferred payment arrangement using a promissory
note or other similar arrangement with the Participant; or (iii) in any
other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by
deferred payment.
(iii) Vesting. Shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv) Termination of Participant's Continuous Service. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the
terms of the restricted stock purchase agreement.
(v) Transferability. Rights to acquire shares under the restricted stock
purchase agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as stock
awarded under the restricted stock purchase agreement remains subject to
the terms of the restricted stock purchase agreement.
(c) Stock Appreciation Rights.
(i) Authorized Rights. The following three types of stock appreciation rights
shall be authorized for issuance under the Plan:
(1) Tandem Rights. A "Tandem Right" means a stock appreciation right granted
appurtenant to an Option which is subject to the same terms and conditions
applicable to the particular Option grant to which it pertains with the
following exceptions: The Tandem Right shall require the holder to elect
between the exercise of the underlying Option for shares of Common Stock
and the surrender, in whole or in part, of such Option for an appreciation
distribution. The appreciation distribution payable on the exercised the
Tandem Right shall be in cash (or, if so provided, in an equivalent number
of shares of Common Stock based on Fair Market Value on the date of the
Option surrender) in an amount up to the excess of (A) the Fair Market
Value (on the date of the Option surrender) of the number of shares of
Common Stock covered by that portion of the surrendered Option in which the
Optionholder is vested over (B) the aggregate exercise price payable for
such vested shares.
(2) Concurrent Rights. A "Concurrent Right" means a stock appreciation right
granted appurtenant to an Option which applies to all or a portion of the
shares of Common Stock subject to the underlying Option and which is
subject to the same terms and conditions applicable to the particular
Option grant to which it pertains with the following exceptions: A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of
Common Stock to which the Concurrent Right pertains. The appreciation
distribution payable on an exercised Concurrent
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Right shall be in cash (or, if so provided, in an equivalent number of
shares of Common Stock based on Fair Market Value on the date of the
exercise of the Concurrent Right) in an amount equal to such portion as
determined by the Board at the time of the grant of the excess of (A) the
aggregate Fair Market Value (on the date of the exercise of the Concurrent
Right) of the vested shares of Common Stock purchased -under the underlying
Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) Independent Rights. An "Independent Right" means a stock appreciation
right granted independently of any Option but which is subject to the same
terms and conditions applicable to a Nonstatutory Stock Option with the
following exceptions: An Independent Right shall be denominated in share
equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess
of (a) the aggregate Fair Market Value (on the date of the exercise of the
Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is exercising the
Independent Right on such date, over (b) the aggregate Fair Market Value
(on the date of the grant of the Independent Right) of such number of
shares of Company stock. The appreciation distribution payable on the
exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on
the date of the exercise of the Independent Right.
(ii) Relationship to Options. Stock appreciation rights appurtenant to
Incentive Stock Options may be granted only to Employees. The "Section
162(m) Limitation" provided in subsection 5(c) shall apply as well to the
grant of stock appreciation rights.
(iii)Exercise. To exercise any outstanding stock appreciation right, the holder
shall provide written notice of exercise to the Company in compliance with
the provisions of the Stock Award Agreement evidencing such right. Except
as provided in subsection 5(c) regarding the "Section 162(m) Limitation,"
no limitation shall exist on the aggregate amount of cash payments that the
Company may make under the Plan in connection with the exercise of a stock
appreciation right.
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Stock Awards, the Company
shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell
shares of Common Stock upon exercise of the Stock Awards; provided,
however, that this undertaking shall not require the Company to register
under the Securities Act the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award or to take similar actions under
applicable law. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance
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<PAGE>
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock
Awards unless and until such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. Miscellaneous.
(a) Acceleration of Exercisability and Vesting. The Board shall have the power
to accelerate the time at which a Stock Award may first be exercised or the
time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating
the time at which it may first be exercised or the time during which it
will vest.
(b) Stockholder Rights. No Participant shall be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any shares subject
to such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant or other holder of Stock Awards any right to continue
to serve the Company or an Affiliate in the capacity in effect at the time
the Stock Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without
notice and with or without cause, (ii) the service of a Consultant pursuant
to the terms of such Consultant's agreement with the Company or an
Affiliate, (iii) the service of a Consultant as a director of an Affiliate
pursuant to the Bylaws of the Affiliate or (iv) the service of a Director
pursuant to the Bylaws of the Company, and any applicable provisions of the
corporate law of the state in which the Company is incorporated.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ
a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and
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<PAGE>
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the
stock subject to the Stock Award for the Participant's own account and not
with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (1) the issuance of the shares upon
the exercise or acquisition of stock under the Stock Award has been
registered under a then currently effective registration statement under
the Securities Act or (2) as to any particular requirement, a determination
is made by counsel for the Company that such requirement need not be met in
the circumstances under the then applicable securities laws. The Company
may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including,
but not limited to, legends restricting the transfer of the stock.
(f) Withholding Obligations. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant
by the Company) or by a combination of such means: (i) tendering a cash
payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the participant as a result of the
exercise or acquisition of stock under the Stock Award; or (iii) delivering
to the Company owned and unencumbered shares of the Common Stock.
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject to
the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend
in property other than cash, stock split, liquidating dividend, combination
of shares, exchange of shares, change in corporate structure or other
transaction not involving the receipt of consideration by the Company), the
Plan will be appropriately adjusted in the class(es) and maximum number of
securities subject to the Plan pursuant to subsections 4(a) and 4(b) and
the maximum number of securities subject to award to any person pursuant to
subsection 5(c), and the outstanding Stock Awards will be appropriately
adjusted in the class(es) and number of securities and price per share of
stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by
the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(c) Change in Control--Asset Sale. In the event of a sale of all or
substantially all of the assets of the Company, then all Stock Awards
outstanding under the Plan shall continue in full force and effect.
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(d) Change in Control--Merger or Consolidation in Which the Company is Not the
Surviving Corporation. In the event of a merger or consolidation in which
the Company is not the surviving corporation, then any surviving
corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards
(including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(d)) for
those outstanding under the Plan. In the event any surviving corporation
or acquiring corporation refuses to assume such Stock Awards or to
substitute similar stock awards for those outstanding under the Plan, then
with respect to Stock Awards held by Participants whose Continuous Service
has not terminated, the vesting of such Stock Awards (and, if applicable,
the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised
(if applicable) at or prior to such event. With respect to any other Stock
Awards outstanding under the Plan, such Stock Awards shall terminate if not
exercised (if applicable) prior to such event.
(e) Change in Control--Reverse Merger. In the event of a reverse merger in
which the Company is the surviving corporation but the shares of Common
Stock outstanding immediately preceding the merger are converted by virtue
of the merger into other property, whether in the form of securities, cash
or otherwise, then any acquiring corporation (or a corporation which
directly or indirectly controls such an acquiring corporation) shall assume
any Stock Awards outstanding under the Plan or shall substitute similar
stock awards (including an award to acquire the same consideration paid to
the stockholders in the transaction described in this subsection 11(e)) for
those outstanding under the Plan. In the event any acquiring corporation
or corporation controlling such an acquiring corporation refuses to assume
such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of
such Stock Awards (and, if applicable, the time during which such Stock
Awards may be exercised) shall be accelerated in full, and the Stock Awards
shall terminate if not exercised (if applicable) at or prior to such event.
With respect to any other Stock Awards outstanding under the Plan, such
Stock Awards shall terminate if not exercised (if applicable) prior to such
event.
12. Amendment of the Plan and Stock Awards.
(a) Amendment of Plan. The Board at any time, and from time to time, may amend
the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder
approval is necessary to satisfy the requirements of Section 422 of the
Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
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(c) Contemplated Amendments. It is expressly contemplated that the Board may
amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan
and/or Incentive Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(e) Amendment of Stock Awards. The Board at any time, and from time to time,
may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant
and (ii) the Participant consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on August 11, 2006 which
shall be within ten (10) years from the date the Plan is adopted by the
Board or approved by the stockholders of the Company, whichever is earlier.
No Stock Awards may be granted under the Plan while the Plan is suspended
or after it is terminated.
(b) No Impairment of Rights. Rights and obligations under any Stock Award
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the
Participant.
14. Effective Date of Plan.
This amended and restated Plan shall become effective on the Listing Date,
but no Stock Award shall be exercised (or, in the case of a stock bonus,
shall be granted) unless and until this amended and restated Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the
Board.
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EXHIBIT 10.28
[LOGO OF COPPER MOUNTAIN]
March 12, 1999
Joseph Markee
P.O. Box 675966
Rancho Santa Fe, CA 92067
Re: EMPLOYMENT TERMS
Dear Joe:
This letter agreement serves to confirm the terms and conditions of your
continued employment with Copper Mountain Networks (the "Company") as follows.
You will continue to serve as Chairman of the Board of Directors and Chief
Technical Officer and will be responsible for such duties as are normally
associated with such positions or as otherwise determined by the Board of
Directors (the "Board"). Your salary and benefits shall remain the same as they
are currently, although they may be changed from time to time at the discretion
of the Board. You will work at our facility located in San Diego.
You shall remain an at-will employee which means that you may terminate your
employment with the Company at any time and for any reason whatsoever simply by
notifying the Company. Likewise, the Company may terminate your employment at
any time and for any reason whatsoever, with or without cause or advance notice.
This at-will employment relationship cannot be changed except in a writing
signed by the Company's Chief Executive Officer.
Notwithstanding the at-will nature of your employment, if the Board removes you
or elects someone else as Chairman or Chief Technical Officer or the Company
assigns you to work at a facility located outside San Diego County, then you
shall be entitled to the Severance Benefits described below, provided that (i)
your employment with the Company is thereafter terminated (either by the Company
or by your resignation) within 90 days of such event, and (ii) you furnish the
Company with a release of claims (a copy of which is attached hereto as Exhibit
A). For purposes hereof, your Severance Benefits shall be limited to a severance
payment in an amount equal to six (6) months of your base salary, subject to
standard payroll deductions and withholdings, and twelve (12) months of
accelerated vesting of your unvested stock options (such that the number of
options you are entitled to exercise shall be equal to the number that would
have become vested if you had remained in the continuous employment of the
Company until the first anniversary of your last day of employment).
<PAGE>
[LOGO OF COPPER MOUNTAIN]
Employment Terms
Page Two continued
The employment terms in this letter supersede any other agreements or promises
made to you by anyone, whether oral or written, including but not limited to,
that certain letter agreement from Roger Evans of Greylock written on behalf of
the Board and dated February 25, 1998. This letter agreement shall comprise the
final, complete and exclusive agreement between you and the Company with respect
to the subject matter set forth herein and may only be changed by a written
agreement between you and the Chief Executive Officer.
Please sign and date this letter, and return it to me as soon as possible in
order to confirm the terms and conditions described above.
Sincerely,
COPPER MOUNTAIN NETWORKS, INC.
By: /s/ RICHARD GILBERT
-------------------------------
Richard Gilbert
President and Chief Executive Officer
ACCEPTED BY:
/s/ JOSEPH MARKEE 3/15/99
- ------------------------------------------ --------------------------------
Joseph Markee Date
<PAGE>
[LOGO OF COPPER MOUNTAIN]
EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In exchange for payment to me of amounts pursuant to the letter agreement
dated March 15, 1999, to which this form is attached, I, JOSEPH MARKEE, hereby
furnish COPPER MOUNTAIN NETWORKS, INC. (the "Company") with the following
release and waiver.
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns and affiliates,
of and from any and all claims, liabilities, demands, causes of action, costs,
expenses attorneys' fees, damages, indemnities and obligations of every kind and
nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising at any time prior to and
including my employment termination date with respect to any claims relating to
my employment and the termination of my employment, including but not limited
to, claims pursuant to any federal, state or local law relating to employment,
including, but not limited to, discrimination claims, claims under the
California Fair Employment and Housing Act, and the Federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"), or claims for wrongful
termination, breach of the covenant of good faith, contract claims, tort claims,
and wage or benefit claims, including but not limited to, claims for salary,
bonuses, commissions, stock, stock options, vacation pay, fringe benefits,
severance pay or any form of compensation.
I also acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the
Company.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this waiver and release is knowing and
voluntary, and that the consideration given for this waiver and release is in
addition to anything of value to which I was already entitled as an employee of
the Company. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the waiver and release granted
herein does not relate to claims which may arise after this agreement is
executed; (b) I have the right to consult with an attorney prior to executing
this agreement (although I may choose voluntarily not to do so); (c) I have
twenty-one (21) days from the date I receive this agreement, in which to
consider this agreement (although I may choose voluntarily to execute this
agreement earlier); (d) I have seven (7) days following the execution of this
agreement to revoke my consent to the agreement; and (e) this agreement shall
not be effective until the seven (7) day revocation period has expired.
Dated: ___________________________ ________________________________________
Joseph Markee
<PAGE>
EXHIBIT 10.29
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES AVAILABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED UNLESS (i)
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR (ii) COPPER MOUNTAIN NETWORKS, INC. HAS BEEN FURNISHED AN OPINION
OF COUNSEL ACCEPTABLE TO IT TO THE EFFECT THAT NO REGISTRATION IS LEGALLY
REQUIRED FOR SUCH TRANSFER.
Date of Issuance: January 14, 1997 Warrant To Purchase
147,401 Shares
of Series B Preferred Stock as
Herein Described
COPPER MOUNTAIN NETWORKS, INC.
SERIES B PREFERRED STOCK PURCHASE WARRANT
Void after January 14, 2001
This is to certify that, for value received, Intel Corporation or a proper
assignee (in each case, the "Holder") is entitled to purchase, subject to the
provisions of this Warrant from Copper Mountain Networks, Inc., a California
corporation (the "Company"), at any time during the period from the date of
issuance set forth above (the "Commencement Date") to 5:00 p.m., California
time, on January 14, 2001 (the "Expiration Date") at which time this Warrant
shall expire and become void, 147,401 shares ("Warrant Shares") of the Company's
Series B Preferred Stock (the "Series B Preferred Stock"). This Warrant shall
be exercisable at $3.39 per share (the "Exercise Price"). The number of shares
of Series B Preferred Stock to be received upon exercise of this Warrant and the
Exercise Price shall be adjusted from time to time as set forth below. This
Warrant is issued in connection with the ATM Technology Agreement (the
"Technology Agreement") dated as of January 14, 1997 between the Company and
Intel Corporation ("Intel"). This Warrant is subject to the following terms and
conditions:
1. Exercise of Warrant. Subject to the terms and conditions hereof, this
Warrant may be exercised in whole or in part as to any vested portion at any
time from and after the Commencement Date and before the Expiration Date.
Exercise shall be by presentation and surrender to the Company at its principal
office, or at the office of any transfer agent for its warrants ("Transfer
Agent") designated by the Company, of (i) this Warrant and (ii) payment in
accordance with Section 2 below of an amount equal to the
1.
