<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to____________.
Commission File Number (000-25865)
COPPER MOUNTAIN NETWORKS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0702004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2470 EMBARCADERO WAY, PALO ALTO, CALIFORNIA 94303
(619) 858-8500
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, $.001 par
value, as of October 31, 1999 was 23,508,592.
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets at September 30,
1999 and December 31, 1998 2
Condensed Statements of Operations for the
three and nine months ended September 30,
1999 and 1998 3
Condensed Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 4
Condensed Statement of Stockholders' Equity
for the nine months ended September 30, 1999 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- --------------
<S> <C> <C>
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 30,977 $ 7,631
Short-term marketable investments 80,278 10,898
Accounts receivable 16,593 8,026
Inventory 10,098 4,668
Other current assets 720 476
-------- --------
Total current assets 138,666 31,699
Property and equipment, net 7,114 3,214
Marketable investments 5,267 --
Other assets 1,374 1,296
-------- --------
Total assets $152,421 $ 36,209
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 7,865 $ 4,371
Accrued liabilities 13,832 2,219
Current portion of obligations under capital
leases and equipment notes payable 1,399 783
-------- --------
Total current liabilities 23,096 7,373
Obligations under capital leases and equipment
notes payable, less current portion 3,090 1,965
Other accrued 98 28
Stockholders' equity:
Convertible preferred stock -- 44,502
Common stock 23 3
Notes receivable from stockholders (41) (41)
Paid in capital 149,241 15,669
Deferred compensation (5,510) (9,762)
Accumulated deficit (17,576) (23,528)
-------- --------
Total stockholders' equity 126,137 26,843
-------- --------
Total liabilities and stockholders' equity $152,421 $ 36,209
======== ========
</TABLE>
See accompanying notes to condensed financial statements
2
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $32,016 $ 5,556 $68,122 $ 7,154
Cost of revenue 15,017 3,359 32,216 4,371
------- ------- ------- --------
Gross profit 16,999 2,197 35,906 2,783
Operating expenses:
Research and development 4,065 1,765 9,903 5,326
Sales and marketing 4,180 1,377 10,079 3,056
General and administrative 1,373 971 3,835 2,226
Amortization of deferred stock compensation 1,192 1,294 4,486 2,297
------- ------- ------- --------
Total operating expenses 10,810 5,407 28,303 12,905
------- ------- ------- --------
Income (loss) from operations 6,189 (3,210) 7,603 (10,122)
Other income (expense):
Interest and other income 1,758 18 2,678 193
Interest expense (72) (65) (193) (160)
------- ------- ------- --------
Income (loss) before income taxes 7,875 (3,257) 10,088 (10,089)
Provision for income taxes 3,229 -- 4,136 --
------- ------- ------- --------
Net income (loss) $ 4,646 $(3,257) $ 5,952 $(10,089)
======= ======= ======= ========
Basic net income (loss) per share $ 0.20 $ (2.32) $ 0.46 $ (8.27)
======= ======= ======= ========
Diluted net income (loss) per share $ 0.16 $ (2.32) $ 0.23 $ (8.27)
======= ======= ======= ========
Basic common equivalent shares 23,003 1,403 12,904 1,220
======= ======= ======= ========
Diluted common equivalent shares 28,272 1,403 25,390 1,220
======= ======= ======= ========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,952 $(10,089)
Adjustments to reconcile net income (loss)
to net cash provided by (used) in operating activities:
Depreciation and amortization 1,803 858
Non-cash compensation 4,493 2,302
Changes in operating assets and liabilities:
Accounts receivable (8,567) (3,724)
Inventory (5,430) (2,630)
Other current assets and other assets (337) (183)
Accounts payable and accrued liabilities 15,177 2,925
-------- --------
Net cash provided by (used in) operating activities 13,091 (10,541)
-------- --------
Cash flows from investing activities:
Purchases of marketable investments, net (74,647) (1,266)
Purchases of property and equipment (5,688) --
-------- --------
Net cash used in investing activities (80,335) (1,266)
-------- --------
Cash flows from financing activities:
Proceeds from equipment notes payable 2,203 1,311
Proceeds from line of credit -- 2,000
Payments on capital lease obligations (244) --
Payments on equipment notes payable (218) (402)
Proceeds from issuance of common stock 88,849 2
-------- --------
Net cash provided by financing activities 90,590 2,911
-------- --------
Net increase (decrease) in cash and cash equivalents 23,346 (8,896)
Cash and cash equivalents at beginning of period 7,631 9,517
-------- --------
Cash and cash equivalents at end of period $ 30,977 $ 621
======== ========
Supplemental information:
Interest paid $ 193 $ 160
======== ========
Stock forfeited for notes receivable $ -- $ 16
======== ========
Issuance of stock for consulting services $ 7 $ 5
======== ========
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ --------------------
Number of Number of Stockholder Notes
Shares Amount Shares Amount Receivable
------------ --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 10,223 $ 44,502 2,517 $ 3 $ (41)
Conversion of preferred
to common stock (10,223) (44,502) 15,335 15 --
Issuance of common stock -- -- 4,600 4 --
Stock grants for -- -- 1 -- --
consulting services
-- -- -- -- --
Deferred compensation
related to the grant of
stock options
-- -- -- -- --
Amortization related to
deferred stock compensation
-- -- -- -- --
Net exercise of warrant to
purchase common stock
-- -- 96 -- --
Exercise of options to
purchase common stock
-- -- 835 1 --
Net income
