AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2000
REGISTRATION NO. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COPPER MOUNTAIN NETWORKS, INC.
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DELAWARE 000-25865 33-0702004
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
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2470 EMBARCADERO WAY
PALO ALTO, CA 94303
(650) 687-3300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
RICHARD S. GILBERT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COPPER MOUNTAIN NETWORKS, INC.
2470 EMBARCADERO WAY
PALO ALTO, CA 94303
(650) 687-3300
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copies to:
LANCE W. BRIDGES, ESQ.
ELIZABETH E. REED, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CALIFORNIA 92121
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous bases pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
==============================================================================================================================
TITLE OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM
TO BE REGISTERED REGISTERED OFFERING PRICE AGGREGATE AMOUNT OF
PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE
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Common Stock, par value
$0.001..................... 1,142,309 $89.53 $102,270,924.77 $26,999.52
==============================================================================================================================
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act of
1933, based on the average high and low trading prices for the Common Stock
on March 16, 2000.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting offers to buy these securities
in any state where the offer or sale is not permitted.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 20, 2000
1,142,309 Shares
[LOGO]
[Copper Mountain Networks, Inc.]
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The selling stockholders identified in this prospectus are selling
1,142,309 shares of our common stock. All of the shares being offered in this
prospectus were issued to the selling stockholders in connection with our
acquisition of OnPREM Networks Corporation. We are not selling any shares of our
common stock under this prospectus and will not receive any of the proceeds from
the sale of shares by the selling stockholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"CMTN". On March 16, 2000, the last reported sales price for our common stock
was $94.94 per share.
The selling stockholders may sell the shares of common stock described in
this prospectus in a number of different ways and at varying prices. We provide
more information about how the selling stockholders may sell their shares in the
section titled "Plan of Distribution" on page 61.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 4 to read about risks that you should consider before
buying shares of our common stock.
The shares offered or sold under this prospectus have not been approved by
the Securities and Exchange Commission or any state securities commission nor
have any of these organizations determined that this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
The date of this Prospectus is ____________, 2000.
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TABLE OF CONTENTS
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PAGE PAGE
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Prospectus Summary...................... 1 Plan of Distribution................................. 61
Risk Factors............................ 4 Legal Matters........................................ 61
Use of Proceeds......................... 18 Experts.............................................. 61
Dividend Policy......................... 18 Additional Information............................... 62
Price Range of Common Stock............. 18 Index to Consolidated Financial Statements........... F-1
Selected Financial Data................. 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............... 20
Business................................ 27
Management.............................. 41
Certain Transactions.................... 52
Principal and Selling Stockholders...... 54
Description of Capital Stock............ 59
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and financial statements and notes appearing elsewhere in this prospectus. You
should carefully consider, among other things, the matters set forth in "Risk
Factors."
THE COMPANY
Copper Mountain is a leading supplier of high-speed digital subscriber
line, or DSL, based communications products. Our solutions enable
telecommunications service providers to provide high-speed, cost-effective
connectivity over the existing copper wire telephone infrastructure to the
business, multi-tenant unit and residential markets. We believe there is
significant demand for high-speed data access services, especially among
business users who have found current solutions to be inadequate or too
expensive.
The emergence of electronic commerce, business usage of web-based
communications, remote access for teleworkers, applications hosting and other
services have generated enormous traffic for the existing communications
infrastructure. While there are a number of alternatives to deliver
high-bandwidth connectivity, we believe that none has the cost, performance and
coverage advantages of using the existing copper wire telephone infrastructure.
DSL is a technology that was developed to enable telecommunications service
providers to exploit this existing infrastructure to provide guaranteed,
dedicated bandwidth at a low cost to virtually all businesses and homes in the
United States.
Telecommunications service providers are seeking vendors that have
effectively incorporated DSL into communications equipment solutions enabling
them to offer cost-effective, full-coverage, high-bandwidth data access
services. Our flexible, scalable solution consists of the following products:
CopperEdge DSL access concentrators, CopperRocket DSL customer premise
equipment, and CopperView network management tools. Our products offer the
following benefits:
. Support for Business Applications. Our products enable
telecommunications service providers to deliver business services
such as high-speed Internet access, corporate networking,
teleworking and packet-based voice solutions.
. Full Coverage DSL. Our symmetric DSL and ISDN DSL-based products
allow our telecommunications service provider customers the
flexibility and range to reach their targeted customers.
. Multi-Vendor Customer Premise Equipment Interoperability. We have
partnered with third-party DSL customer premise equipment
manufacturers through our CopperCompatible program to develop a
broad line of modems, routers and other innovative customer premise
equipment that is compatible with our CopperEdge DSL access
concentrators.