<PAGE>
product of the Exercise Price multiplied by the number of Warrant Shares being
purchased upon such exercise. If this Warrant is exercised in part only, the
Company or Transfer Agent shall, as soon as practicable after presentation of
this Warrant upon such exercise, execute and deliver a new Warrant, dated the
date hereof, evidencing the right of the Holder to purchase the balance of the
Warrant Shares purchasable hereunder upon the same terms and conditions herein
set forth. Upon and as of receipt by the Company or Transfer Agent of such
properly completed and duly executed purchase form accompanied by payment as
herein provided, the Holder shall be deemed to be the Holder of record of the
shares of Series B Preferred Stock issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such shares of Series B Preferred Stock shall not then
actually be delivered to the Holder.
2. Method of Payment. The Holder may elect, to the extent permitted by
applicable statutes and regulations, to make payment in an amount equal to the
product of the Exercise Price multiplied by the number of Warrant Shares being
purchased upon such exercise under one of the following alternatives:
(a) payment of such amount in cash at the time of exercise;
(b) payment of such amount by a check or by wire transfer
payable to the Company at the time of exercise;
(c) payment of such amount at the time of exercise by delivery
of already-issued shares of the Company's Series B Preferred Stock and/or Common
Stock, held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Series B Preferred Stock and/or Common Stock shall be
valued at its Fair Market Value, (as defined in Section 15) on the date of
exercise; or
(d) payment of such amount at the time of exercise by a
combination of the methods of payment permitted by Sections 2(a) through 2(c)
above.
3. Net Issue Election. In lieu of the payment methods set forth in
Section 2, the Holder may elect to receive, without the payment by the Holder of
any additional consideration, shares of Series B Preferred Stock equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice annexed hereto
duly executed, at the principal office of the Company. Thereupon, the Company
shall issue to the Holder such number of fully paid and nonassessable shares of
Series B Preferred Stock as is computed using the following formula:
2.
<PAGE>
X = Y(A-B)
------
A
Where:
X = the number of shares of Series B Preferred Stock to be issued to the
Holder pursuant to this Section 3.
Y = the number of shares of Series B Preferred Stock covered by this
Warrant in respect of which the net issue election is made pursuant to this
Section 3.
A = the Fair Market Value of one share of the Company's Series B Preferred
Stock.
B = the Exercise Price in effect under this Warrant at the time the net
issue election is made pursuant to this Section 3.
4. Same Day Exercise and Sale. In lieu of exercising the Warrant as set
forth in Sections 2 and 3 above, when permitted by law and applicable
regulations (including Nasdaq and NASD rules and regulations promulgated by the
Securities and Exchange Commission), the Holder may pay the Exercise Price
through a "same day sale" commitment from the Holder (and if applicable a
broker-dealer that is a member of the National Association of Securities Dealers
(a "NASD Dealer")), whereby the Holder irrevocably elects to exercise the
Warrant and to sell a portion of the shares so purchased to pay for the Exercise
Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale (or,
in the case of the NASD Dealer, upon receipt) of such shares to immediately
forward the exercise price directly to the Company.
5. Vesting. Notwithstanding anything to the contrary in this Warrant,
this Warrant shall only be exercisable with respect to those Warrant Shares
which have vested as of the date of exercise. Except as set forth in Section
16.8 of the Technology Agreement, the Warrant Shares shall become exercisable
(i.e., vest) according to the following schedule: (i) one-third of the Warrant
Shares shall vest upon the Company's receipt of the software, chips, cards and
other Intel deliverables specified in Sections 2.1(a)(i) - (iii) and 2.1(b)(i)
of the Technology Agreement; (ii) one-third of the Warrant Shares shall vest
upon the date the Company begins a field trial or publicized demonstration of
xDSL's capabilities which includes the Company's technology and any of the
delivered Technology (as defined in the Technology Agreement); and (iii) one-
third of the Warrant Shares shall vest upon the date the Company commercially
releases for public or private sale one or more of its manufactured products
which incorporate any of the Delivered Technology.
6. Reservations of Shares. The Company shall, at all times until the
expiration of this Warrant, reserve for issuance and delivery upon exercise of
this
3.
<PAGE>
Warrant the number of Warrant Shares as shall be required for issuance and
delivery upon any unexercised portion of this Warrant. In addition, the Company
shall reserve for issuance and delivery upon conversion of the Warrant Shares
the number of shares of the Company's Common Stock as shall be required for
issuance and delivery upon conversion of any unconverted portion of the Warrant
Shares. All Warrant Shares and shares of Common Stock issuable upon conversion
of the Warrant Shares shall be duly authorized, and when issued upon such
exercise, shall be validly issued, fully paid and non-assessable. Issuance of
this Warrant shall constitute full authority to the Company's Officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for Warrant Shares and Common Stock upon the exercise of
this Warrant.
7. Fractional Shares. The Company shall not issue any fractional shares
nor scrip representing fractional shares upon exercise of any portion of this
Warrant.
8. No Rights as Shareholder. This Warrant shall not entitle the Holder to
any rights as a shareholder of the Company, either at law or in equity. The
rights of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
9. Adjustments in Number and Exercise Prices of Warrant Shares.
9.1 The number of shares of Series B Preferred Stock for which this
Warrant may be exercised and the Exercise Prices therefor shall be subject to
adjustments as follows:
(a) If the Company is recapitalized through the subdivision or
combination of its outstanding shares of Series B Preferred Stock into a larger
or smaller number of shares, the number of shares of Series B Preferred Stock
for which this Warrant may be exercised shall be increased or reduced, as of the
record date for such recapitalization, in the same proportion as the increase or
decrease in the outstanding shares of Series B Preferred Stock, and the Exercise
Price shall be adjusted so that the aggregate amount payable for the purchase of
all of the Warrant Shares issuable hereunder immediately after the record date
for such recapitalization shall equal the aggregate amount so payable
immediately before such record date.
(b) In case the Company shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Warrant Shares (or any shares
of stock or other securities at the time issuable upon exercise of this Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained earnings), then, in each such case, the
Holder of this Warrant on exercise hereof at any time after the consummation,
effective date or record date of such dividend or other
4.
<PAGE>
distribution, shall receive, in addition to the shares of the Warrant Stock (or
such other stock or securities) issuable on such exercise prior to such date,
and without the payment of additional consideration therefor, the securities or
such other assets of the Company to which such Holder would have been entitled
upon such date if such Holder had exercised this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period giving effect to all adjustments
called for by this Section 9.
9.2 In the event of any reorganization or reclassification of the
outstanding shares of Series B Preferred Stock (other than a change in par value
or from no par value to par value, or from par value to no par value, or as a
result of a subdivision or combination) or in the event of any consolidation or
merger of the Company with another entity after which the Company is not the
surviving entity, at any time prior to the expiration of this Warrant, upon
subsequent exercise of this Warrant the Holder shall have the right to receive
the same kind and number of shares of Series B Preferred Stock and other
securities, cash or other property as would have been distributed to the Holder
upon such reorganization, reclassification, consolidation or merger had the
Holder exercised this Warrant immediately prior to such reorganization,
reclassification, consolidation or merger, appropriately adjusted for any
subsequent event described in this Section 9. The Holder shall pay upon such
exercise the Exercise Price that otherwise would have been payable pursuant to
the terms of this Warrant. If any such reorganization, reclassification,
consolidation or merger results in a cash distribution in excess of the then
applicable Exercise Price, the Holder may, at the Holder's option, exercise this
Warrant without making payment of the Exercise Price, and in such case the
Company shall, upon distribution to the Holder, consider the Exercise Price to
have been paid in full, and in making settlement to the Holder, shall deduct an
amount equal to the Exercise Price from the amount payable to the Holder. In
the event of any such reorganization, merger or consolidation, the corporation
formed by such consolidation or merger or the corporation which shall have
acquired the assets of the Company shall execute and deliver a supplement hereto
to the foregoing effect, which supplement shall also provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided in this Warrant.
9.3 If the Company shall, at any time before the expiration of this
Warrant, dissolve, liquidate or wind up its affairs, the Holder shall have the
right to receive upon exercise of this Warrant, in lieu of the shares of Series
B Preferred Stock of the Company that the Holder otherwise would have been
entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to the Holder upon any such dissolution, liquidation
or winding up with respect to such Series B Preferred Stock receivable upon
exercise of this Warrant on the date for determining those entitled to receive
any such distribution. If any such dissolution, liquidation or winding up
results in any cash distribution in excess of the Exercise Price provided by
5.
<PAGE>
this Warrant, the Holder may, at the Holder's option, exercise this Warrant
without making payment of the Exercise Price and, in such case, the Company
shall, upon distribution to the Holder, consider the Exercise Price to have been
paid in full and, in making settlement to the Holder, shall deduct an amount
equal to the Exercise Price from the amount payable to the Holder.
9.4 The Company may retain a firm of independent public accountants
of recognized standing (who may be any such firm regularly employed by the
Company) to make any computation required under this Section 9, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section 9.
9.5 Whenever the number of Warrant Shares or Exercise Price shall be
adjusted as required by the provisions of this Section 9, the Company forthwith
shall provide to the Holder and shall file in the custody of its secretary or an
assistant secretary, at its principal office, an officer's certificate showing
the adjusted number of Warrant Shares and Exercise Price and setting forth in
reasonable detail the circumstances requiring the adjustment. Each such
officer's certificate shall be made available at all reasonable times during
reasonable hours for inspection by the Holder.
10. Investment Representations.
10.1 The Holder represents and warrants that it is an investor in
securities of companies in the development stage and acknowledges that it can
bear the economic risk of its investment and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Warrant and the Warrant Shares.
10.2 The Holder represents and warrants that it is acquiring the
Warrant, and the Warrant Shares issuable upon the exercise of the Warrant
(including any of the Common Stock into which the Warrant Shares are
convertible), for investment for its own account and not with a view to, or for
resale in connection with, any distribution thereof, and it has no present
intention of selling or distributing the Warrant or the Warrant Shares (or any
of the Common Stock into which the Warrant Shares are convertible). It
understands that the Warrant Shares (and the Common Stock into which the Warrant
Shares are convertible) to be received by it upon exercise of the Warrant have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act") by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein.
6.
<PAGE>
10.3 The Holder recognizes that the Warrant and Warrant Shares being
acquired by it must be held indefinitely unless they are subsequently registered
under the Act or an exemption from such registration is available.
10.4 The Holder acknowledges that, because they have not been
registered under the Act, the Warrant Shares, and the Common Stock into which
such Warrant Shares are convertible, must be held indefinitely unless
subsequently registered under the Act or an exemption from such registration is
available. The Holder is aware of the provisions of Rule 144 promulgated under
the Act which permits limited resale of shares purchased in a private placement
subject to the satisfaction of certain conditions, including, among other
things, the existence of a public market for the shares, the availability of
certain current public information about the Company, the resale occurring not
less than two years after a party has purchased and paid for the security to be
sold, the sale being through a "broker's transaction" or in transactions
directly with a "market maker" (as provided by Rule 144(f)) and the number of
shares being sold during any three-month period not exceeding specified
limitations (unless the sale is within the requirements of Rule 144(k)).
10.5 The Holder understands that no public market now exists for any
of the securities issued by the Company and that it is uncertain whether a
public market will ever exist for the Warrant Shares or any of the Common Stock
into which the Warrant Shares are convertible.
10.6 The Holder represents and warrants that it is an "accredited
investor" as such term is defined in Rule 501 of the General Rules and
Regulations prescribed by the Securities and Exchange Commission pursuant to the
Act, and it was not formed for the specific purpose of acquiring the Warrant
Shares or the shares of Common Stock issuable upon the conversion thereof.
11. Transfer, Exchange, Assignment or Loss of Warrant.
11.1 This Warrant and the Warrant Shares (including shares of the
Company's Common Stock received upon conversion of the Warrant Shares) or any
other securities ("Other Securities") received upon exercise of this Warrant may
be transferred, in whole or in part, subject to the following restrictions.
Each Holder agrees not to make any disposition of all or any portion of the
Warrant, Warrant Shares or Other Securities unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
7.
<PAGE>
(b) the transferee has agreed in writing to be bound by the
terms of this Warrant, such Holder shall have notified the Company of the
proposed disposition and if reasonably requested by the Company, such Holder
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of such shares under the Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
11.2 Notwithstanding the provisions of Sections 11.1(a) and 11.1(b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Holder which is (i) a partnership to its partners or former
partners in accordance with partnership interests, (ii) a corporation to its
subsidiaries or to its shareholders in accordance with their interest in the
corporation, (iii) a limited liability company to its members or former members
in accordance with their interest in the limited liability company, or (iv) to
the Holder's family member or trust for the benefit of an individual Holder;
provided that in each case the transferee will be subject to the terms of this
Warrant to the same extent as if he were an original Holder hereunder.
11.3 Each certificate representing Warrant Shares (including shares
of the Company's Common Stock received upon conversion of the Warrant Shares) or
Other Securities shall (unless otherwise permitted by the provisions of the
Warrant) be stamped or otherwise imprinted with a legend substantially similar
to the following (in addition to any legend required under applicable state
securities laws or as provided elsewhere in this Warrant):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION
IS NOT REQUIRED.
11.4 The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
11.5 Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be
8.
<PAGE>
removed upon receipt by the Company of an order of the appropriate blue sky
authority authorizing such removal.
11.6 Any transfer permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office or to the Transfer Agent at
its offices with a duly executed request to transfer the Warrant, which shall
provide adequate information to effect such transfer and shall be accompanied by
funds sufficient to pay any transfer taxes applicable. Upon satisfaction of all
transfer conditions, the Company or Transfer Agent shall, without charge,
execute and deliver a new Warrant in the name of the transferee named in such
transfer request, and this Warrant promptly shall be canceled.
11.7 Upon receipt by the Company of evidence satisfactory to it of
loss, theft, destruction or mutilation of this Warrant and, in the case of loss,
theft or destruction, of reasonably satisfactory indemnification, or, in the
case of mutilation, upon surrender of this Warrant, the Company will execute and
deliver, or instruct the Transfer Agent to execute and deliver, a new Warrant of
like tenor and date, and any such lost, stolen or destroyed Warrant thereupon
shall become void.
11.8 Each Holder of this Warrant, the Warrant Shares and any Other
Securities shall indemnify and hold harmless the Company, its directors and
officers, and each other person, if any, who controls the Company, against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer or any such person may become subject under the
Act or any statute or common law, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or based upon the
disposition by such Holder of the Warrant, the Warrant Shares or Other
Securities in violation of this Warrant.
11.9 The terms and conditions of this Warrant shall be binding upon
any permitted assignee and successor of the Holder. Any such successor or
assignee shall be obligated to and shall immediately execute an instrument which
provides that such party is bound under the terms of this Warrant. Any
transfer, assignment or other disposition without such execution by the proposed
transferee, assignee or successor shall be null and void.