-- -- -- -- --
Balance at September 30, 1999 ------- -------- ------ ---- --------
-- $ -- 23,384 $ 23 $ (41)
======= ======== ====== ==== =========
</TABLE>
<TABLE>
<CAPTION>
Total
Paid in Deferred Accumulated Stockholders'
Capital Compensation Deficit Equity
-------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 15,669 $ (9,762) $ (23,528) $ 26,843
Conversion of preferred
to common stock 44,487 -- -- --
Issuance of common stock 88,669 -- -- 88,673
Stock grants for
consulting services 7 -- -- 7
Deferred compensation
related to the grant of
stock options 234 (234) -- --
Amortization related to
deferred stock compensation -- 4,486 -- 4,486
Net exercise of warrant to
purchase common stock -- -- -- --
Exercise of options to
purchase common stock 175 -- -- 176
Net income -- -- 5,952 5,952
-------- --------- ---------- ---------
Balance at September 30, 1999 $149,241 $ (5,510) $ (17,576) $ 126,137
======== ========= ========== =========
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE>
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed balance sheet as of September 30, 1999, the condensed
statements of operations for the three and nine month periods ended September
30, 1999 and 1998, and the condensed statements of cash flows for the nine month
periods ended September 30, 1999 and 1998 and the statement of stockholders'
equity for the nine months ended September 30, 1999 have been prepared by Copper
Mountain Networks, Inc. (the "Company"), and have not been audited. These
financial statements, in the opinion of management, include all adjustments
consisting only of normal and recurring adjustments, necessary to state fairly
the financial information set forth therein, in accordance with generally
accepted accounting principles. These financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1998 included in the Company's Registration Statement on Form S-1
(File No.333-73153). Interim operating results are not necessarily indicative of
operating results for the full year.
NOTE 2 - 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.
NOTE 3 - EARNINGS PER SHARE
Basic and diluted net income (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 including any dilutive common stock equivalents.
Common stock equivalents of 5,269,109 and 12,485,635 shares for the three and
nine months ending September 30, 1999 were used to calculate diluted earnings
per share. Common stock equivalents of 12,825,102 and 12,556,847 shares for the
three and nine months ending September 30, 1998 were excluded from the
calculation of diluted earnings per share because of the anti-dilutive effect.
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.
NOTE 4 - EQUIPMENT FINANCING
In August 1999, the Company entered into a credit facility with a bank for the
purchase of equipment. The credit facility includes $2.4 million in equipment
loans and $2.6 million in commitments for the purchase of equipment under a
capital lease agreement. As of September 30, 1999, the full amount of funds
available under the equipment loan had been utilized. As of September 30, 1999,
the Company had $1.9 million available for future borrowings under the capital
lease agreement. The borrowings under the equipment financing agreement and the
capital lease agreement are to be repaid in 48 equal monthly installments and
accrue interest at 10.7%. Both obligations are secured by the related
equipment. All borrowings under the capital lease agreement must be completed
by March 31, 2000.
6
<PAGE>
NOTE 5 - COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS (in thousands)
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
Inventory:
Raw materials $ 5,190 $ 2,582
Work in process 1,512 790
Finished goods 3,396 1,296
-------- -------
$ 10,098 $ 4,668
======== =======
Accrued liabilities:
Income taxes payable $ 4,136 --
Deferred revenue 3,071 --
Accrued compensation 3,027 1,114
Accrued warranty 1,613 418
Other 1,985 687
-------- -------
$ 13,832 $ 2,219
======== =======
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This document 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.
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 report to conform such statements to actual results or to
changes in our expectations.
Readers are also urged to carefully review and consider the various
disclosures made by us which attempt to advise interested parties of the factors
which affect our business, including without limitation the disclosures made
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and under the caption "Risk Factors" included herein
and in the Company's Registration Statement on Form S-1 (No. 333-73153).
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 DSL CPE. Since
inception, we have incurred significant losses on an annual basis and as of
September 30, 1999, we had an accumulated deficit of $17.6 million.
Our revenue is generated primarily from sales of our central office based
equipment: our CopperEdge 200 DSL access concentrators, or the CE200's, 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 nine months ended September 30, 1999, with Rhythms,
NorthPoint, and Lucent accounting for approximately 40%, 40%, and 10% of our
revenue, respectively. 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. Currently we derive the majority of our revenue
from sales made directly to telecommunications service providers.
We outsource most of our manufacturing and supply chain management operations
to Flextronics International, Ltd., 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 Flextronics
International Ltd.
8
<PAGE>
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
continue 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.