. Trouble Free Operations. Our products are designed to reduce
installation and support requirements for our customers while
allowing large scale central-office based deployment of DSL
solutions with a zero-installation "plug and play" DSL customer
premise equipment that eliminates complex configuration issues for
the end user.
. Support for Multiple Services. Our platform is a highly-scalable and
cost-effective platform that addresses the strong demand for
Internet access services. In addition, the CopperEdge products
maximize return on investment through support of value added Frame
Relay, VPN and voice services. Unlike most DSL access multiplexer
platforms, the Copper Edge solution delivers advanced packet
processing, class of service using weighted fair queuing, and
subscriber aggregation to support multiple simultaneous services.
Our objective is to be the leading supplier of DSL solutions to
telecommunications service providers. We will focus on expanding our presence in
the business and multi-tenant building markets. In addition, we will address the
emerging opportunities developing in the residential market as
telecommunications service providers seek to offer
1.
DSL services to residential subscribers seeking high-speed access. As this trend
toward broad deployment of DSL Services evolves, we anticipate significant
opportunities for us to deploy new offerings, such as our recently introduced G.
Lite Line Card, that leverages both our technology and our relationships with
service providers. Finally, we are working to drive interoperability of DSL
technology to facilitate faster and broader market acceptance.
We sell our products primarily through a direct sales force and selected
original equipment manufacturers and distributors to telecommunications service
providers. As of December 31, 1999, we have sold over 4,600 CopperEdge DSL
access concentrators. We have also formed strategic relationships with Lucent
Technologies Inc. and 3Com Corporation to allow us to expand our distribution
and market presence. In addition, to facilitate faster and broader market
acceptance of our solutions, we have promoted a "CopperCompatible" program
through which we offer licenses of our DSL customer premise equipment technology
to other manufacturers of customer premise equipment.
On February 29, 2000 we completed our acquisition of OnPREM Networks
Corporation, which we refer to in this prospectus as OnPREM. OnPREM is a
developer of highly integrated DSL solutions for the small and medium building
multi-tenant unit, or MTU, market whose products compliment our existing MTU
product, the CopperEdge 150, or CE150. We believe that our acquisition of OnPREM
will enable us to provide enhanced services to our customers.
We were incorporated in California in 1996 and reincorporated in Delaware
in 1999. Our principal executive offices are located at 2470 Embarcadero Way,
Palo Alto, California 94303, and our telephone number is (650) 687-3300.
THE OFFERING
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Common stock offered by Copper Mountain................ 0 shares
Common stock offered by the selling stockholders....... 1,142,309 shares
Common stock to be outstanding after the offering...... 49,738,717 shares
Use of proceeds........................................ We will not receive any proceeds from the sale of
common stock by the selling stockholders
Proposed Nasdaq National Market symbol................. CMTN
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The foregoing information is based upon shares outstanding as of February
29, 2000.
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Except as otherwise indicated, all information in this prospectus has been
adjusted to reflect the 100% stock dividend that was distributed to our
stockholders on December 10, 1999, also referred to herein as a 2-for-1 stock
split.
2.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The summary statement of operations data for the years ended December 31,
1999, 1998, 1997, and for the period March 11, 1996 (inception) to December 31,
1996, the summary pro forma unaudited statement of operations data for the year
ended December 31, 1999, the summary balance sheet data at December 31, 1999 and
the summary pro forma unaudited balance sheet data at December 31, 1999 set
forth below, is qualified in its entirety by reference to, and should be read in
conjunction with, the financial statements included elsewhere in this
prospectus. The unaudited pro forma financial information reflects the
acquisition of OnPREM as if such acquisition had been completed as of January 1,
1999 and is derived from the unaudited pro forma combined condensed financial
statements and the notes thereto, which are included elsewhere in this
prospectus. The unaudited pro forma financial information is intended for
informational purposes only and is not necessarily indicative of the future
sfinancial position or results of operations of the consolidated company, or of
the financial position or results of operations of the company that would have
actually occurred had the acquisition been effected as of the dates indicated
above.
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MARCH 11, 1996
(INCEPTION) YEAR ENDED DECEMBER 31
THROUGH ---------------------------------------------
DECEMBER 31 1999
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1996 1997 1998 ACTUAL PRO FORMA
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net revenue ........................................ $ -- $ 211 $ 21,821 $ 112,723 $ 112,723
Gross profit (loss) ................................ -- (1,506) 9,421 59,721 59,721
Income (loss) from operations ...................... (2,225) (11,187) (10,524) 16,611 (8,022)
Net income (loss) .................................. (2,181) (11,016) (10,331) 12,217 (11,282)
Basic net income (loss) per share .................. $ (5.84) $ (7.81) $ (3.87) $ .39
Diluted net income (loss) per share ................ $ (5.84) $ (7.81) $ (3.87) $ .23
Pro forma basic and diluted net loss per share ..... $ (.35)
Shares used in basic per share calculations ........ 374 1,410 2,666 31,289
Shares used in diluted per share calculations ...... 374 1,410 2,666 52,282
Shares used in pro forma basic and diluted per share
calculations ...................................... 32,559
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AT DECEMBER 31, 1999
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ACTUAL PRO FORMA
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments $117,169 $118,947
Working capital ................................. 132,187 131,636
Total assets .................................... 165,775 233,750
Long-term debt and capital lease obligation, .... 4,044 4,044
less current portion
Total stockholders' equity ...................... 143,321 208,957
3.