12. "Market Stand-Off" Agreement. Each Holder hereby agrees that such
Holder shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Holder (other than those included
in the registration) for a period specified by the representative of the
underwriters of Common Stock (or other securities) of the Company not to exceed
180 days following the effective date of a registration statement of the Company
filed under the Act; provided, however, that (i) such agreement shall apply only
to the Company's initial public offering and (ii) all officers and directors of
the Company enter into similar agreements. Each Holder agrees to execute and
deliver such other agreements as may be reasonably requested by
9.
<PAGE>
the Company or the underwriter which are consistent with the foregoing or which
are necessary to give further effect thereto. The obligations described in this
Section 12 shall not apply to a registration relating solely to employee benefit
plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company
may impose stop-transfer instructions with respect to the shares of Common Stock
(or other securities) subject to the foregoing restriction until the end of said
180-day period.
13. Automatic Conversion of Series B Preferred Stock. Notwithstanding
anything to the contrary in this Warrant, in the event of any automatic
conversion of all of the Company's outstanding Series B Preferred Stock into
shares of the Company's Common Stock in accordance with the Company's Articles
of Incorporation then in effect, this Warrant shall thereupon change from the
right to purchase shares of Series B Preferred Stock to the right to purchase
shares of Common Stock, and the Holder shall thereupon have the right to
purchase, at a total price equal to that payable upon the exercise of this
Warrant in full, the number of shares of Common Stock which would have been
receivable by the Holder upon the exercise of this Warrant for shares of Series
B Preferred Stock immediately prior to such conversion of such shares of Series
B Preferred Stock into shares of Common Stock, and in such event appropriate
provisions shall be made with respect to the rights and interest of the Holder
to the end that the provisions hereof (including, without limitation, the
provisions for the adjustment of the Exercise Price and of the number of shares
purchasable upon exercise of this Warrant and the provisions relating to the net
issue election) shall thereafter be applicable to any shares of Common Stock
deliverable upon the exercise hereof.
14. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, as such laws are applied to
contracts entered into and wholly to be performed within the State of
California.
15. Definition of Fair Market Value. "Fair Market Value" of a Warrant
Share as of a particular date shall mean:
(a) If traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Common Stock of the Company on such exchange or market over the 5
business days ending immediately prior to the applicable date of valuation;
(b) If actively traded over-the-counter, the Fair Market Value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending immediately prior to the applicable date of valuation;
10.
<PAGE>
(c) If there is no active public market, the Fair Market Value
shall be the value thereof, as agreed upon by the Company and the Holder;
provided, however, that if the Company and the Holder cannot agree on such
value, such value shall be determined by an independent valuation firm
experienced in valuing businesses such as the Company and jointly selected in
good faith by the Company and the Holder. Fees and expenses of the valuation
firm shall be shared equally between the Holder and the Company.
16. Taxes. The Company shall pay all taxes and other governmental charges
that may be imposed in respect of the issue or delivery of the Warrant Shares.
The Company shall not be required to pay any tax or other charge imposed in
connection with any transfer involved in the issuance of any certificate for
Warrant Shares in any name other than that of the Holder of this Warrant, and in
such case the Company shall not be required to issue or deliver any stock
certificate or security until such tax or other charge has been paid, or it has
been established to the Company's reasonable satisfaction that no tax or other
charge is due.
17. Representations and Warranties. The Company hereby represents and
warrants to Intel as follows:
17.1 All corporate action on the part of the Company, its officers,
directors and shareholders necessary for (a) the authorization, execution and
delivery of, and the performance of all obligations of the Company under this
Warrant, and (b) the authorization, issuance, reservation for issuance and
delivery of all of the Warrant Shares issuable upon exercise of this Warrant
(and the Common Stock issuable upon conversion thereof) has been taken.
17.2 This Warrant constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and
similar laws affecting creditors' rights generally and to general equitable
principles.
17.3 All consents, approvals and authorizations of, and
registrations, qualifications and filings with, any federal or state
governmental agency, authority or body, or any third party, required in
connection with the execution, delivery and performance of this Warrant and the
consummation of the transactions contemplated hereby and thereby have been
obtained.
17.4 The execution, delivery and performance of and compliance with
this Warrant and the consummation of the transactions contemplated hereby will
not result in any violation or default, or be in conflict with or constitute,
with or without the passage of time or the giving of notice or both, a default
under the Restated Articles of Incorporation or Bylaws of the Company, or any
agreement or contract of the Company,
11.
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or, to the best of the Company's knowledge, will not result in a violation of
any statutes, laws, regulations or orders, or will not result in the creation of
any lien, charge or encumbrance upon any assets of the Company.
18. Registration Rights. All shares of Common Stock issuable upon
conversion of the Warrant Shares issuable upon exercise of this Warrant shall be
deemed to be "Registrable Securities" as defined in that certain Investors'
Rights Agreement dated January 14, 1997 among and between the Company, Intel and
holders of the Company's Series A Preferred Stock and Series B Preferred Stock
(the "Investors' Rights Agreement"), and are entitled, subject to the terms and
conditions of that agreement, to all registration rights granted to holders of
Registrable Securities thereunder. The rights to cause the Company to register
such shares may only be transferred by Intel to a proper assignee of Intel
subject to the restrictions on assignment of registration rights set forth in
Section 2.10 of the Investors' Rights Agreement. Any such assignee shall agree
to be bound by the provisions of Section 2 of the Investors' Rights Agreement.
For the purposes of the Investors' Rights Agreement, the determination of
"Registrable Securities then outstanding" with respect to this Warrant shall be
made by calculating the Warrant Shares issuable hereunder following a net issue
election pursuant to Section 3 of the Warrant assuming that the exercise is made
at the Fair Market Value in effect on the date of such calculation.
19. Notices. All notices and other communications from the Company of the
Holder shall be given in accordance with the Investors' Rights Agreement.
20. Headings. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
21. No Impairment. The Company will not, by amendment of its Articles of
Incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock issuable upon the
exercise of this Warrant above the amount payable therefor upon such exercise,
and (b) will take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and non-assessable
Warrant Shares upon exercise of this Warrant.
22. Notices of Record Date. In case:
12.
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22.1 the Company shall take a record of the holders of its Warrant
Shares, Common Stock (or other stock or securities a the time receivable upon
the exercise of this Warrant), for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities or to receive any other
right; or
22.2 of any consolidation or merger of the Company with or into
another corporation, any capital reorganization of the Company, any
reclassification of the Capital Stock of the Company, or any conveyance of all
or substantially all of the assets of the Company to another corporation in
which holders of the Company's stock are to receive stock, securities or
property of another corporation; or
22.3 of any voluntary dissolution, liquidation or winding-up of the
Company; or
22.4 of any redemption or conversion of all outstanding Common Stock
or Warrant Shares;
then, and in each such case, the Company will mail or cause to be mailed to
the Holder of this Warrant a notice specifying, as the case may be, (i) the date
on which a record is to be taken for the purpose of such dividend, distribution
or right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation, winding-up,
redemption or conversion is to take place, and the time, if any is to be fixed,
as of which the holders of record of Warrant Shares, Common Stock or (such stock
or securities as at the time are receivable upon the exercise of this Warrant),
shall be entitled to exchange their Warrant Shares, shares of Common Stock (or
such other stock or securities), for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
fifteen (15) days prior to the date therein specified.
23. Severability. If any term, provision, covenant or restriction of this
Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
24. Counterparts. For the convenience of the parties, any number of
counterparts of this Warrant may be executed by the parties hereto and each such
executed counterpart shall be, and shall be deemed to be, an original
instrument.
25. No Inconsistent Agreements. The Company will not on or after the date
of this Warrant enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holder of this Warrant or otherwise
conflicts with the provisions hereof. The rights granted to the Holder
hereunder do not in any way
13.
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conflict with and are not inconsistent with the rights granted to holders of the
Company's securities under any other agreements, except rights that have been
waived.
26. Saturdays, Sundays and Holidays. If the Expiration Date falls on a
Saturday, Sunday or legal holiday, the Expiration Date shall automatically be
extended until 5:00 p.m. the next business day.
[THIS SPACE INTENTIONALLY LEFT BLANK]
14.
<PAGE>
In Witness Whereof, the Company and Holder have executed this Warrant as of
this 14th day of January, 1997.
Intel Corporation Copper Mountain Networks, Inc.
By: /s/ Arvind Sodhani By: /s/ Joseph D. Markee
_____________________________ __________________________
Joseph D. Markee
Name: Arvind Sodhani President and
____________________________ Chief Financial Officer
Title: Vice President & Treasurer
___________________________
<PAGE>
Notice of Exercise
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase _____________ shares of Series B Preferred
Stock and herewith tenders payment for such shares of Series B Preferred Stock
to the order of Copper Mountain Networks, Inc. in the amount of $_____________
in accordance with the terms hereof. The undersigned requests that a
certificate for such shares of Series B Preferred Stock be registered in the
name of _____________ whose address is _______________________. If said number
of shares of Series B Preferred Stock is less than all of the shares of Series B
Preferred Stock purchasable hereunder, the undersigned requests that a new
Warrant representing the remaining balance of the shares of Series B Preferred
Stock be registered in the name of and that such Warrant be delivered to
_____________, whose address is _______________________.
Dated: _______________________________________
Signature: ___________________________________
Tax Identification Number:____________________
Net Issue Election Notice
To: ______________________________ Date:__________________________
The undersigned hereby elects under Section 3 of this Warrant to purchase
_______ shares of Series B Preferred Stock of Copper Mountain Networks, Inc.
(and in lieu of payment of the exercise price therefore to surrender the right
to purchase ____________ shares of Series B Preferred Stock) pursuant to this
Warrant. The certificate(s) for such shares issuable upon such net issue
election shall be issued in the name of the undersigned or as otherwise
indicated below:
_____________________________________
Signature
_____________________________________
Name for Registration
_____________________________________
Mailing Address
<PAGE>
EXHIBIT 10.30
Copper Mountain Networks, Inc.
1999 Non-Employee Directors' Stock Option Plan
Adopted by the Board of Directors March 15, 1999
Approved By Stockholders March 25, 1999
Effective Date: March 25, 1999
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) Available Options. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Annual Grant" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "Annual Meeting" means the annual meeting of the stockholders of the
Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee Grant" means an Option granted to a member of a committee
of the Board pursuant to subsection 6(c) of the Plan.
(g) "Common Stock" means the common stock of the Company.
(h) "Company" means Copper Mountain Networks, Inc., a Delaware
corporation.
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(i) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are paid a director's fee
or otherwise compensated by the Company for their services as Directors.
(j) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(k) "Director" means a member of the Board of Directors of the Company.
(l) "Disability" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person's position with the Company or an Affiliate of the Company because
of the illness or injury of the person.
(m) "Employee" means any person employed by the Company or an Affiliate.
Service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
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(p) "Initial Grant" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(a) of the Plan.
(q) "IPO Date" means the effective date of the initial public offering of
the Common Stock.
(r) "Non-Employee Director" means a Director who is not an Employee or
Officer of the Company or an Affiliate and who is not a Director of an
Affiliate.
(s) "Nonstatutory Stock Option" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(t) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(v) "Option Agreement" means a written agreement between the Company and
an Optionholder setting forth the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(w) "Optionholder" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(x) "Plan" means this Copper Mountain Networks, Inc. 1999 Non-Employee
Directors' Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "Securities Act" means the Securities Act of 1933, as amended.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any
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Option Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(v) Any interpretation of the Plan by the Board of any decision
made by it under the Plan shall be final and binding on all persons.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate three hundred sixty thousand
(360,000) shares of Common Stock.
(b) Reversion of Shares to the Share Reserve. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Option shall revert to and
again become available for issuance under the Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. Eligibility.
Options as set forth in section 6 shall automatically be granted under the
Plan to all Directors who are serving as Non-Employee Directors on the date such
Options are granted.
6. Non-Discretionary Grants.
(a) Initial Grants.
(i) Without any further action of the Board, each person who is
then serving as a Non-Employee Director on the effective date of the Plan
(pursuant to Section 14) shall be granted an Initial Grant to purchase thirty
thousand (30,000) shares of Common Stock on the terms and conditions set forth
herein.
(ii) Without any further action of the Board, each person who is
elected or appointed for the first time to be a Non-Employee Director after the
effective date of the Plan (pursuant to Section 14) automatically shall, upon
the date of his or her initial election or appointment to be a Non-Employee
Director by the Board or stockholders of the Company, be granted an Initial
Grant to purchase thirty thousand (30,000) shares of Common Stock on the terms
and conditions set forth herein.
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<PAGE>
(b) Annual Grants. On the day of each Annual Meeting of Stockholders
commencing with the 2000 Annual Meeting of Stockholders, each person who is then
a Non-Employee Director who was initially elected or appointed to be a Non-
Employee Director at least six (6) months prior to the date of such Annual
Meeting of Stockholders shall be granted an Annual Grant to purchase ten
thousand (10,000) shares of Common Stock on the terms and conditions set forth
herein.
7. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) Term. No Option shall be exercisable after the expiration of five (5)
years from the date it was granted.
(b) Exercise Price. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, the
Board shall have the authority to grant an Option with an exercise price lower
than that set forth in the preceding sentence if such Option is granted pursuant
to an assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) Consideration. Payment of the purchase price of each Option is due in
full upon any exercise. The purchase price may be paid, to the extent permitted
by applicable statutes and regulations, in any combination of (i) cash or check,
(ii) by delivery of previously owned shares of the Company's Common Stock that
either have been held for the period required to avoid a charge to the Company's
reported earnings (generally six (6) months) or were not acquired, directly or
indirectly from the Company, that are owned free and clear of any liens, claims,
encumbrances or security interests, (iii) pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which results in
receipt of cash (or check) or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds by the Company
prior to the issuance of shares of Common Stock of the Company, (iv) any other
form of legal consideration that may be acceptable to the Board and provided in
the Option Agreement, or (v) a combination of more than one of the foregoing;
provided, however, that at any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall not be made by deferred payment utilizing a
promissory note or otherwise.
(d) Transferability. An Option shall be transferable to the extent
provided in the Option Agreement. If the Option does not provide for
transferability, then the Option shall not be transferable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form
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<PAGE>
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(e) Vesting. Options shall be fully vested and exercisable on the date of
grant.
(f) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.
(g) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.
(h) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option or by a person designated to exercise
the Option upon the Optionholder's death, but only within the period ending on
the earlier of (1) the date eighteen (18) months following the date of death or
(2) the expiration of the term of such Option as set forth in the Option
Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
(i) Extension of Termination Date. If the exercise of the Option
following the termination of the Optionholder's Continuous Service would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Securities Act or comparable requirements of
other applicable securities laws, then the Option shall terminate on the earlier
of (i) the expiration of the term of the Option set forth in subsection 7(a) or
(ii) the expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements or similar requirements of
other applicable securities law.