Amortization of deferred stock compensation resulted from the granting of
stock options to employees with exercise prices per share determined to be below
the deemed fair market values per share for financial reporting purposes of our
common stock at dates of grant. The deferred compensation is being amortized to
expense in accordance with FASB Interpretation No. 28 over the vesting period of
the individual options, generally over four years. We recorded total deferred
stock compensation of $1.8 million, $2.4 million, $11.1 million and $0.2 million
in 1996, 1997, 1998 and the nine months ended September 30, 1999, respectively,
and amortized $0.2 million, $1.4 million, $3.9 million and $4.5 million in 1996,
1997, 1998 and nine months ended September 30, 1999, respectively, leaving
approximately $5.5 million to be amortized in future periods.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain
income data for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
------ ----- ------ ------
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 46.9 60.5 47.3 61.1
----- ----- ------ ------
Gross profit 53.1 39.5 52.7 38.9
Operating expenses:
Research and development 12.7 31.8 14.5 74.4
Sales and marketing 13.1 24.8 14.8 42.7
General and administrative 4.3 17.4 5.7 31.2
Amortization of deferred stock
Compensation 3.7 23.3 6.6 32.1
----- ----- ------ ------
Total operating expenses 33.8 97.3 41.6 180.4
----- ----- ------ ------
Income (loss) from operations 19.3 (57.8) 11.1 (141.5)
Other Income, net 5.3 (0.8) 3.7 0.5
----- ----- ------ ------
Income (loss) before income taxes 24.6 (58.6) 14.8 (141.0)
Provision for income taxes 10.1 -- 6.1 --
----- ----- ------ ------
Net income (loss) 14.5 (58.6) 8.7 (141.0)
===== ===== ====== ======
</TABLE>
9
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED SEPTEMBER 30, 1998
Net Revenue. Net revenue increased from $5.6 million for the three months
ended September 30, 1998 to $32.0 million in the three months ended September
30, 1999. This increase was due to increased sales of our CE200 DSL access
concentrators and related line cards. Sales to our three largest customers,
NorthPoint, Rhythms, and Lucent increased from $2.8 million, $1.3 million and
zero, respectively, for the three months ended September 30, 1998 to $14.0
million, $9.4 million, and $5.2 million, respectively, for the three months
ended September 30, 1999.
Gross Profit. Our gross profit increased from $2.2 million for the three
months ended September 30, 1998 to $17.0 million in the three months ended
September 30, 1999. The increase in gross profit occurred primarily because of
the increase in net revenue for the period. Gross profit percentages also
increased on a year over year basis, from 39.5% for the quarter ended September
30, 1998 to 53.1% for the quarter ended September 30, 1999. The increase in
gross profit as a percentage of sales was primarily due to an increase in unit
volumes, a favorable product mix, and decreased unit costs associated with
improved overhead absorption.
Research and Development. Our research and development expenses increased
from $1.8 million for the quarter ended September 30, 1998 to $4.1 million for
the quarter ended September 30, 1999. This increase was due to an increase in
personnel expenses related to an increase in our engineering staff, quality and
technical support costs, higher overhead and depreciation, and increased
prototype material costs. Research and development expenses as a percentage of
net revenue decreased from 31.8% for the quarter ended September 30, 1998 to
12.7% for the quarter ended September 30, 1999. This decrease in research and
development expense as a percentage of net 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 $1.4
million for the quarter ended September 30, 1998 to $4.2 million for the quarter
ended September 30, 1999. This increase was due to an increase in personnel
expenses for sales and marketing staff, increased sales commissions associated
with higher net revenue, and increased promotional and product marketing
expenses during the stated periods. Sales and marketing expenses as a percentage
of net revenue decreased from 24.8% of net revenue for the quarter ended
September 30, 1998 to 13.1% for the quarter ended September 30, 1999. This
decrease was principally the result of an increase in our net revenue.
General and Administrative. Our general and administrative expenses
increased from $1.0 million for the quarter ended September 30, 1998 to $1.4
million for the quarter ended September 30, 1999. This increase was due to
increased staffing for finance and accounting and management information systems
personnel, and growth in recruiting and human resources expenses. General and
administrative expenses as a percentage of net revenue decreased from 17.4% for
the quarter ended September 30, 1998 to 4.3% for the quarter ended September 30,
1999. This decrease was primarily the result of an increase in our net revenue.
Interest and Other income. Other income increased from $18,000 for the
quarter ended September 30, 1998 to $1.8 million for the quarter ended September
30, 1999. This increase was primarily due to an increase in interest income as a
result of higher average cash balances during the quarter ended September 30,
1999, which included the proceeds from our initial public offering completed in
May of 1999.
Interest Expense. Our interest expense increased from $65,000 for the
quarter ended September 30, 1998 to $72,000 for the quarter ended September 30,
1999.
Provision for Income Taxes. We did not incur any provision for income taxes
for the quarter ended September 30, 1998, while our provision for the quarter
ended September 30, 1999 was $3.2 million. The provision for income taxes for
the three months ended September 30, 1999 is based on an estimate of the
effective tax rate for the entire 1999 fiscal year.