RISK FACTORS
You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose part or all of your investment.
Copper Mountain Has a History of Losses and May Not Sustain Annual
Profitability
Copper Mountain has an accumulated deficit of $11.3 million as of December
31, 1999 and may incur net losses in the future. We anticipate continuing to
incur significant sales and marketing, research and development and general and
administrative expenses and, as a result, we will need to generate significantly
higher revenues to 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 sustain profitability on an annual or quarterly basis.
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 88% of our total net revenues for the year ended December 31,
1999. Sales to our most significant customers NorthPoint Communications, Inc.,
Rhythms NetConnections, Inc., and Lucent Technologies, Inc. accounted for
approximately 37%, 28%, and 23% of Copper Mountain's net revenues, respectively,
for the year ended December 31, 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;
4.
. 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:
. 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 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 any one of our major customers or a significant
reduction in orders from those customers;
. increased competition, particularly from larger, better capitalized
competitors;
. 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 product 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,
5.
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 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 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.
6.
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, 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 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 we will be able to sustain the level of revenue generated
thus far under these 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. Subsequently,
in September 1999, Lucent announced a new DSL product based on technology
acquired from Ascend. As a result, Lucent may seek to reduce the marketing
and/or sales of our products in favor of their own competitive products. 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 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, among
others. 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-
7.
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 Lucents
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.
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 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
8.
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;
. 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. 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,
9.
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.
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 administrative 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
10.
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 1999, we increased the number of
employees from 111 to 240. 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. We expect to add additional key
personnel in the near future, including direct sales and marketing personnel. To
manage the expected growth of our operations and personnel, we will be required
to:
. improve existing and implement new operational, financial and
management controls, reporting systems and procedures;
. install new management information systems; and
. train, motivate and manage our sales and marketing, engineering,
technical and customer support employees.
. expand our physical infrastructure and facilities to accommodate
growth in our headcount.
As of December 31, 1999 we operated 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 three key components from vendors for which there are currently no
substitutes: two semiconductor chips 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
11.
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.
Intense Demand Within the Telecommunications Industry for Parts and
Components May Create Allocations or Shortages Which May Expose Copper Mountain
to Supply Interruption
From time to time, the demand in the telecommunications industry for parts
and components, including semiconductors, programmable devices and printed
circuit boards can be intense. During these periods manufacturers and suppliers
who provide such components to us experience supply shortages which may in turn
affect their ability to meet our production demands. While we seek to enter into
contracts with our suppliers which guarantee adequate supplies of components for
the manufacturing of our products, we cannot be certain that suppliers will
always be able to adequately meet our demands. To date, we have not experienced
any shortages of components or parts which have impacted our ability to meet the
shipment requirements of our customers. However, in the event that we receive
allocations of components from our suppliers or experience outright interruption
in the supply of components we could experience an inability to ship or deliver
our products to our customers in a timely fashion. Any significant allocation of
or interruption in the supply of any component could 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
Many of Copper Mountain's customers tend to be larger than Copper Mountain
and are able to exert a high degree of influence over Copper Mountain. They have
sufficient bargaining power to demand low prices and other terms and conditions
that may materially adversely affect our business, financial condition and
results of operations. In addition, prior to selling our products to such
customers, we must typically undergo lengthy product approval processes, often
taking up to one year. Accordingly, we are continually submitting successive
versions of our products as well as new products to our customers for approval.
The length of the approval process can vary and is affected by a number of
factors, including customer priorities, customer budgets and regulatory issues
affecting telecommunication service providers. Delays in the product approval
process could materially adversely affect our business, financial condition and
results of operations. While we have been successful in the past in obtaining
product approvals from our customers, such approvals and the ensuing sales of
such products may not continue to occur. Delays can also be caused by late
deliveries by other vendors, changes in implementation priorities and slower
than anticipated growth in demand for the services that our 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
12.
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 our product lines 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.
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.
13.
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. 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.
In February, 2000, we acquired OnPREM Networks Corporation. We operate in
a sector of the DSL equipment industry that is considerably different from the
sector for which OnPREM is developing its products. It may turn out that there
are no advantages or "synergies" to adding OnPREM's proposed products to our
product line. Moreover, there is no assurance that OnPREM's operations can be
successfully integrated into our operations or that all of the benefits expected
from the acquisition of OnPREM will be realized. Furthermore, there can be no
assurance that the operations, management and personnel of the two companies
will be compatible or that we or OnPREM will not experience the loss of key
personnel following the merger.