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<PAGE>
8. Covenants of the Company.
(a) Availability of Shares. During the terms of outstanding Options, the
Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Options and to issue and sell shares of Common Stock
upon exercise of the Options; provided, however, that this undertaking shall not
require the Company to register under the Securities Act (or other applicable
securities laws) the Plan, any Option or any stock issued or issuable pursuant
to the exercise of any such Option. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. Miscellaneous.
(a) Stockholder Rights. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
upon exercise of the Option pursuant to its terms.
(b) No Service Rights. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate, (iii) the service of a Director pursuant to the Bylaws of the
Company and any applicable provisions of the corporate law of the state in which
the Company is incorporated, or (iv) the service as director of an Affiliate
pursuant to the Bylaws of the Affiliate and any applicable provisions of the
corporate law of the state in which the Affiliate is incorporated.
(c) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
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<PAGE>
risks of exercising the Option; (ii) to give written assurances satisfactory to
the Company stating that the Optionholder is acquiring the stock subject to the
Option for the Optionholder's own account and not with any present intention of
selling or otherwise distributing the stock; or (iii) to make such further
representations as the Company reasonably determines are desirable to assure
compliance with applicable governing law, including applicable securities laws.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (ii)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities and other laws, including, but not limited to, legends restricting
the transfer of the stock.
(d) Withholding Obligations. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option, if any, by any of the following means (in
addition to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock.
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject both to the Plan pursuant to
subsection 4(a) and to the nondiscretionary Options specified in Section 6, and
the outstanding Options will be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to such outstanding
Options. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Options
shall terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse Merger.
In the event of (i) a sale of all or substantially all of the assets of the
Company, (ii) a merger or
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consolidation in which the Company is not the surviving corporation and in which
beneficial ownership of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in the election of
directors has changed, or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, and in which beneficial
ownership of securities of the Company representing at least fifty percent (50%)
of the combined voting power entitled to vote in the election of directors has
changed then any surviving corporation or acquiring corporation shall assume any
Options outstanding under the Plan or shall substitute similar Options
(including an option to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 11(c)) for those outstanding
under the Plan. In the event any surviving corporation or acquiring corporation
refuses to assume such Options or to substitute similar options for those
outstanding under the Plan, then such Options shall be terminated if not
exercised prior to such event.
12. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) Amendment of Options. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate when all of the shares in the
share reserve pursuant to subsection 4(a) have been issued. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
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<PAGE>
14. Effective Date of Plan.
The Plan shall become effective on the date the stockholders approve the
Plan.
15. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
10
<PAGE>
EXHIBIT 10.31
COPPER MOUNTAIN NETWORKS, INC.
NONSTATUTORY STOCK OPTION
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
, Optionholder:
- ----------------------
Copper Mountain Networks, Inc. (the "Company"), pursuant to its 1999 Non-
Employee Directors' Stock Option Plan (the "Plan") has on
----------------
granted to you, the optionholder named above, an option to purchase shares of
the common stock of the Company ("Common Stock"). This option is not intended
to qualify and will not be treated as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's Non-
Employee Directors (as defined in the Plan).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
( ). Subject to the limitations contained herein, this
- ------------------- -----
option shall be exercisable in accordance with the Plan.
2. The exercise price of this option is ($ ) per share,
-------- ----------
being the Fair Market Value (as defined in the Plan) of the Common Stock on the
date of grant of this option.
3. This option shall become exercisable ("vest") as provided in subsection
7(e) of the Plan for an option granted pursuant to Section 6 of the Plan.
4. (a) This option may be exercised, to the extent specified in the Plan,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to Section 10(c) of the Plan. This option may not be exercised for any number
of shares which would require the issuance of anything other than whole shares.
(b) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax withholding obligation of the Company arising by reason of the
exercise of this option or the lapse of any substantial risk of forfeiture to
which the shares are subject at the time of exercise.
1.
<PAGE>
5. Except at the time of your death while some or all of this option
remains outstanding and you are the optionholder for this option, this option
may be transferred only to (i) your family members, (ii) a trust the
beneficiaries of which are you and/or your family members, (iii) a family
limited partnership the partners of which are you and/or your family members, or
(iv) a family limited liability company the members of which are your and your
family members. A "family member" shall be limited to your spouse, children,
stepchildren and grandchildren (whether adopted or natural).
6. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
7. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 7 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the day of , .
-------- ------------ --------
Very truly yours,
Copper Mountain Networks, Inc.
By:
---------------------------------------
Duly authorized on behalf
of the Board of Directors
Attachments:
1999 Non-Employee Directors' Stock Option Plan
2.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionholder and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under compensatory stock plans of the Company, and (ii) the following agreements
only:
None
---------------------------------
(Initial)
Other
---------------------------------
---------------------------------
---------------------------------
----------------------------------------
Optionholder
----------------------------------------
Address
----------------------------------------
----------------------------------------
3.
<PAGE>
EXHIBIT 10.32
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made and entered into as of the ____ day
of __________, 1999 (the "Agreement"), by and between Copper Mountain Networks,
Inc., a Delaware corporation (the "Company"), and ________________ (the
"Indemnitee"), with reference to the following facts.
RECITALS:
A. The Company desires the benefits of having Indemnitee serve as an
officer and/or director secure in the knowledge that any expenses, liability
and/or losses incurred by him in his good faith service to the Company will be
borne by the Company or its successors and assigns.
B. Indemnitee is willing to serve in his position with the Company only on
the condition that he be indemnified for such expenses, liability and/or losses.
C. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers and agents of a
corporation at reasonable cost.
D. The Company and Indemnitee recognize that there has been an increase in
litigation against corporate directors, officers and agents.
E. The Company's Certificate of Incorporation allows and requires the
Company to indemnify its directors, officers and agents to the maximum extent
permitted under Delaware law.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. For purposes of this Agreement:
-----------
1.1 "Agent" shall mean any person who is or was a director, officer,
employee or agent of the Company or a subsidiary of the Company whether serving
in such capacity or as a director, officer, employee, agent, fiduciary or other
official of another corporation, joint venture, trust or other enterprise at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company.
1.2 "Change of Control" shall mean the occurrence of any of the following
events after the date of this Agreement:
(a) A change in the composition of the board of directors of the Company
(the "Board"), as a result of which fewer than two-thirds of the incumbent
directors are directors who either (i) had been directors of the Company twenty-
four (24) months prior to such change or (ii) were elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of the
directors who had been directors of the Company twenty-four (24) months
-1-
<PAGE>
prior to such change and who were still in office at the time of the election or
nomination; or
(b) Any "person" (as such term is used in sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the "Capital
Stock"); provided, however, that any change in ownership of the Company's
securities by any person resulting solely from a reduction in the aggregate
number of outstanding shares of Capital Stock, and any decrease thereafter in
such person's ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's beneficial
ownership of any securities of the Company.
1.3 "Disinterested Director" shall mean a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
being sought by Indemnitee.
1.4 "Expenses" shall be broadly construed and shall include, without
limitation, (a) all direct and indirect costs incurred, paid or accrued, (b) all
attorneys' fees, retainers, court costs, transcripts, fees of experts, witness
fees, travel expenses, food and lodging expenses while traveling, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service,
freight or other transportation fees and expenses, (c) all other disbursements
and out-of-pocket expenses, (d) amounts paid in settlement, to the extent not
prohibited by Delaware Law, and (e) reasonable compensation for time spent by
Indemnitee for which he is otherwise not compensated by the Company or any third
party, actually and reasonably incurred in connection with or arising out of a
Proceeding, including a Proceeding by Indemnitee to establish or enforce a right
to indemnification under this Agreement, applicable law or otherwise.
1.5 "Independent Counsel" shall mean a law firm or a member of a law firm
that neither is presently nor in the past five (5) years has been retained to
represent: (a) the Company, an affiliate of the Company or Indemnitee in any
matter material to either party or (b) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's right to indemnification under this Agreement.
1.6 "Liabilities" shall mean liabilities of any type whatsoever,
including, but not limited to, judgments or fines, ERISA or other excise taxes
and penalties, and amounts paid in settlement (including all interest,
assessments or other charges paid or payable in connection with any of the
foregoing) actually and reasonably incurred by Indemnitee in connection with a
Proceeding.
1.7 "Delaware Law" means the Delaware General Corporation Law, as amended
and in
-2-
<PAGE>
effect from time to time or any successor or other statutes of Delaware
having similar import and effect.
1.8 "Proceeding" shall mean any pending, threatened or completed action,
hearing, suit or any other proceeding, whether civil, criminal, arbitrative,
administrative, investigative or any alternative dispute resolution mechanism,
including without limitation any such Proceeding brought by or in the right of
the Company.
2. Employment Rights and Duties. Subject to any other obligations imposed
----------------------------
on either of the parties by contract or by law, and with the understanding that
this Agreement is not intended to confer employment rights on either party which
they did not possess on the date of its execution, Indemnitee agrees to serve as
a director or officer so long as he is duly appointed or elected and qualified
in accordance with the applicable provisions of the Certificate of Incorporation
(the "Certificate") and Bylaws (the "Bylaws") of the Company or any subsidiary
of the Company and until such time as he resigns or fails to stand for election
or until his employment terminates. Indemnitee may from time to time also
perform other services at the request, or for the convenience of, or otherwise
benefiting the Company. Indemnitee may at any time and for any reason resign or
be removed from such position (subject to any other contractual obligation or
other obligation imposed by operation of law), in which event the Company shall
have no obligation under this Agreement to continue Indemnitee in any such
position.
2.1 Directors' and Officers' Insurance.
----------------------------------
(a) The Company hereby covenants and agrees that, so long as Indemnitee
shall continue to serve as a director or officer of the Company and thereafter
so long as Indemnitee shall be subject to any possible Proceeding, the Company,
subject to Section 2.1(c), shall maintain directors' and officers' insurance in
full force and effect.
(b) In all policies of directors' and officers' insurance, Indemnitee
shall be named as an insured in such a manner as to provide Indemnitee the same
rights and benefits, subject to the same limitations, as are accorded to the
Company's directors or officers most favorably insured by such policy.
(c) The Company shall have no obligation to maintain directors' and
officers' insurance if the Company determines in good faith that such insurance
is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, or the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit.
3. Indemnification. The Company shall indemnify Indemnitee to the fullest
---------------
extent authorized or permitted by Delaware Law and the provisions of the
Certificate and Bylaws of the Company in effect on the date hereof, and as
Delaware Law, the Certificate and Bylaws may from time to time be amended (but,
in the case of any such amendment, only to the extent such amendment permits the
Company to provide broader indemnification rights than Delaware Law,
-3-
<PAGE>
the Certificate and/or Bylaws permitted the Company to provide before such
amendment). The right to indemnification conferred in the Certificate shall be
presumed to have been relied upon by Indemnitee in serving or continuing to
serve the Company as a director or officer and shall be enforceable as a
contract right. Without in any way diminishing the scope of the indemnification
provided by the Certificate and this Section 3, the Company shall indemnify
Indemnitee if and whenever he is or was a witness, party or is threatened to be
made a witness or a party to any Proceeding, by reason of the fact that he is or
was an Agent or by reason of anything done or not done, or alleged to have been
done or not done, by him in such capacity, against all Expenses and Liabilities
actually and reasonably incurred by Indemnitee or on his behalf in connection
with the investigation, defense, settlement or appeal of such Proceeding. In
addition to, and not as a limitation of, the foregoing, the rights of
indemnification of Indemnitee provided under this Agreement shall include those
rights set forth in Sections 4, 5 and 6 below.
4. Payment of Expenses.
-------------------
4.1 All Expenses incurred by or on behalf of Indemnitee shall be advanced
by the Company to Indemnitee within twenty (20) days after the receipt by the
Company of a written request for such advance which may be made from time to
time, whether prior to or after final disposition of a Proceeding (unless there
has been a final determination by a court of competent jurisdiction that
Indemnitee is not entitled to be indemnified for such Expenses). Indemnitee's
entitlement to advancement of Expenses shall include those incurred in
connection with any Proceeding by Indemnitee seeking a determination, an
adjudication or an award in arbitration pursuant to this Agreement. The requests
shall reasonably evidence the Expenses incurred by Indemnitee in connection
therewith. Indemnitee hereby undertakes to repay the amounts advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
pursuant to the terms of this Agreement.
4.2 Notwithstanding any other provision in this Agreement, to the extent
that Indemnitee has been successful on the merits or otherwise in defense of any
Proceeding, Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by Indemnitee in connection therewith.
5. Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
5.1 Whenever Indemnitee believes that he is entitled to indemnification
pursuant to this Agreement, Indemnitee shall submit a written request for
indemnification (the "Indemnification Request") to the Company to the attention
of the President with a copy to the Secretary. This request shall include
documentation or information which is necessary for the determination of
entitlement to indemnification and which is reasonably available to Indemnitee.
Determination of Indemnitee's entitlement to indemnification shall be made no
later than sixty (60) days after receipt of the Indemnification Request;
provided however, that if the Indemnitee selects the forum set forth in Section
5.2(c) below, such sixty (60) day limitation shall be inapplicable. The
President or the Secretary shall, promptly upon receipt of Indemnitee's request
for indemnification, advise the Board in writing that Indemnitee has made such
request for indemnification.
-4-
<PAGE>
5.2 The Indemnification Request shall set forth Indemnitee's selection of
which of the following forums shall determine whether Indemnitee is entitled to
indemnification:
(a) A majority vote of Directors who are not parties to the action with
respect to which indemnification is sought, even though less than a quorum.
(b) A written opinion of an Independent Counsel (provided there are no
such Directors as set forth in (1) above or if such Directors as set forth in
(1) above so direct).
(c) A majority vote of the stockholders at a meeting at which a quorum is
present, with the shares owned by the person to be indemnified not being
entitled to vote thereon. Such vote of the stockholders shall take place, at
the discretion of the Company's Board of Directors, at the next Annual Meeting
of Stockholders of the Company or at a Special Meeting of the Stockholders of
the Company.
(d) The court in which the Proceeding is or was pending upon application
by Indemnitee.
The Company agrees to bear any and all costs and expenses incurred by
Indemnitee or the Company in connection with the determination of Indemnitee's
entitlement to indemnification by any of the above forums.
6. Presumptions and Effect of Certain Proceedings. No initial finding by
----------------------------------------------
the Board, its counsel, Independent Counsel, arbitrators or the stockholders
shall be effective to deprive Indemnitee of the protection of this indemnity,
nor shall a court or other forum to which Indemnitee may apply for enforcement
of this indemnity give any weight to any such adverse finding in deciding any
issue before it. Upon making a request for indemnification, Indemnitee shall be
presumed to be entitled to indemnification under this Agreement and the Company
shall have the burden of proof to overcome that presumption in reaching any
contrary determination. The termination of any Proceeding by judgment, order,
settlement, arbitration award or conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, (a) adversely affect the rights of
Indemnitee to indemnification except as indemnification may be expressly
prohibited under this Agreement, (b) create a presumption that Indemnitee did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company or (c) with respect to any
criminal action or proceeding, create a presumption that Indemnitee had
reasonable cause to believe that his conduct was unlawful.