10
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Revenue. Net revenue increased from $7.2 million for the nine months
ended September 30, 1998 to $68.1 million in the nine months ended September 30,
1999. This increase was due to increased sales of our CE200 DSL access
concentrators and related line cards. Sales to our three largest customers,
NorthPoint, Rhythms, and Lucent, increased from $3.7 million, $1.5 million, and
zero respectively, for the nine months ended September 30, 1998 to $27.3
million, $26.9 million, and $6.9 million respectively, for the nine months ended
September 30, 1999.
Gross Profit. Our gross profit increased from $2.8 million for the nine
months ended September 30, 1998 to $35.9 million for the nine months ended
September 30, 1999. The increase in gross profit occurred primarily because of
the increase in net revenue for the period. Gross profit percentages also
increased on a year over year basis, from 38.9% for the nine months ended
September 30, 1998 to 52.7% for the nine months ended September 30, 1999. The
increase in gross profit as a percentage of sales was primarily due to an
increase in unit volumes, a favorable product mix, and decreased unit costs
associated with improved overhead absorption.
Research and Development. Our research and development expenses increased
from $5.3 million for the nine months ended September 30, 1998 to $9.9 million
for the nine months ended September 30, 1999. This increase was due to an
increase in personnel expenses related to more full-time engineering staff,
quality and technical support costs, and higher depreciation. Research and
development expenses as a percentage of net revenue decreased from 74.4% for the
nine months ended September 30, 1998 to 14.5% for the nine months ended
September 30, 1999. This decrease in research and development expense as a
percentage of net 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 $3.1
million for the nine months ended September 30, 1998 to $10.1 million for the
nine months ended September 30, 1999. This increase was due to an increase in
personnel expenses for sales and marketing staff, increased sales commissions
associated with higher net revenue and increased trade show and other
promotional expenses during the stated periods. Sales and marketing expenses as
a percentage of net revenue decreased from 42.7% of net revenue for the nine
months ended September 30, 1998 to 14.8% for the nine months ended September 30,
1999. This decrease was principally the result of an increase in our net
revenue.
General and Administrative. Our general and administrative expenses
increased from $2.2 million for the nine months ended September 30, 1998 to $3.8
million for the nine months ended September 30, 1999. This increase was due to
increased staffing for finance and accounting and management information systems
personnel, and growth in recruiting and human resources expenses. General and
administrative expenses as a percentage of net revenue decreased from 31.2% for
the nine months ended September 30, 1998 to 5.7% for the nine months ended
September 30, 1999. This decrease was primarily the result of an increase in our
net revenue.
Interest and Other income. Other income increased from $193,000 for the nine
months ended September 30, 1998 to $2.7 million for the nine months ended
September 30, 1999. This increase was primarily due to an increase in interest
income as a result of higher average cash balances in the nine months ended
September 30, 1999, which included the proceeds from our initial public offering
completed in May of 1999.
Interest Expense. Our interest expense increased from $160,000 for the nine
months ended September 30, 1998 to $193,000 for the nine months ended September
30, 1999.
Provision for Income Taxes. We did not incur any provision for income taxes
for the nine months ended September 30, 1998, while our provision for the nine
months ended September 30, 1999 was $4.1 million. The provision for income taxes
for the nine months ended September 30, 1999 is based on an estimate of the
effective tax rate for the entire 1999 fiscal year.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
sale of preferred equity securities. Through 1998, we raised approximately $44.5
million, net of fees and expenses, through the sale of preferred equity
offerings. In May 1999, we closed our initial public offering with proceeds to
us of approximately $90.0 million. Additionally, we have received loans for the
purchase of capital equipment.
At September 30, 1999, we had cash and cash equivalents of $31.0 million and
short-term investments of $80.3 million and long-term investments of $5.3
million.
Cash provided by/(used for) operating activities for the nine months ended
September 30, 1999 and 1998 was $13.1 million and $(10.5) million, respectively.
This change was primarily the result of an increase in net income, accounts
payable and accrued liabilities, depreciation and non-cash compensation.
Cash used in investing activities for the nine months ended September 30, 1999
and 1998 was $80.3 million and $1.3, respectively. This increase was the
result of net purchases of short-term investments, and to a lesser extent, the
purchase of computers and other equipment.
Cash provided by financing activities for the nine months ended September 30,
1999 and 1998 was $90.6 million and $2.9 million, respectively. This increase
was primarily due to the proceeds from our initial public offering.
In August 1999, the Company entered into a credit facility with a bank for the
purchase of equipment. The credit facility includes $2.4 million in equipment
loans and $2.6 million in commitments for the purchase of equipment under a
capital lease agreement. As of September 30, 1999, the full amount of funds
available under the equipment loan had been utilized. As of September 30, 1999,
the Company had $1.9 million available for future borrowings under the capital
lease agreement. The borrowings under the equipment financing agreement and the
capital lease agreement are to be repaid in 48 equal monthly installments and
accrue interest at 10.7%. Both obligations are secured by the related
equipment. All borrowings under the capital lease agreement must be completed
by March 31, 2000.
We have no material commitments other than obligations under our credit
facilities and operating and capital leases. 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, funds available under our equipment financing agreement and any
cash generated from operations will be sufficient to satisfy our cash
requirements for at least the next twelve months. Our management intends to
invest our cash in excess of current operating requirements in interest-bearing,
investment-grade securities.
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."
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We implemented a compliance plan to identify and remediate Year 2000 problems
for our products, internal infrastructure and technology based office equipment.
We have completed the testing of our products and believe that they are Year
2000 compliant. As we develop and design new products we will continue to test
them for Year 2000 compliance. We have completed our Year 2000 compliance
testing for our critical internal systems and we believe that they are Year 2000
compliant. We have also completed our Year 2000 compliance testing on our office
equipment and believe that we are substantially year 2000 compliant and in any
case we do not expect that these systems will require material modifications.
We estimate that the total cost of completing our Year 2000 compliance program
including all 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.
As part of our Year 2000 plan, we contacted 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.
We have developed contingency plans to be implemented if our efforts to
identify and correct Year 2000 Problems affecting our internal systems are not
effective. Our implementation of any contingency plans could have a material
adverse effect on our business, financial condition and results of operations.
The discussion of our efforts and expectations relating to Year 2000
compliance are forward-looking statements. The Company believes that its
products and critical systems are now Year 2000 compliant. However, there is no
guarantee that we will be Year 2000 compliant. 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.
RISK FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
You should carefully consider the following risk factors and the other
information included herein as well as the information included in our
Registration statement on Form S-1 (No. 333-73153) 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 and May Not Achieve or Sustain Annual
Profitability
Copper Mountain has had accumulated net losses of $17.6 million since its
inception and may 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.
Although our revenue has grown in recent quarters, we cannot be certain that our
revenue growth will continue or increase in the future or that we will realize
sufficient revenues to achieve and sustain profitability on an annual or
quarterly basis.
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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. Aggregate sales to our three largest customers accounted for
approximately 90% of our total net revenues for the nine months ended September
30, 1999. Sales to our most significant customers, Rhythms NetConnections, Inc.,
NorthPoint Communications, Inc., and Lucent accounted for approximately 40%,
40%, and 10% of Copper Mountain's net revenues, respectively, for the nine
months ended September 30, 1999. 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.
Copper Mountain Has a Limited Operating History
Copper Mountain has a very limited operating history as we were incorporated
in March 1996. Due to our limited operating history, it is difficult or
impossible for us to predict 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 effectively introduce new products and product enhancements in a timely
and competitive fashion; 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:
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. 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 volume and mix of products sold and the mix of distribution channels
through which they are sold;
. the loss of one of our three major customers or a significant reduction in
orders from those customers;
. 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.
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
telecommunications service providers who compete against traditional telephone
companies has only begun to emerge since the passage of the Telecommunications
Act of 1996 (the "Telecom Act"), and many of these service providers are still
building their infrastructure and rolling out their services. These
telecommunications service providers 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 telecommunications
service providers on favorable terms, if at all. The inability of our current or
potential emerging telecommunications service provider 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
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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, hardware and software products which 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
write-offs attributed to the obsolescence of certain printed circuit boards. 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 original equipment manufacturer agreements with
Lucent Technologies Inc. and 3Com Corporation under which we have agreed to
manufacture, and sell our products to Lucent and 3Com. The amount and timing of
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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 June 1999, Lucent completed the acquisition of 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 it acquired from Ascend or from other products developed
internally by Lucent. We expect that the availability to Lucent of these
alternative products will expose Copper Mountain to increased competition from
Lucent. Because of this competition, we expect sales to Lucent, both in terms of
dollars and as a percent of sales, will decline over time. In addition, our
other customers may elect to purchase alternative products from Lucent and
reduce their future purchases of Copper Mountain products.
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: Nokia Corporation, Alcatel S.A, Cisco
Systems, Inc., Lucent Technologies, Inc., 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 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. 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, including the future affects of Lucent's
acquisition of Ascend, 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 additional consolidation
involving these parties could reduce the demand for our products and otherwise
harm our business prospects.
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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, line cards for different DSL variants and new types of
customer premise equipment. 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 reserves 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 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;
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. 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.
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 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.
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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. Except for agreements with our President
and Chief Executive Officer, Chief Technology Officer, and Vice President of
Engineering, 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.
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 nine months of 1999 we added 107 additional
employees bringing the total to 218. This expansion is placing a significant
strain on our managerial and operational resources. Most of our existing senior
management personnel joined us within the last two years, 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;
. train, motivate and manage our sales and marketing, engineering, technical
and customer support employees; and
. expand our physical infrastructure and facilities to accommodate growth in
our headcount.
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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.
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, certain key components are purchased from sole or single source
vendors for which alternative sources are not currently 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 two key components from vendors for which there are currently no
substitutes: a semiconductor chip, 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 nine 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. Recently we entered into a formal manufacturing
agreement with Flextronics International, Ltd. located in Freemont California.