7. Remedies of Indemnitee in Cases of Determination not to Indemnify or to
-----------------------------------------------------------------------
Advance Expenses.
- ----------------
7.1 In the event that (a) an initial determination is made that Indemnitee
is not entitled to indemnification, (b) advances for Expenses are not made when
and as required by this Agreement, (c) payment has not been timely made
following a determination of entitlement to indemnification pursuant to this
Agreement or (d) Indemnitee otherwise seeks enforcement of
-5-
<PAGE>
this Agreement, Indemnitee shall be entitled to a final adjudication in an
appropriate court of the State of Delaware of his entitlement to such
indemnification or advance. Alternatively, Indemnitee at his option may seek an
award in arbitration. If the parties are unable to agree on an arbitrator, the
parties shall provide JAMS Endispute ("JAMS") with a statement of the nature of
the dispute and the desired qualifications of the arbitrator. JAMS will then
provide a list of three available arbitrators. Each party may strike one of the
names on the list, and the remaining person will serve as the arbitrator. If
both parties strike the same person, JAMS will select the arbitrator from the
other two names. The arbitration award shall be made within ninety (90) days
following the demand for arbitration. Except as set forth herein, the provisions
of Delaware law shall apply to any such arbitration. The Company shall not
oppose Indemnitee's right to seek any such adjudication or arbitration award. In
any such proceeding or arbitration Indemnitee shall be presumed to be entitled
to indemnification under this Agreement and the Company shall have the burden of
proof to overcome that presumption.
7.2 An initial determination, in whole or in part, that Indemnitee is not
entitled to indemnification shall create no presumption in any judicial
proceeding or arbitration that Indemnitee has not met the applicable standard of
conduct for, or is otherwise not entitled to, indemnification.
7.3 If an initial determination is made or deemed to have been made
pursuant to the terms of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in the absence
of (a) a misrepresentation of a material fact by Indemnitee in the request for
indemnification or (b) a specific finding (which has become final) by a court of
competent jurisdiction that all or any part of such indemnification is expressly
prohibited by law.
7.4 The Company and Indemnitee agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate, impracticable
and difficult of proof, and further agree that such breach would cause
Indemnitee irreparable harm. Accordingly, the Company and Indemnitee agree that
Indemnitee shall be entitled to temporary and permanent injunctive relief to
enforce this Agreement without the necessity of proving actual damages or
irreparable harm. The Company and Indemnitee further agree that Indemnitee
shall be entitled to such injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, without the necessity
of posting bond or other undertaking in connection therewith. Any such
requirement of bond or undertaking is hereby waived by the Company, and the
Company acknowledges that in the absence of such a waiver, a bond or undertaking
may be required by the court.
7.5 The Company shall be precluded from asserting that the procedures and
presumptions of this Agreement are not valid, binding and enforceable. The
Company shall stipulate in any such court or before any such arbitrator that the
Company is bound by all the provisions of this Agreement and is precluded from
making any assertion to the contrary.
7.6 Expenses incurred by Indemnitee in connection with his request for
indemnification under, seeking enforcement of or to recover damages for breach
of this Agreement shall be
-6-
<PAGE>
borne and advanced by the Company.
8. Other Rights to Indemnification. Indemnitee's rights of
-------------------------------
indemnification and advancement of expenses provided by this Agreement shall not
be deemed exclusive of any other rights to which Indemnitee may now or in the
future be entitled under applicable law, the Certificate, the Bylaws, an
employment agreement, a vote of stockholders or Disinterested Directors,
insurance or other financial arrangements or otherwise.
9. Limitations on Indemnification. No indemnification pursuant to Section
------------------------------
3 shall be paid by the Company nor shall Expenses be advanced pursuant to
Section 3:
9.1 Insurance. To the extent that Indemnitee is reimbursed pursuant to
---------
such insurance as may exist for Indemnitee's benefit. Notwithstanding the
availability of such insurance, Indemnitee also may claim indemnification from
the Company pursuant to this Agreement by assigning to the Company any claims
under such insurance to the extent Indemnitee is paid by the Company.
Indemnitee shall reimburse the Company for any sums he receives as
indemnification from other sources to the extent of any amount paid to him for
that purpose by the Company;
9.2 Section 16(b). On account and to the extent of any wholly or
-------------
partially successful claim against Indemnitee for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the Company pursuant to
the provisions of section 16(b) or the Securities Exchange Act of 1934, as
amended, and amendments thereto or similar provisions of any federal, state or
local statutory law; or
9.3 Indemnitee's Proceedings. Except as otherwise provided in this
------------------------
Agreement, in connection with all or any part of a Proceeding which is initiated
or maintained by or on behalf of Indemnitee, or any Proceeding by Indemnitee
against the Company or its directors, officers, employees or other agents,
unless (a) such indemnification is expressly required to be made by Delaware
Law, (b) the Proceeding was authorized by a majority of the Disinterested
Directors (c) there has been a Change of Control, or (d) such indemnification is
provided by the Company, in its sole discretion, pursuant to the powers vested
in the Company under Delaware Law.
10. Duration and Scope of Agreement; Binding Effect. This Agreement shall
-----------------------------------------------
continue so long as Indemnitee shall be subject to any possible Proceeding
subject to indemnification by reason of the fact that he is or was an Agent and
shall be applicable to Proceedings commenced or continued after execution of
this Agreement, whether arising from acts or omissions occurring before or after
such execution. This Agreement shall be binding upon the Company and its
successors and assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company) and shall inure to the benefit of Indemnitee and his
spouse, assigns, heirs, devisees, executors, administrators and other legal
representatives.
11. Notice by Indemnitee and Defense of Claims. Indemnitee agrees
------------------------------------------
promptly to notify the Company in writing upon being served with any summons,
citation, subpoena, complaint,
-7-
<PAGE>
indictment, information or other document relating to any matter which may be
subject to indemnification hereunder, whether civil, criminal, arbitrative,
administrative or investigative; but the omission so to notify the Company will
not relieve it from any liability which it may have to Indemnitee if such
omission does not actually prejudice the Company's rights and, if such omission
does prejudice the Company's rights, it will relieve the Company from liability
only to the extent of such prejudice; nor will such omission relieve the Company
from any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any Proceeding:
(a) The Company will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may wish,
the Company jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof and the assumption of such defense, the Company will
not be liable to Indemnitee under this Agreement for any attorney fees or costs
subsequently incurred by Indemnitee in connection with Indemnitee's defense
except as otherwise provided below. Indemnitee shall have the right to employ
his counsel in such Proceeding but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense thereof
and the assumption of such defense shall be at the expense of Indemnitee unless
(i) the employment of counsel by Indemnitee has been authorized by the Company,
(ii) Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of the defense of
such action or that the Company's counsel may not be adequately representing
Indemnitee or (iii) the Company shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel shall be at the expense of the Company; and
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim
which would impose any limitation or penalty on Indemnitee without Indemnitee's
written consent. Neither the Company nor Indemnitee will unreasonably withhold
its or his consent to any proposed settlement.
11.1 Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in this
Agreement is held by a court of competent jurisdiction to be unavailable to
Indemnitee in whole or part, the Company shall, in such an event, after taking
into account, among other things, contributions by other directors and officers
of the Company pursuant to indemnification agreements or otherwise, and, in the
absence of personal enrichment, acts of intentional fraud or dishonesty or
criminal conduct on the part of Indemnitee, contribute to the payment of
Indemnitee's losses to the extent that, after other contributions are taken into
account, such losses exceed: (a) in the case of a director of the Company or
any of its subsidiaries who is not an officer of the Company or any of such
subsidiaries, the amount of fees paid to the director for serving as a director
during the twelve (12) months preceding the commencement of the Proceeding; or
(b) in the case of a director of the Company or any of its subsidiaries who is
also an officer of the Company or any of such
-8-
<PAGE>
subsidiaries, the amount set forth in clause (a) plus five percent (5%) of the
aggregate cash compensation paid to said director for service in such office(s)
during the twelve (12) months preceding the commencement of the Proceeding; or
(c) in the case of an officer of the Corporation or any of its subsidiaries,
five percent (5%) of the aggregate cash compensation paid to such officer for
service in such office(s) during the twelve (12) months preceding the
commencement of such Proceeding.
12. Establishment of Trust. In order to secure the obligations of the
----------------------
Company to indemnify and to advance Expenses to Indemnitee pursuant to this
Agreement, upon a Change of Control of the Company, the Company or its successor
or assign shall establish a Trust (the "Trust") for the benefit of the
Indemnitee, the trustee (the "Trustee") of which shall be chosen by the Company
and which is reasonably acceptable to the Indemnitee. Thereafter, from time to
time, upon receipt of a written request from Indemnitee, the Company shall fund
the Trust in amounts sufficient to satisfy any and all Liabilities and Expenses
reasonably anticipated at the time of such request for which the Company may
indemnify Indemnitee hereunder. The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligation shall be determined by mutual
agreement of the Indemnitee and the Company or, if the Company and the
Indemnitee are unable to reach such an agreement, by Independent Counsel
selected jointly by the Company and the Indemnitee. The terms of the Trust
shall provide that except upon the consent of the Indemnitee and the Company,
(a) the Trust shall not be revoked or the principal thereof invaded, without the
written consent of the Indemnitee, (b) the Trustee shall advance to the
Indemnitee, within twenty (20) days of a request by the Indemnitee, any and all
Expenses, the Indemnitee hereby agreeing to reimburse the Trustee of the Trust
for all Expenses so advanced if a final determination is made by a court in a
final adjudication from which there is no further right of appeal that the
Indemnitee is not entitled to be indemnified under this Agreement, (c) the Trust
shall continue to be funded by the Company in accordance with the funding
obligations set forth in this Section, (d) the Trustee shall promptly pay to the
Indemnitee any amounts to which the Indemnitee shall be entitled pursuant to
this Agreement, and (e) all unexpended funds in the Trust shall revert to the
Company upon a final determination by Independent Counsel selected by Indemnitee
or a court of competent jurisdiction that Indemnitee has been fully indemnified
with respect to the Proceeding giving rise to the funding of the Trust under the
terms of this Agreement. The establishment of the Trust shall not, in any way,
diminish the Company's obligation to indemnify Indemnitee against Expenses and
Liabilities to the full extent required by this Agreement.
13. Miscellaneous Provisions.
------------------------
13.1 Severability; Partial Indemnity. If any provision or provisions of
-------------------------------
this Agreement (or any portion thereof) shall be held by a court of competent
jurisdiction to be invalid, illegal or unenforceable for any reason whatever:
(a) such provision shall be limited or modified in its application to the
minimum extent necessary to avoid the invalidity, illegality or unenforceability
of such provision; (b) the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby; and (c) to the fullest extent possible, the provisions of this
Agreement shall be construed so as to give effect to the intent manifested by
the provision (or portion thereof) held invalid, illegal or unenforceable. If
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<PAGE>
Indemnitee is entitled under any provision of this Agreement to indemnification
by the Company for some or a portion of any Expenses or Liabilities of any type
whatsoever incurred by him in the investigation, defense, settlement or appeal
of a Proceeding but not entitled to all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for such total amount except as to the
portion thereof for which it has been determined pursuant to Section 5 hereof
that Indemnitee is not entitled.
13.2 Identical Counterparts. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
13.3 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to Indemnitee to the fullest extent not now or hereafter
prohibited by law.
13.4 Headings. The headings of the Sections and paragraphs of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
13.5 Pronouns. Use of the masculine pronoun shall be deemed to include
--------
use of the feminine pronoun where appropriate.
13.6 Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties to this Agreement. No waiver of any provision of this Agreement shall
be deemed to constitute a waiver of any of the provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver. No waiver of any
provision of this Agreement shall be effective unless executed in writing.
13.7 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (a)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
(i) If to Indemnitee, to: _____________________________
_____________________________
_____________________________
With a copy to:
_____________________________
_____________________________
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_____________________________
(ii) If to the Company to:
______________________________
______________________________
Telephone:__________________
Fax:__________________
Attention: Corporate Secretary
with a copy to: ______________________________
______________________________
______________________________
______________________________
Telephone:__________________
Fax:__________________
Attention: General Counsel
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
13.8 Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware, as applied to contracts between Delaware residents entered
into and to be performed entirely within Delaware.
13.9 Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this agreement and agree that any action instituted under this
agreement shall be brought only in the state courts of the State of Delaware.
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<PAGE>
13.10 Entire Agreement. This Agreement represents the entire agreement
----------------
between the parties hereto, and there are no other agreements, contracts or
understanding between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein or as provided in
Sections 8 and 2.1 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
COPPER MOUNTAIN NETWORKS, INC.
By
----------------------------------
Name
--------------------------------
Title
------------------------------
INDEMNITEE
----------
-----------------------------------------
Name: _________________________________
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EXHIBIT 10.33
EQUIPMENT PURCHASE AGREEMENT
This Equipment Purchase Agreement (the "Agreement") is entered into as of
April 8, 1999 (the "Effective Date"), by and between NorthPoint Communications,
Inc., a company duly organized and existing under the laws of the State of
Delaware ("Customer"), and Copper Mountain Networks, Inc., a company duly
organized and existing under the laws of the State of California ("Copper
Mountain").
Recital
Whereas, Copper Mountain desires to sell to Customer, and Customer desires
to purchase from Copper Mountain, a Digital Subscriber Line ("DSL") networking
system.
Now, Therefore, Copper Mountain and Customer hereby agree as follows:
Agreement
1. Definitions
"Acceptance" means Customer's final and irrevocable acceptance of the
Equipment in accordance with the terms of this Agreement.
"Defective" means the Equipment fails to operate substantially in
accordance with the specifications set forth in the documentation provided to
Customer under normal use and service.
"Equipment" means the Network Equipment and Subscriber Equipment being
purchased under this Agreement by Customer.
"Firmware" has the meaning set forth in the Software License Agreement
between Copper Mountain and Customer entered into concurrently with the
execution of this Agreement.
"Forecast" has the meaning set forth in Section 2.4.
"Minimum Volume Commitment" means the minimum volume commitment of
Equipment to be purchased by and delivered to Customer each quarter as set forth
on Exhibit B.
"Network Equipment" means the infrastructure DSL networking equipment
(i.e., a high-performance, carrier-class platform) and related materials that
will be used to implement the System (e.g., CE200s).
"Product Milestone Specifications" means the product milestone
specifications to be incorporated by Copper Mountain into new Equipment as set
forth on Exhibit C.
"Purchase Order" means a written purchase order submitted to Copper
Mountain by Customer setting forth the number of units of Network Equipment and
Subscriber Equipment to be purchased and the requested shipping date.
1.
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [***]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
"Purchase Price" means the price of the Equipment to be paid by Customer to
Copper Mountain as set forth in Exhibit A, subject to the discount set forth on
Exhibit B.
"Special or Non-Standard Parts" means any component of the Equipment which
is not on Copper Mountain's bill of materials.