Flextronics is our main source of independent manufacturing. If our current
manufacturers are unable or unwilling to continue manufacturing our components
in required volumes, it could take up to eight months for an alternative
manufacturer to supply the needed components in sufficient volumes. 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
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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 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.
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 Federal Communications
Commission, or 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.
Copper Mountain May Not Be Able to Obtain Additional Capital to Fund Its
Operations When Needed
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 terms and conditions relating to such debt
could impose restrictions on our operations. Additional financing may not be
available when needed on terms and conditions favorable to us or at all. If
adequate funds are not available or are not available on acceptable terms and
conditions, 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.
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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 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 a Small Number of Stockholders May Limit the Ability of Other
Stockholders to Influence the Outcome of Director Elections and Other Matters
Requiring Stockholder Approval
Copper Mountain's executive officers, directors and principal stockholders and
their affiliates own approximately 37% of the outstanding shares of common
stock. 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.
Copper Mountain's stock price has been and may continue to be extremely
volatile
The trading price of our common stock has been and is likely to continue to
be extremely volatile. Our stock price could be subject to wide fluctuations in
response to a variety of factors, including the following:
. 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;
. announcements or loss of strategic relationships with third parties or
telecommunications equipment providers by us or our competitors;
. 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 or the perception that such sales could occur could cause the
market price of its common stock to drop. As of September 30, 1999, we have
23,383,586 shares of common stock outstanding, of which approximately 4,600,000
shares are freely transferable without restriction or registration under the
Securities Act of 1933,
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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 stock
until November 9, 1999. On October 19, 1999, Morgan Stanley & Co. Incorporated
agreed to release 9.2 million shares that were previously subject to the lock-up
agreement. The partial release became effective on October 25, 1999. Morgan
Stanley & Co. Incorporated may, in its sole discretion, at any time without
notice, release all or any portion of the remaining 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 June 1999 we filed a registration statement on Form S-8 with the
Securities and Exchange Commission covering the 7,195,587 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 November 9, 1999 at least 1,107,142
shares will be subject to immediately exercisable options (based on options
outstanding on October 27, 1999). Sales of a large number of shares could have
an adverse effect on the market price for our common stock.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 affect the fair value of interest sensitive financial
instruments at September 30, 1999.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.35 - Equipment Purchase Agreement between the Company and
NorthPoint Communications, Inc. dated July 21, 1999. (1)
(b) Exhibit 27.1 - Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter ended
September 30, 1999.
- --------------------------
(1) 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Copper Mountain Networks, Inc.
Date: November 11, 1999 /s/ Richard S. Gilbert
-----------------------
Richard S. Gilbert
President
Chief Executive Officer
/s/ John A. Creelman
-------------------------
John A. Creelman
Vice President of Finance
Chief Financial Officer
Secretary
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EXHIBIT 10.35
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. (S)(S) 200.80(B)(4),
200.83 AND 240.24B-2
EQUIPMENT PURCHASE AGREEMENT
This Equipment Purchase Agreement (the "Agreement") is entered into as of
July 21, 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 Delaware ("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.
"Blanket Purchase Order" means the two non-cancelable Purchase Orders
issued prior to each calendar quarter by Customer as outlined in Exhibit B
attached hereto.
"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.
"Line Cards" means the portion of the Network Equipment comprised of the
printed circuit board assemblies, which contain the line or port capacity of the
Network Equipment.
"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 D.
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"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.
"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 15/th/ day of each month during the Term,
Customer shall submit a written forecast, or approve a forecast as prepared
mutually with Copper Mountain, to Copper Mountain, (the "Forecast") which shall
set forth the estimated number of
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units of Equipment to be purchased in each month during the twelve (12) month
period beginning with the month for which such Forecast is being delivered.
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 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. In the event that the Customer has not met the payment
schedule set forth in this Section 3.2, 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 one (1)
business day of receipt of each Purchase Order, confirm receipt of such Purchase
Order with Customer by facsimile or electronic mail. Additionally, Copper
Mountain shall, within three (3) business days of receipt of each Purchase Order
provide the estimated date of shipment for each such Purchase Order to 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,
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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.
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 Customer's choice, FOB Copper Mountain's plant in San Diego,
California, or any other plant or warehouse designated by Copper Mountain.
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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 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.
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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 repair or replace the Defective 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. In the event that advanced
replacement equipment or components are required to complete warranty repairs on
Defective equipment, such equipment or components shall be shipped to customer
prior to customer's return of such Defective equipment. 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 E.
7.5 Disclaimer of Warranties.
(a) EXCEPT AS EXPRESSLY SET FORTH IN SECTION 7.1 AND EXHIBIT E,
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 E.
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.
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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 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 F.
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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, 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 June 30, 2002, 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 with a
sixty (60) day written notice to Copper Mountain at Customer's sole discretion.
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 at the same terms and conditions as set forth in this
Agreement. 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 non-warranty repairs.