"Subscriber Equipment" means the subscriber equipment that will be used to
connect subscribers within the System to the Network Equipment to provide high-
speed access to the Internet and other data services (e.g., CopperRockets).
"System" means the Equipment and the System Software.
"System Software" means the Firmware furnished and licensed to Customer
under the Software License Agreement between Copper Mountain and Customer to be
executed concurrently with this Agreement.
"Term" has the meaning set forth in Section 12.1.
"Warranty Period" means twelve (12) months after shipment of the Equipment
to Customer.
2. Purchase of Equipment
2.1 Purchase of Equipment. In accordance with and subject to the terms and
conditions of this Agreement, Customer hereby orders and agrees to purchase from
Copper Mountain, and Copper Mountain hereby accepts and agrees to sell to
Customer, the Equipment. The System Software shall be licensed, not sold, to
Customer under the terms of the Software License Agreement.
2.2 Minimum Volume Commitment. Customer acknowledges and agrees that, pursuant
to the terms hereof, Copper Mountain has provided to Customer favorable pricing
for the Equipment in return for and in reliance upon Customer's promise to
purchase and take delivery of the Minimum Volume Commitment.
2.3 Product Milestone Specifications. Customer acknowledges and agrees that,
pursuant to the terms hereof, Copper Mountain has provided to Customer a
commitment with respect to the commercial availability of new Equipment which
meets the Product Milestone Specifications in return for and in reliance upon
Customer's promise to purchase and take delivery of the Minimum Volume
Commitment.
2.4 Forecasts. On or before the 15th day of each month during the Term,
Customer shall submit a written purchase forecast to Copper Mountain (the
"Forecast"), which shall set forth the estimated number of units of Equipment to
be purchased during the twelve (12) month period beginning with the month for
which such Forecast is being delivered. Customer shall use commercially
reasonable efforts to purchase the Equipment specified in the Forecast for each
applicable month.
2.
<PAGE>
3. Purchase Price and Payment
3.1 Purchase Price. Customer shall pay to Copper Mountain the Purchase Price
for the Equipment as set forth on Exhibit A, less a discount as set forth on
Exhibit B. Both parties acknowledge that the Purchase Price shall not include
any maintenance or support above and beyond the warranty set forth in Section 7.
3.2 Payment Schedule. Customer shall pay all undisputed invoices issued under
this Agreement within thirty (30) days from the date of invoice. Shipments,
deliveries and performance of work will at all times be subject to the approval
of Copper Mountain. Copper Mountain may at any time decline to make any
shipments or deliveries or perform any work except upon receipt of payment or
upon terms and conditions or security satisfactory to Copper Mountain. In no
event shall Copper Mountain decline to make any shipments or deliveries or
perform any work, unless Copper Mountain has notified Customer in writing of any
overdue amounts and Customer has not paid all overdue amounts to Copper Mountain
within ten (10) days from the date of such notice.
3.3 Taxes. Customer shall pay any and all taxes (other than taxes based upon
Copper Mountain's net income), duties, assessments and other charges and
expenses of any nature whatsoever imposed by any government authority in
connection with the delivery of the Equipment to Customer or the payment of the
Purchase Price.
3.4 Late Charges; Offsets. Copper Mountain reserves the right to charge
Customer a late payment fee on any past due amounts at the rate of one percent
(1%) per month or the maximum amount permitted by law, whichever is less.
4. Orders and Delivery
4.1 Procedure. Customer shall purchase Equipment from Copper Mountain by
submitting a Purchase Order to Copper Mountain.
4.2 Acceptance of Purchase Orders. All Purchase Orders submitted by Customer
to Copper Mountain shall be subject to acceptance by Copper Mountain at its
offices in San Diego, California. Copper Mountain shall, within three (3)
business days of receipt of each Purchase Order, confirm such Purchase Order
with Customer by facsimile or electronic mail. Purchase Orders shall not be
binding on Copper Mountain until such written confirmation.
4.3 Controlling Terms. All Equipment purchased by Customer from Copper
Mountain during the Term shall be subject to the terms and conditions of this
Agreement. Any terms or conditions appearing on the face or reverse side of any
Purchase Order, acknowledgment, or confirmation 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 agree in a separate writing
to be bound by such different or additional terms and conditions.
3.
<PAGE>
4.4 Cancellation or Postponement by Copper Mountain. Copper Mountain may
cancel or postpone any Purchase Order placed with, and accepted by, Copper
Mountain if Customer fails to make any payment when due as provided in Section
3.2 or is in default as set forth in Section 12.2.
4.5 Cancellation by Customer. Customer shall be allowed to cancel any Purchase
Order placed with, and accepted by, Copper Mountain if the cancellation is
received at least thirty (30) days prior to the requested delivery date;
provided, however, that in the event of such cancellation Customer shall be
liable to Copper Mountain for payment of Copper Mountain's costs for any Special
or Non-Standard Parts purchased or which Copper Mountain is obligated to
purchase, such payment to be made to Copper Mountain within thirty (30) days
after the date of such cancellation.
4.6 Postponement by Customer. Customer shall be allowed to postpone any
Purchase Order placed with, and accepted by, Copper Mountain if the postponement
is received at least fifteen (15) days prior to the requested delivery date;
provided, however, that in no event shall any such postponement delay shipment
of the Equipment for more than forty-five (45) days from the delivery date in
the original Purchase Order. Additionally, in the event of such postponement,
Customer shall be liable to Copper Mountain for payment of Copper Mountain's
costs for any Special or Non-Standard Parts purchased or which Copper Mountain
is obligated to purchase, such payment to be made to Copper Mountain within
thirty (30) days after the date of such postponement.
4.7 Equipment Availability. Copper Mountain will use reasonable efforts to
fill all Purchase Orders within forty-five (45) days of the date such Purchase
Orders are accepted by Copper Mountain, subject to Equipment availability from
Copper Mountain and its manufacturing sub-contractors and Copper Mountain's
production and supply schedules. Should Purchase Orders for Equipment exceed
Customer's current Forecast, Copper Mountain will allocate its available
inventory and make deliveries on a basis Copper Mountain deems equitable, in its
sole discretion, and without liability to Customer on account of the method of
allocation chosen or its implementation. However, Copper Mountain shall not be
liable to Customer or any third party for any damages due to Copper Mountain's
failure to fill any Purchase Order or for any delay in delivery or error in
filling any Purchase Order for any reason whatsoever, except to the extent such
damages result from the gross negligence or willful misconduct of Copper
Mountain.
4.8 Delivery. All Equipment delivered pursuant to the terms of this Agreement
shall be suitably packaged, marked for shipment and delivered by common carrier
of Copper Mountain's choice, FOB Copper Mountain's plant in San Diego,
California, or any other plant or warehouse designated by Copper Mountain.
4.9 Title; Risk of Loss; Shipping Costs. Title to (exclusive of the rights
retained under the Agreement in the Firmware, patents, copyrights, trade secrets
and intellectual property) and all risk of loss or damage for any Equipment
purchased hereunder shall pass to Customer upon delivery of such Equipment by
Copper Mountain to a common carrier for shipment to
4.
<PAGE>
Customer. All freight, handling, insurance, duties, taxes and shipping expense
shall be borne by Customer.
5. Acceptance
The Equipment shipped to Customer under any Purchase Order shall be deemed
accepted by Customer unless a written notice of defect is received by Copper
Mountain within fifteen (15) days following receipt of the Equipment by
Customer. Under no circumstances shall acceptance or lack thereof affect the
warranties set forth in Section 7.
6. Documentation
On or before delivery of the Equipment to which such documentation applies,
Copper Mountain shall provide to Customer, at no additional charge, the
documentation for such Equipment. Customer shall use and reproduce such
documentation solely for the purpose of operating and maintaining the System.
7. Warranties
7.1 Network Equipment Limited Warranty. During the applicable Warranty Period
for Network Equipment, Copper Mountain warrants to Customer that the Network
Equipment shall be free from material defects in workmanship and materials under
normal use and service and shall operate substantially in accordance with the
specifications set forth in the documentation provided to Customer. This
warranty does not apply to any item of Network Equipment that (a) has been
altered, modified, or improperly repaired; (b) has been the subject of misuse,
negligence, accident, or improper storage or installation; or (c) has been used
or maintained in any manner other than in accordance with documentation provided
by Copper Mountain.
7.2 Warranty Claims for Network Equipment. Before submitting any warranty
claim to Copper Mountain, Customer shall perform first echelon diagnosis
(including identification and isolation of Network Equipment problems to the
board level and removal and replacement of hardware, firmware and software).
Copper Mountain shall provide Customer with reasonably requested aid in
performing such diagnosis. At Copper Mountain's request, Customer shall return
allegedly Defective Network Equipment to Copper Mountain at Customer's expense;
if such Network Equipment is determined by Copper Mountain to be Defective,
Copper Mountain shall reimburse Customer within thirty (30) days following
receipt of such Network Equipment for the expenses of shipping such Network
Equipment to Copper Mountain. If Copper Mountain does not request Customer to
return Defective Network Equipment to Copper Mountain, Copper Mountain shall
repair or replace such Network Equipment, in accordance with Section 7.3.
7.3 Exclusive Remedies for Network Equipment. If, during the applicable
Warranty Period, Customer reports in writing a claim that any Network Equipment
is Defective in breach of the warranty in Section 7.1, Copper Mountain shall, as
Customer's sole and exclusive remedy for breach of this limited warranty and at
Copper Mountain's option, either
5.
<PAGE>
(a) repair or replace the Defective Network Equipment, or (b) if Copper Mountain
determines that it cannot repair or replace such Network Equipment within sixty
(60) days following receipt of Customer's warranty claim, Copper Mountain shall
refund to Customer that portion of the Purchase Price attributable to such
Network Equipment. Copper Mountain shall bear all travel, lodging and related
out-of-pocket expenses for required on-site repair and replacement of Defective
Network Equipment covered by the warranty in Section 7.1. Any Network Equipment
which is repaired by Copper Mountain pursuant to this Section 7.3 shall be
warranted for the remainder of the applicable Warranty Period as provided in
Section 7.1; provided, however, that any System subcomponents replaced by Copper
Mountain hereunder shall be warranted for twelve (12) months after shipment of
such System subcomponents to Customer.
7.4 Limited Warranty for Subscriber Equipment. The sole and exclusive warranty
for Subscriber Equipment is set forth in Exhibit D.
7.5 Disclaimer of Warranties.
(a) EXCEPT AS EXPRESSLY SET FORTH IN SECTION 7.1 AND EXHIBIT D, COPPER
MOUNTAIN MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO ANY EQUIPMENT
PROVIDED BY COPPER MOUNTAIN UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO,
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(b) Customer acknowledges that it has not relied on any representations or
warranties regarding the Equipment other than those in Section 7.1 and Exhibit
D.
7.6 End-User Warranties. Customer shall indemnify, defend and hold harmless
Copper Mountain for and against any end user warranty claim offered by Customer
that is outside the warranties of this Agreement, including, but not limited to,
valid consumer warranty claims arising outside the applicable Warranty Period.
8. Infringement Claims
8.1 Indemnification. Subject to Sections 8.3 and 9, Copper Mountain shall
defend and indemnify at its own expense and shall hold Customer harmless from
any claim that Customer's authorized and proper use of any Equipment infringes a
U.S. patent or copyright of any third party, and shall pay any damages finally
awarded in an action against Customer that are specifically attributable to such
a claim and any amounts agreed to in settlement of such a claim, provided that
Customer (a) promptly notifies Copper Mountain in writing of the claim, (b)
gives Copper Mountain the sole authority to control the defense and settlement
of the claim, and (c) cooperates and, at Copper Mountain's request and expense,
assists in the defense of the claim.
8.2 Mitigation. If any infringement claim covered by Section 8.1 arises or in
Copper Mountain's opinion is likely to occur, Copper Mountain may, at its
option, (a) procure for Customer the right to use the infringing Equipment, (b)
replace the infringing Equipment with non-infringing substitute equipment of
equal grade and quality, or (c) refund to Customer the Purchase Price paid for
the infringing Equipment. If Customer continues to use Equipment after
6.
<PAGE>
receiving notice of a claim or a ruling that Customer's use of such Equipment
infringes a third party's rights, Customer shall be responsible for any
liability resulting from such continued use of the Equipment.
8.3 Exclusions. Copper Mountain shall have no liability to Customer for any
claim described in Section 8.1 if the claim is based on or arises from
Customer's (a) improper or unauthorized use or modification of the Equipment, or
(b) combination or use of the Equipment with equipment, software, data or other
items not furnished by Copper Mountain (or authorized by Copper Mountain in
writing for such combination or use), if the claim would not have arisen but for
the combination. Customer shall indemnify and hold Copper Mountain harmless for
and against any and all liability, damages, losses, costs and expenses
(including attorney's fees) arising from any claim described in this Section
8.3.
8.4 Entire Liability. Section 8 sets forth Customer's exclusive remedy and
Copper Mountain's entire liability of any infringement claim relating to the
Equipment.
9. Limitation of Liability
9.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
CONSEQUENTIAL, INCIDENTAL, SPECIAL OR INDIRECT DAMAGES OF ANY KIND, INCLUDING,
BUT NOT LIMITED TO, ANY LOST PROFITS, LOST SAVINGS, OR LOST DATA, ARISING FROM
OR RELATING TO THIS AGREEMENT, EVEN IF THE PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THE TOTAL CUMULATIVE LIABILITY OF EITHER PARTY TO
THE OTHER PARTY FOR ANY CLAIMS OR CAUSES OF ACTION ARISING FROM OR RELATING TO
THIS AGREEMENT, COPPER MOUNTAIN'S DELIVERY OF THE EQUIPMENT OR CUSTOMER'S USE OF
THE EQUIPMENT (WHETHER IN CONTRACT, IN TORT OR OTHERWISE) SHALL NOT EXCEED THE
AGGREGATE AMOUNT PAID TO COPPER MOUNTAIN UNDER THIS AGREEMENT.
9.2 Customer understands that Copper Mountain's pricing is predicated on the
limitations of Copper Mountain's liability set forth in Section 9.1 and
acknowledges that Copper Mountain would not enter into this Agreement without
such limitations.
10. Confidentiality
The obligations of the parties with respect to "Confidential Information"
exchanged pursuant to this Agreement are as described in the Mutual Non-
Disclosure Agreement dated August 29, 1997 between the parties attached hereto
as Exhibit E.
11. Intellectual Property Rights
Except for the right to use the System contemplated by this Agreement, the
delivery of the Equipment to Customer (a) does not convey to Customer or any
third party any intellectual property rights in the Equipment or System
Software, including, but not limited to, any patent,
7.
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trademark, trade secret or copyright, and (b) does not grant to Customer or any
third party any license under any patents or patent applications of Copper
Mountain. Customer shall not, and shall not permit any third party to,
disassemble or analyze the physical construction of any Equipment (or any
component thereof) for any purpose. Customer agrees not to remove or destroy any
copyright, logo, trademark, trade name, proprietary markings or confidentiality
legends placed upon or contained within the Equipment or System Software, its
containers or any related materials or documentation. Customer agrees to comply
with all legends that appear on or in the Equipment and/or System Software or
related materials or documentation.
12. Term and Termination
12.1 Term. This Agreement shall commence on the Effective Date and shall
expire on March 31, 2000, unless terminated earlier as provided herein (the
"Term").
12.2 Termination for Default. Either party may terminate this Agreement if the
other party fails to perform any material obligation under this Agreement and
such failure is not cured within forty-five (45) days following written notice
of such failure to the defaulting party.
12.3 Termination by Customer. Customer may terminate this Agreement upon
written notice to Copper Mountain in the event Copper Mountain fails to meet the
Product Milestone Specifications; provided, however, that any such notice of
termination shall include a detailed review, analysis and documentation of
Copper Mountain's failure to deliver the applicable features or product
functionality set forth on Exhibit C.
12.4 Effects of Termination. Upon termination of this Agreement for any
reason:
(a) for all Equipment for which Acceptance occurred before termination, the
full unpaid balance of the Purchase Price for such Equipment shall become
immediately due and payable so long as the termination did not result from
a default by Copper Mountain;
(b) for all Equipment delivered to Customer before termination for which
Acceptance has not yet occurred, Customer may either (i) return such
Equipment (and related documentation) to Copper Mountain in its original
condition and at the expense of the defaulting party (in which case
Customer shall not be required to pay the unpaid balance of the Purchase
Price for such Equipment), or (ii) keep such Equipment and pay the unpaid
balance of the Purchase Price for such Equipment; and
(c) Copper Mountain shall have no further obligation to deliver any Equipment
to Customer.
12.5 Survival. The rights and obligations of the parties under Sections 7.1
through 7.4 (solely for the duration of the applicable Warranty Periods), 7.5,
7.6, 8, 9, 10, 11, 12.4, 12.5 and 16 shall survive termination of this Agreement
for any reason. Unless Copper Mountain terminates this Agreement pursuant to
Section 12.2, Section 13 shall also survive termination of this Agreement for
the time period specified therein.
8.
<PAGE>
13. Spare Parts
13.1 Availability. Customer may purchase spare parts for the Equipment from
time to time on Copper Mountain's then-current standard terms and conditions of
sale and at Copper Mountain's then-current prices, subject to any discount the
parties may agree upon. Copper Mountain shall use its best efforts to make
available spare parts (or compatible substitutes for such spare parts) for the
Network Equipment (but not for third party components or equipment) for a period
of five years after the Effective Date. If Copper Mountain discontinues
manufacturing the Network Equipment before the end of this five year period or
discontinues manufacturing Subscriber Equipment at any time, Copper Mountain
shall notify Customer at least six months in advance to permit Customer to
procure a sufficient stock of spare parts.
13.2 Supply for Repairs. Customer shall be responsible for purchasing and
maintaining an adequate supply of spare parts to complete both warranty and non-
warranty repairs. If Customer fails to maintain an adequate supply of spare
parts, the time allowed for Copper Mountain to complete warranty repairs shall
be extended by the amount of time needed for Copper Mountain to assemble and
ship the necessary spare parts to the location where the Network Equipment is
installed and operated.
14. Product Additions
As Copper Mountain develops and offers for sale and licenses to its
customers additional or next generation Network Equipment products and
Subscriber Equipment products during the Term, Copper Mountain shall offer such
Network Equipment for sale and license to Customer under this Agreement. In
such case, the parties shall negotiate in good faith the pricing and other
appropriate terms and conditions relating specifically to such products in a
manner consistent with each party's obligations under this Agreement.
15. Authority
Each party represents and warrants to the other party that (a) such party
is duly organized, validly existing, and in good standing under the laws of the
place of its establishment or incorporation; (b) such party has taken all action
necessary to authorize it to enter into this Agreement and perform its
obligations under this Agreement; (c) this Agreement shall constitute the legal,
valid and binding obligations of such party; and (d) neither the execution of
this Agreement, nor the performance of such party's obligations hereunder, shall
conflict with, result in a breach of, or constitute a default under any
provision of the Articles of Incorporation, business license, Bylaws or similar
organizational documents of such party, or of any law, rule, regulation,
authorization or approval of any government entity, or of any agreement to which
it is a party or by which it is bound.
16. General Provisions
16.1 Force Majeure. Neither party shall be liable to the other party, under
this Agreement or otherwise, for any delay or lack of performance (other than
non-payment) resulting from an event of Force Majeure (as defined below). If a
Force Majeure event occurs, the party
9.
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prevented from performing its obligations under this Agreement shall inform the
other party as soon as possible and the time period for performance shall be
extended by a period equivalent to the delay caused by the Force Majeure event
plus any additional period reasonably necessary to allow the prevented party to
resume performance of its obligations. The prevented party shall inform the
other party as soon as possible after the Force Majeure event ends. If the Force
Majeure event lasts for more than 120 consecutive days after the initial notice
of such event, the parties shall attempt in good faith to solve the problem of
further performance of this Agreement through friendly consultation. If the
parties cannot solve the problem of further performance within an additional 60
days, either party may terminate this Agreement without penalty. As used above,
an event of "Force Majeure" means any act of God, war, fire, typhoon, flood,
earthquake, natural disasters, governmental action, labor disruptions, materials
shortages, or any other event beyond the reasonable control of the prevented
party.
16.2 Assignment. Neither party may assign this Agreement or any right under
this Agreement, nor delegate any obligation under this Agreement, without the
other party's prior written consent (which shall not be unreasonably withheld),
except that either party may, with or without the other party's consent, (a)
assign this entire Agreement in connection with a merger, reorganization, or
sale of all or substantially all of its assets to a third party; (b) assign part
or all of this Agreement to one or more of its affiliates; and (c) subcontract
portions of its obligations under this Agreement as long as the assigning party
remains responsible for such obligations. Any attempted assignment or
delegation in contravention of this Section 16.2 shall be void.
16.3 Non-Waiver; Severability. Any delay or failure by either party to
exercise any right or remedy under this Agreement shall not constitute a waiver
of such right or remedy thereafter or of any other right or remedy. If any
provision of this Agreement is determined to be unenforceable, the remaining
provisions shall remain in full force and effect.
16.4 Notices. All notices and other communications provided for hereunder
shall be in writing and shall be mailed by first-class, registered or certified
mail, postage paid, or delivered personally, by overnight delivery service or by
facsimile, computer mail or other electronic means, with confirmation of
receipt, addressed as follows:
If to Copper Mountain: Copper Mountain Networks, Inc.
3931 Sorrento Valley Boulevard
San Diego, California 92121
Attn: John A. Creelman
Fax No: (619) 453-9244
If to Customer: NorthPoint Communications, Inc.
222 Sutter St., Suite 700
San Francisco, CA 94108
Attn: Steven Gorosh
Fax No: (415) 403-4004
Either party may by like notice specify or change an address to which
notices and communications shall thereafter be sent. Notices sent by facsimile,
computer mail or other
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electronic means shall be effective upon confirmation of receipt, notices sent
by mail or overnight delivery service shall be effective upon receipt or upon
refusal of delivery, and notices given personally shall be effective when
delivered or when delivery is refused.
16.5 Publicity. Copper Mountain and Customer agree that neither party shall
originate any press release or other public announcement related to this
Agreement, written or oral, without the prior written consent of the other
party, except as required by law or a court order.
16.6 Nondisclosure. Copper Mountain and Customer agree that either party may
disclose the existence of this Agreement, but neither party shall make any
disclosure relating to the terms of or performance under this Agreement to any
third party (other than their independent public accountants and attorneys)
without the prior written consent of the other party, except as required by law
or a court order.
16.7 Governing Law and Venue. All matters arising in connection with this
Agreement or the enforcement or construction thereof shall be governed by
(without regard to conflict-of-laws provisions) and resolved in accordance with
the laws of the State of California. Copper Mountain and Customer each hereby
irrevocably (a) agrees that any suit, action or other legal proceeding arising
from or relating to this Agreement shall be brought in a court of competent
jurisdiction in San Diego, California, which court shall have exclusive
jurisdiction over any controversy arising from or related to this Agreement; (b)
consents to the jurisdiction of such court in any such suit, action or
proceeding; and (c) waives any objection it may have to the laying of venue of
any such suit, action or proceeding in such court and waives any claim that any
such suit, action or proceeding has been brought in an inconvenient forum.
Service of process in any suit, action or proceeding may be made in any manner
permitted by law.
16.8 Dispute Resolution. If any dispute arises between the parties relating to
the interpretation, breach or performance of this Agreement or the grounds for
the termination thereof, and the parties cannot resolve the dispute within
thirty (30) days of a written request by either party to the other party, the
parties agree to hold a meeting, attended by individuals with decision-making
authority regarding the dispute, to attempt in good faith to negotiate a
resolution of the dispute prior to pursuing other available remedies. If,
within sixty (60) days after such meeting, the parties have not succeeded in
negotiating a resolution of the dispute, such dispute shall be submitted to
final and binding arbitration under the then current commercial rules and
regulations of the American Arbitration Association (the "AAA") relating to
voluntary arbitrations. The arbitration shall be held in San Diego, California.
The arbitration shall be conducted by one arbitrator, who is knowledgeable in
the subject matter at issue in the dispute and who will be selected by mutual
agreement of the parties or, failing such agreement, shall be selected in
accordance with AAA rules. Each party shall initially bear its own costs and
legal fees associated with such arbitration. The prevailing party in any such
arbitration shall be entitled to recover from the other party actual attorneys'
fees, costs and expenses incurred by the prevailing party in connection with
such arbitration. The decision of the arbitrator shall be final and binding on
the parties. The arbitrator shall prepare and deliver to the parties a written,
reasoned opinion conferring its decision. Judgment on the award so rendered may
be entered in any court having competent jurisdiction thereof. Notwithstanding
the foregoing, Copper
11.
<PAGE>
Mountain shall have the unequivocal right to obtain timely injunctive from a
court of law pursuant to Section 16.9.
16.9 Injunctive Relief. Customer agrees that Customer's unauthorized
duplication, distribution or disclosure of any Confidential Information received
by Customer will actually and materially damage Copper Mountain and such damages
are difficult to calculate. In addition, notwithstanding any of the provisions
of this Agreement, Copper Mountain shall have the unequivocal right to obtain
timely injunctive relief to protect its intellectual property rights.
16.10 Attorney's Fees. The prevailing party in any litigation between the
parties relating to this Agreement shall be entitled to recover its reasonable
attorney's fees and court costs, in addition to any other relief it may be
awarded, from the other party.
16.11 Construction. The headings of sections and subsections of this Agreement
are for convenience only and shall not be construed to affect the meaning of any
provision of this Agreement. Any inconsistency between provisions in this
Agreement and the exhibits shall be resolved in favor of the main body of this
Agreement.
16.12 Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original and which together shall constitute one and the
same agreement.
16.13 Entire Agreement; Modifications. This Agreement, together with the
exhibits attached hereto, constitutes the entire agreement between the parties
and supersedes all prior oral or written negotiations and agreements between the
parties with respect to the subject matter hereof. No modification, variation
or amendment of this Agreement shall be effective unless made in writing and
signed by the parties.
12.
<PAGE>
In Witness Whereof, Copper Mountain and Customer have each caused this
Agreement to be executed by their duly authorized representatives.
Copper Mountain Networks, Inc. NorthPoint Communications, Inc.