If Customer fails to maintain an adequate supply of spare parts, the time
allowed for Copper Mountain to complete non-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 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
9
<PAGE>
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 sixty (60) consecutive days after the initial notice of such
event, either party may terminate this Agreement with thirty (30) days written
notice. 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.
10145 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
Attn: John A. Creelman
Fax No: (858) 410-7281
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 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.
10
<PAGE>
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 Francisco, 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 Francisco,
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 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,
11
<PAGE>
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.
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/ Richard S. Gilbert By: /s/ Tim Monahan
- ----------------------- ---------------------------
Richard S. Gilbert Name: Tim Monahan
Chief Executive Officer Title: Vice President Finance & Planning
12
<PAGE>
EXHIBIT A
STANDARD COMMERCIAL PRICE LIST
COPPER MOUNTAIN NETWORKS
Product Name and Description Part No. List Price
================================================================================
COPPEREDGE FAMILY
SYSTEMS
CopperEdge 150 System 800-010-10 [***]
Chassis & Fan 810-001-10
SDSL Module-M (24 Port) 820-021-10
120VAC Power Module 810-010-10
Buffer Control Module 810-020-10
System Control Module/E 810-100-10
Documentation 155-100-10
CopperEdge 200 Basic System 200-010-10 [***]
Chassis & Backplane 100-010-10
DC Power Module 100-510-10
Buffer Control Module 105-010-10
System Control Module 105-110-20
Alarm Module 100-130-10
Documentation 155-010-10
CopperEdge 200 CopperBay System 200-020-10 [***]
Chassis & Backplane 100-010-10
DC Power Module 100-510-10
Buffer Control Module 105-010-10
CopperBay Control Module 105-120-10
Documentation (CD-ROM) 155-010-10
Alarm Module 100-130-10
CE150 SPARES (810)
Chassis & Fan for CE 150 810-001-10 [***]
120VAC Power Module for CE150 810-010-10 [***]
Buffer Control Module for CE150 810-020-10 [***]
System Control Module/E for CE150-200 810-100-10 [***]
Fan Assembly for CE150 810-030-10 [***]
CE150 OPTIONS (810)
Mount kit for 23" rack for CE150 810-220-10 [***]
SDSL Module-H (24 port) 820-021-10 [***]
CE150 System Software v1.0 811-001-00 [***]
CE150 DOCUMENTATION (155)
CE150 Documentation (Spare Set) 155-100-10 [***]
CE200 CHASSIS, POWER SUPPLIES (100)
Chassis & Backplane
(+fan tray & alarm panel) for CE200 100-010-10 [***]
Redundant DC Power Module for CE200 100-510-10 [***]
External AC Power Shelf and one Supply 100-610-10 [***]
AC Power Supply for external shelf 100-611-10 [***]
Alarm Panel for CE200 100-130-10 [***]
Fan Assembly for CE200 100-020-14 [***]
CE200 PROCESSOR, BUFFER (105)
System Control Module for CE200-200/32 105-110-20 [***]
CopperBay Control Module for CE200 105-120-10 [***]
Buffer Control Module for CE200 105-010-10 [***]
CE200 SOFTWARE (111)
CE200 System Software v1.3 111-001-30
CE200 System Software v1.4 111-001-40
CE200 System Software v1.6 111-001-60
CE200 System software v2.0 111-002-00
CE200 LINE CARDS / DSL MODULES (120)
SDSL 30x Module (24 port) 120-021-10 [***]
IDSL Line Module (24 port) 120-030-10 [***]
CE200 WAN I/O (130)
V.35 WAN Module (2 port) 130-020-10 [***]
HSSI WAN Module 130-030-10 [***]
DS3 Frame Module 130-035-10 [***]
DS3 ATM Module 130-040-10 [***]
CE200 OTHER HARDWARE (140)
COPPERVIEW SOFTWARE (112)
CopperView Element Manager v1.3 112-301-13 [***]
CopperView Element Manager v1.4 112-301-14 [***]
CopperView Element Manager v1.6 112-301-16 [***]
CopperView AMS v2.0 (1-9 nodes) 112-400-20 [***]
CopperView AMS v2.0 (10-49 nodes) 112-400-20 [***]
CopperView AMS v2.0 (50-149 nodes) 112-400-20 [***]
CopperView AMS v2.0 (150-399 nodes) 112-400-20 [***]
CopperView AMS v2.0 (400-999 nodes) 112-400-20 [***]
CopperView AMS v2.0 (1000-2499 nodes) 112-400-20 [***]
CV AMS node upgrade (1-9 to 10-49) 112-401-20 [***]
CV AMS node upgrade (10-49 to 50-149) 112-401-20 [***]
CV AMS node upgrade (60-149 to 150-399) 112-401-20 [***]
CV AMS node upgrade (150-399 to 400-999) 112-401-20 [***]
CV AMS node upgrade (400-999 to 1000-2499) 112-401-20 [***]
DOCUMENTATION (155)
CE200 Documentation set 155-010-10 [***]
CopperView EMS documentation (hardcopy) 155-020-20 [***]
DSL Troubleshooting Guide 155-030-10 [***]
CABLES
DC Power Cable (10 feet) 160-010-10 [***]
DSL Connector Cable (25 feet) 160-015-05 [***]
DSL Connector Cable (10 feet) 160-015-10 [***]