/s/ John A. Creelman By: /s/ Richard Morris
- -------------------------------- ----------------------------------------
John A. Creelman
Chief Financial Officer Name: Richard Morris
--------------------------------------
Title: VP Engineering & Program Management
-------------------------------------
EQUIPMENT PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
STANDARD COMMERCIAL PRICE LIST
<PAGE>
COPPER MOUNTAIN NETWORKS
[Logo appears here]
<TABLE>
<CAPTION>
Product Name and Description Version Part No List Price
==============================================================================================
Copper Edge Family
Systems
<S> <C> <C> <C> <C> <C>
Copper Edge 150 System 1.0 800-010-10 $ [***]
Chassis & Fan 1.0 810-001-10
SDSL Module-H (24 Port) 1.0 820-021-10
120VAC Power Module 1.0 810-010-10
Buffer Control Module 1.0 810-020-10
System Control Module/E 1.0 810-100-10
Documentation 1.0 155-100-10
Copper Edge 200 Basic System 2.0 200-010-10 $ [***]
Chassis & Backplane 2.0 100-010-10
DC Power Module 2.0 100-510-10
Buffer Control Module 2.0 105-010-10
System Control Module 2.0 105-110-20
Alarm Module 2.0 100-130-10
Documentation 2.0 155-010-10
CopperEdge 200 CopperBay System 2.0 200-020-10 $ [***]
Chassis & Backplane 2.0 100-101-10
DC Power Module 2.0 100-510-10
Buffer Control Module 2.0 105-010-10
CopperBay Control Module 2.0 105-120-10
Documentation (DC-ROM) 2.0 155-110-10
Alarm Module 2.0 100-130-10
CE150 Spares (810)
Chassis & Fan for CE150 1.0 810-001-10 $ [***]
120 VAC Power Module for CE150 1.0 810-010-10 $ [***]
Buffer Control Module for CE150 1.0 810-020-10 $ [***]
System Control Module/E for CE150-200 1.0 810-100-10 $ [***]
Fan Assembly for CE150 1.0 810-030-10 $ [***]
CE150 Options (810)
Mount kit for 23" rack for CE150 1.0 810-220-10 $ [***]
SDSL Module-H (24 port) 1.0 820-021-10 $ [***]
CE150 System Software v1.0 1.0 811-001-00 --
CE150 Documentation (155)
CE150 Documentation (Spare Set) 1.0 155-100-10 $ [***]
CE200 Chassis, Power Supplies (100)
Chassis & Backplane (+ fan tray & alarm panel) for CE 200 2.0 100-010-10 $ [***]
Redundant DC Power Module for CE 200 2.0 100-510-10 $ [***]
External AC Power Shelf and one Supply 2.0 100-610-10 $ [***]
AC Power Supply for external shelf 2.0 100-611-10 $ [***]
Alarm Panel for CE200 2.0 100-130-10 $ [***]
Fan Assembly for CE200 2.0 100-020-14 $ [***]
CE200 Processor, Buffer (105)
System Control Module for CE200 1.0 105-110-10 $ [***]
System Control Module for CE200-200/32 2.0 105-110-20 $ [***]
</TABLE>
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [***]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
CopperBay Control Module for CE200 1.0 105-120-10 $ [***]
Buffer Control Module for CE200 1.0 105-010-10 $ [***]
CE200 Software (111)
CE200 System Software v1.3 1.3 111-001-30 $ -
CE200 System Software v1.4 1.4 111-001-40 $ -
CE200 System Software v1.6 1.6 111-001-60 $ -
CE200 System Software v2.0 2.0 111-002-00 $ -
CE200 Line Cards / DSL Modules (120)
SDSL 30x Module (24 port) 1.0 120-021-10 $ [***]
IDSL Line Module (24 port) 1.0 120-030-10 $ [***]
CE200 WAN I/O (130)
V.35 WAN Module (2 port) 1.0 130-020-10 $ [***]
HSSI WAN Module 1.0 130-030-10 $ [***]
DS3 Frame Module 1.0 130-035-10 $ [***]
DS3 ATM Module 1.0 130-040-10 $ [***]
CE200 Other Hardware (140)
CopperView Software (112)
CopperView Element Manager v1.3 1.3 112-301-13 $ [***]
CopperView Element Manager v1.4 1.4 112-301-14 $ [***]
CopperView Element Manager v1.6 1.6 112-301-16 $ [***]
CopperView AMS v2.0 (1-9 nodes) 2.0 112-400-20 $ [***]
CopperView AMS v2.0 (10-49 nodes) 2.0 112-400-20 $ [***]
CopperView AMS v2.0 (50-149 nodes) 2.0 112-400-20 $ [***]
CopperView AMS v2.0 (150-399 nodes) 2.0 112-400-20 $ [***]
CopperView AMS v2.0 (400-999 nodes) 2.0 112-400-20 $ [***]
CopperView AMS v2.0 (1000-2499 nodes) 2.0 112-400-20 $ [***]
CV AMS node upgrade (1-9 to 10-49) 2.0 112-401-20 $ [***]
CV AMS node upgrade (10-49 to 50-149) 2.0 112-401-20 $ [***]
CV AMS node upgrade (50-149 to 150-399) 2.0 112-401-20 $ [***]
CV AMS node upgrade (150-399 to 400-999) 2.0 112-401-20 $ [***]
CV AMS node upgrade (400-999 to 1000-2499) 2.0 112-401-20 $ [***]
Customer Service (150)
Documentation (155)
CE200 Documentation Set 1.0 155-010-10 $ [***]
CopperView EMS documentation (hardcopy) 2.0 155-020-20 $ [***]
DSL Troubleshooting Guide 1.0 155-030-10 $ [***]
Cables
DC Power Cable (10 feet) 1.0 160-010-10 $ [***]
DSL Connector Cable (25 feet) 1.0 160-015-05 $ [***]
DSL Connector Cable (10 feet) 1.0 160-015-10 $ [***]
DSL Connector Cable (6 feet) 1.0 160-015-15 $ [***]
DSL Connector Cable (3 feet) 1.0 160-015-20 $ [***]
Ethernet Cable (10 feet) 1.0 160-020-10 $ [***]
RS232 Craft Interface Cable (6 feet) 1.0 160-021-10 $ [***]
V.35 Cable (25 feet) 1.0 160-030-10 $ [***]
HSSI Cable (25 feet) 1.0 160-035-10 $ [***]
Other (170)
CE200 Mount kit for 23" rack 1.0 170-010-10 $ [***]
CopperRocket Family
CopperRocket 201 SDSL 1.0 700-030-30 $ [***]
CopperRocket 201 SDSL (RJ11-RJ45) 1.0 700-030-31 $ [***]
CopperRocket 201 IDSL 1.0 700-050-10 $ [***]
</TABLE>
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [***]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
CopperRocket 201 IDSL (RJ11-RJ45) 1.0 700-050-11 $ [***]
CopperRocket 201 SDSL CCA Board 1.0 700-930-30 $ [***]
CopperRocket 201 IDSL CCA Board 1.0 700-950-10 $ [***]
</TABLE>
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [***]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT B
MINIMUM VOLUME COMMITMENT; DISCOUNT
<TABLE>
<CAPTION>
MINIMUM VOLUME COMMITMENT
<S> <C>
Calendar Quarter Minimum Volume Commitment
---------------- -------------------------
Q2 - 1999 [***]
Q3 - 1999 [***]
Q4 - 1999 [***]
Q1 - 2000 [***]
</TABLE>
Customer hereby agrees to purchase and take delivery of the Minimum Volume
Commitment from Copper Mountain in the amounts set forth above for each quarter
set forth above.
DISCOUNT; PRODUCT MILESTONE SPECIFICATIONS
In exchange for the purchase and receipt of the Minimum Volume Commitment by
Customer, Copper Mountain (a) hereby grants to Customer a discount to the
Purchase Price of [***] on any Equipment purchased by Customer during the Term,
and (b) hereby agrees to fulfill the Equipment release dates and deliverables
set forth in the Product Milestone Specifications.
Most Favored Customer
If, during the Term, Copper Mountain executes an agreement with a third party
under which [***] of the Network Equipment are subsequently sold to such third
party at a price [***] of the price paid by Customer for such Network Equipment
under this Agreement (net of discounts set forth above), then Copper Mountain
shall provide to Customer an opportunity to purchase an equivalent number of
units of Network Equipment under the same terms and conditions offered to such
third party.
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [***]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT C
PRODUCT MILESTONE SPECIFICATIONS
1. DS3 ATM WAN Interface Module Improvements
General Availability Date: [***]
The existing Copper Mountain DS3 ATM WAN module shall include the following
feature improvements:
. Performance shall be increased to at least [***] cells per second.
. The [***] support shall be extended.
. The [***] disable shall be supported.
2. G.Lite Line Card for CE200
General Availability Date: [***]
. The Copper Mountain G.Lite line card shall have [***] ports and conform to
the G.Lite standard.
. Copper Mountain shall interoperate with mutually agreed upon third party
G.Lite CPE vendors.
. Copper Mountain [***].
3. CopperBay Chassis Aggregation with Support of multiple CE200's
General Availability Date: [***]
. The ability to aggregate [***] CE200 chassis shall be supported. This
will allow a single WAN trunk to be used to aggregate [***] CE200
chassis. The addition of CopperBay equipment and correct software version
shall be required to support this enhancement. The CopperBay AMS shall
provide a single management interface to manage the multi-shelf complex.
4. Packet Based Voice Product with CPE and CE200 Support
General Availability Date: [***]
. [***].
. [***].
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [***]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
. Copper Mountain shall perform testing with one or two third party derived
voice equipment suppliers to verify the operation of the [***] based voice.
5. [***]
General Availability Date: [***]
. Copper Mountain shall produce a SDSL DSU capable [***].
6. EMS API to Third Party Management System
Product Requirements Specification Date: [***]
. Copper Mountain shall work with Customer (and any third party providers
designated by Customer and mutually agreeable to Copper Mountain) to generate
a Product Requirements Specification (the "Specification") no later than
[***]. Both parties agree to amend the Agreement within thirty (30) days
following the completion of the Specification. Such amendment shall
incorporate all aspects of product or software functionality and their
related timetable as set forth in the Specification.
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [***]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT D
SUBSCRIBER EQUIPMENT WARRANTY
1. Limited Warranty
During the applicable Warranty Period for Subscriber Equipment, Copper
Mountain warrants to Customer that the Subscriber Equipment (excluding Pre-
Production Units) shall be free from material defects in material and
workmanship. This warranty is not transferable to any third party, including,
but not limited to, any subsequent purchaser, owner, lessee or licensee of
Subscriber Equipment.
2. Warranty Claims
All Subscriber Equipment returned under warranty must be returned to a
Copper Mountain authorized repair facility (an "Authorized Service Center").
3. Exclusive Remedy
If Customer returns Defective Subscriber Equipment to an Authorized Service
Center within the applicable Warranty Period and Copper Mountain reasonably
determines that such Subscriber Equipment is in fact Defective, Copper Mountain
shall, as Customer's sole and exclusive remedy for breach of warranty and at
Copper Mountain's option, either (a) repair the Defective Subscriber Equipment,
(b) replace the Defective Subscriber Equipment with a new or a rebuilt unit,
which may contain refurbished parts of similar quality and functionality, or (c)
if Copper Mountain determines that it is unable to repair or replace the
Defective Subscriber Equipment, refund the purchase price for the Defective
Subscriber Equipment. After the applicable Warranty Period, Customer must pay
all shipping, parts and labor charges. Copper Mountain's warranty service does
not include customer instruction or the cost of installation, removal or
reinstallation of Subscriber Equipment.
4. Exclusions
The warranty set forth above does not apply to: (a) Subscriber Equipment
that has been installed, repaired, maintained or modified other than in
compliance with the documentation furnished to Customer; (b) Subscriber
Equipment that has been subjected to misuse (including use in conjunction with
electrically or mechanically incompatible hardware), abuse, accident, physical
damage, abnormal operation, improper handling, neglect, exposure to fire, water
or excessive moisture or dampness or extreme changes in climate or temperature;
(c) cosmetic damage; (d) Subscriber Equipment on which warranty stickers or
serial numbers have been removed, altered, or rendered illegible; (e) damage as
a result of fire, flood, acts of God or other acts which are not the fault of
Copper Mountain and which the Subscriber Equipment is not specified to tolerate,
including damage caused by mishandling, shipping and blown fuses; or (f) any
Subscriber Equipment that has been opened, repaired, modified or altered by
anyone other than Copper Mountain or a Copper Mountain Authorized Service
Center.
<PAGE>
EXHIBIT E
MUTUAL NON-DISCLOSURE AGREEMENT
<PAGE>
MUTUAL NONDISCLOSURE AGREEMENT
THIS AGREEMENT is made as of August 29, 1997 between NORTHPOINT
COMMUNICATIONS, INC., a Delaware corporation (the Company and COPPER MOUNTAIN
-------
NETWORKS ("Third Party").
1. PURPOSE. The Company and Third Party wish to explore a
-------
business possibility in connection with which each may disclose its Confidential
Information to the other (the "Relationship").
------------
2. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential Information"
-------------------------------------- ------------------------
means any information, technical data, or know-how, including, but not limited
to, that which relates to research, product plans, products, services,
customers, markets, software, developments, inventions, processes, designs,
drawings, engineering, hardware configuration information, marketing or finances
of the disclosing party, which Confidential Information is designated in writing
to be confidential or proprietary, or if given orally, is confirmed promptly in
writing as having been disclosed as confidential or proprietary. Confidential
Information does not include information, technical data or know-how which (i)
is in the possession of the receiving party at the time of disclosure as shown
by the receiving party's files and records immediately prior to the time of
disclosure; or (ii) prior to or after the time of disclosure becomes part of the
public knowledge or literature, not as a result of any improper inaction or
action of the receiving party, or (iii) is approved by the disclosing party, in
writing, for release.
3. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Each party agrees not
------------------------------------------
to use any Confidential Information disclosed to it by the other party for its
own use or for any purpose except to carry out discussions concerning, and the
undertaking of, the Relationship. Neither party will disclose any Confidential
Information of the other party to third parties or to employees of the party
receiving Confidential Information, except employees who are required to have
the information in order to carry out the discussions regarding the
Relationship. Each party will have or has had employees to whom Confidential
Information of the other party is disclosed or who have access to Confidential
Information of the disclosing party sign a nondisclosure or similar agreement in
content substantially similar to this Agreement. Each party agrees that it will
take all reasonable measures to protect the secrecy of and avoid disclosure or
use of Confidential Information of the other party in order to prevent it from
falling into the public domain or the possession of persons other than those
persons authorized under this Agreement to have any such information. Such
measures shall include the highest degree of care that the receiving party
utilizes to protect its own Confidential Information of a similar nature. Each
party agrees to notify the other in writing of any misuse or misappropriation of
Confidential Information of the disclosing party which may come to the receiving
party's attention.
4. RETURN OF MATERIALS. Any materials or documents which have been
-------------------
furnished by one party to the other in connection with the Relationship will be
promptly returned by the receiving party, accompanied by all copies of such
---
documentation, within ten (10) days after (i) the Relationship has been
terminated or (ii) the written request of the disclosing party.
<PAGE>
5. PATENT OR COPYRIGHT INFRINGEMENT. Nothing in this Agreement is
--------------------------------
intended to grant any rights under any patent or copyright of either party, nor
shall this Agreement grant either party any rights in or to the other party's
Confidential Information, except the limited right to review such Confidential
Information in connection with the proposed Relationship between the parties.
6. TERM. The foregoing commitments of each party shall survive any
----
termination of the Relationship between the parties, and shall continue for a
period terminating on the later to occur of (i) five (5) years following the
date of this Agreement or (ii) three (3) years from the date on which
Confidential Information is disclosed under this Agreement.
7. MISCELLANEOUS. This Agreement shall be binding upon and for the
-------------
benefit of the undersigned parties, their successors and assigns, provided that
Confidential Information of the disclosing party may not be assigned without the
prior written consent of the disclosing party. Failure to enforce any provision
of this Agreement by a party shall not constitute a waiver of any term hereof by
such party.
8. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of California,
and shall be binding upon the parties to this Agreement in the United States and
worldwide.
9. REMEDIES. Each party agrees that its obligations provided in this
--------
Agreement are necessary and reasonable in order to protect the disclosing party
and its business, and each party expressly agrees that monetary damages would be
inadequate to compensate the disclosing party for any breach by the receiving
party of its covenants and agreements set forth in this Agreement. Accordingly,
each party agrees and acknowledges that any such violation or threatened
violation will cause irreparable injury to the disclosing party and that, in
addition to any other remedies that may be available, in law, in equity or
otherwise, the disclosing party shall be entitled to obtain injunctive relief
against the threatened breach of this Agreement or the continuation of any such
breach by the receiving party, without the necessity of proving actual damages.
NORTHPOINT COMMUNICATIONS, INC.
By: Michael Malaga
---------------------------
Title: Chief Executive Officer
------------------------
By: /s/ Michael Kelly
----------------------------
Title: VP Sales
------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 25,
1999, except for Note 10, as to which the date is April 13, 1999, in the
Registration Statement on Amendment No. 1 to Form S-1 (No. 333-73153) and
related Prospectus of Copper Mountain Networks, Inc. expected to be filed on
April 13, 1999.
Our audits also included the financial statement schedule of Copper Mountain
Networks, Inc. for the period March 11, 1996 (inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998 listed in Item 16(b). This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
San Diego, California
April 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,474
<SECURITIES> 10,033
<RECEIVABLES> 7,262
<ALLOWANCES> 0
<INVENTORY> 5,067
<CURRENT-ASSETS> 31,751
<PP&E> 6,499
<DEPRECIATION> (2,260)
<TOTAL-ASSETS> 37,393
<CURRENT-LIABILITIES> 7,946
<BONDS> 0
0
44,502
<COMMON> 3
<OTHER-SE> (16,920)
<TOTAL-LIABILITY-AND-EQUITY> 37,393
<SALES> 13,217
<TOTAL-REVENUES> 13,217
<CGS> 6,384
<TOTAL-COSTS> 6,384
<OTHER-EXPENSES> 6,345
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 635
<INCOME-TAX> 48
<INCOME-CONTINUING> 587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 587
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.03
</TABLE>