DSL Connector Cable (6 feet) 160-015-15 [***]
DSL Connector Cable (3 feet) 160-015-20 [***]
Ethernet Cable (10 feet) 160-020-10 [***]
RS232 Craft Interface Cable (6 feet) 160-021-10 [***]
V.35 Cable (25 feet) 160-030-10 [***]
HSSI Cable (25 feet) 160-035-10 [***]
OTHER (170)
CE200 Mount kit for 23" rack 170-010-10 [***]
COPPERROCKET FAMILY
CopperRocket 201 SDSL 700-030-30 [***]
CopperRocket 201 SDSL (RJ11-RJ45) 700-030-31 [***]
CopperRocket 201 IDSL 700-050-10 [***]
CopperRocket 201 IDSL (RJ11-RJ45) 700-050-11 [***]
CopperRocket 201 SDSL CCA Board 700-930-30 [***]
CopperRocket 201 IDSL CCA Board 700-950-10 [***]
[***] CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
EXHIBIT B
MINIMUM VOLUME COMMITMENT; DISCOUNT
Minimum Volume Commitment
Customer hereby agrees to place two (2) non-cancelable Blanket Purchase Orders
fifteen (15) days prior to the beginning of each calendar quarter such that the
first Blanket Purchase Order (A) is for an amount equal to [***] of the most
recent Forecast (the initial version of which is attached as Exhibit C (the
"Initial Forecast")), for the first quarter contained in such Forecast, and such
that the second Blanket Purchase Order (B) is for an amount equal to [***] of
such Forecast for the second quarter contained in such Forecast. Fifteen (15)
days prior to the beginning of each subsequent quarter, the Customer shall issue
two (2) additional non-cancelable Purchase Orders for amounts, which combined
with Blanket Purchase Orders issued previously, equal to (A) [***] of the most
recent Forecast for the first quarter contained in such Forecast, and such that
the second Blanket Purchase Order (B) is for an amount equal to [***] of such
Forecast for the second quarter contained in each such Forecast. This issuance
of non-cancelable Blanket Purchase Orders will be replicated through the term of
this contract on a quarterly basis. Additionally, all non-cancelable Blanket
Purchase Orders shall be credited for the applicable quarter for all standard
Purchase Orders, outlining the specific Equipment to be purchased in any
quarter, issued by the Customer to Copper Mountain.
Discount
In exchange for the purchase and receipt of the Minimum Volume Commitment by
Customer, Copper Mountain hereby grants to Customer a discount to the purchase
price (as set forth in Exhibit A) of [***] on any Equipment purchased by
Customer during the Term, with the exception of SDSL Line Cards for which the
discount to the purchase price shall be [***].
[***] CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
EXHIBIT C
INITIAL FORECAST
<TABLE>
<CAPTION>
Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GRAND TOTAL
Base System [***]
Redundant Power [***]
Buffer Module [***]
SCM [***]
CopperBay SCM [***]
24 Port SDSL LC [***]
24 Port IDSL LC [***]
V.35 [***]
DS3 Frame [***]
DS3 ATM [***]
23" Mounting Kit [***]
CR201 SDSL (RJ45-RJ11) [***]
CR201 IDSL (RJ45-RJ11) [***]
TOTAL
</TABLE>
[***] CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
EXHIBIT D
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 two or more 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. [***]
General Availability Date: [***]
. [***]
. [***]
. Copper Mountain shall perform testing with one or two third party derived
voice equipment suppliers to verify the operation of the [***].
[***] CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
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 REQUEST(ED)
<PAGE>
EXHIBIT E
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 F
MUTUAL NON-DISCLOSURE AGREEMENT
THIS AGREEMENT is made as of August 29, 1997 between NORTHPOINT
COMMUNICATIONS, INC., a Delaware corporation (the "Company") and Copper Mountain
-------
Network ("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.
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 of (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 COMMUNICATION, INC.
By: /s/ Michael Malaga
---------------------------
Title: Chief Executive Officer
By: /s/ Illegible Kelly
---------------------------
Title: VP Sales
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 30,997
<SECURITIES> 80,278
<RECEIVABLES> 16,693
<ALLOWANCES> 100
<INVENTORY> 10,098
<CURRENT-ASSETS> 138,666
<PP&E> 10,618
<DEPRECIATION> 3,504
<TOTAL-ASSETS> 152,421
<CURRENT-LIABILITIES> 23,096
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 126,114
<TOTAL-LIABILITY-AND-EQUITY> 152,421
<SALES> 68,122
<TOTAL-REVENUES> 68,122
<CGS> 32,216
<TOTAL-COSTS> 32,216
<OTHER-EXPENSES> 28,303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 10,088
<INCOME-TAX> 4,136
<INCOME-CONTINUING> 5,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,952
<EPS-BASIC> .46
<EPS-DILUTED> .23
</TABLE>