Copper Mountain Plans to Expand its Operations Into International Markets.
Copper Mountain's Failure to Effectively Manage its International Operations
Could Harm its Business.
We believe that international market opportunities for our products may be
significant and we plan to enter markets outside the United States in 2000.
Entering new international markets may require significant management attention
and expenditures and could adversely affect our operating margins and earnings.
In order to commence and expand our international operations, we will need to
hire additional personnel and develop relationships with potential international
customers. To the extent that we are unable to do so on a timely basis, our
growth in international markets would be limited, and our business could be
harmed.
We expect that our international business operations will be subject to a
number of material risks, including, but not limited to:
14.
. difficulties in building and managing foreign operations;
. difficulties in enforcing agreements and collecting receivables
through foreign legal systems and addressing other legal issues;
. longer payment cycles;
. taxation issues;
. fluctuations in the value of foreign currencies; and
. unexpected domestic and international regulatory, economic or
political changes.
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 beneficially own approximately 22% of the outstanding
shares of common stock as of January 31, 2000. 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
15.
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 equity valuations 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 February 29, 2000, we had 49.7
million shares of common stock outstanding. We filed two registration statements
on Form S-8 with the Securities and Exchange Commission covering the 14.5
million 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, the OnPREM 1998 Stock Option Plan and for options issued
outside such plans. As of February 29, 2000, at least 1.6 million shares are
subject to immediately exercisable options. Sales of a large number of shares
could have an adverse effect on the market price for our common stock.
16.
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 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risks Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
17.
USE OF PROCEEDS
We will not receive any proceeds from sales, if any, of our common stock
by the selling stockholders. The purpose of this offering is to register our
common stock for resale by the selling stockholders.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our capital stock.
We currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of the board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, general business condition and such other factors as the board of
directors may deem relevant.
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the Nasdaq National Market under the
symbol "CMTN" since our initial public offering in May 1999. As of February
29, 2000, there were 1,047 holders of record of our common stock. The following
table sets forth, for the periods indicated, the high and low sales prices for
our common stock as reported by the Nasdaq National Market:
SALE PRICE
-----------------------
1999 HIGH LOW
Second Quarter (from May 13, 1999) ... $ 39.75 $ 25.25
Third Quarter ........................ $ 67.50 $ 34.63
Fourth Quarter ....................... $ 54.75 $ 35.28
2000
First Quarter (through March 16, 2000) $ 115.00 $ 46.50
18.
SELECTED FINANCIAL DATA
In the table below, we provide you with our summary historical financial
data. We have prepared this information using our financial statements for the
years ended December 31, 1999, 1998, and 1997 and for the period March 11, 1996
(inception) to December 31, 1996. When you read this summary historical
financial data, it is important that you read along with it the historical
financial statements and related notes included herein. The information set
forth below is in thousands, except per share data.
<TABLE>
<CAPTION>
MARCH 11, 1996
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31
DECEMBER 31 ------------------------------
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue ........................... $ -- $ 211 $ 21,821 $ 112,723
Cost of revenue ....................... -- 1,717 12,400 53,002
--------- --------- --------- ---------
Gross profit (loss) ................. -- (1,506) 9,421 59,721
Operating expenses:
Research and development ........... 1,483 4,753 7,225 15,523
Sales and marketing ................ -- 1,510 5,363 16,158
General and administration ......... 553 1,928 3,428 5,998
Amortization of deferred stock
compensation...................... 189 1,490 3,929 5,431
--------- --------- --------- ---------
Total operating expenses . 2,225 9,681 19,945 43,110
--------- --------- --------- ---------
Income (loss) from operations ......... (2,225) (11,187) (10,524) 16,611
Interest and other income ............. 47 268 406 4,385
Interest expense ...................... (3) (97) (213) (289)
--------- --------- --------- ---------
Income (loss) before income taxes ..... (2,181) (11,016) (10,331) 20,707
Provision for income taxes ........... -- -- -- 8,490
Net income (loss) ..................... $ (2,181) $ (11,016) $ (10,331) $ 12,217
========= ========= ========= =========
Basic net income (loss) per share (1) . $ (5.84) $ (7.81) $ (3.87) $ .39
========= ========= ========= =========
Diluted net income (loss) per share (1) $ (5.84) $ (7.81) $ (3.87) $ .23
========= ========= ========= =========
Shares used in basic per share
calculations (1) .................... 374 1,410 2,666 31,289
========= ========= ========= =========
Shares used in diluted per share
calculations (1) .................... 374 1,410 2,666 52,282
========= ========= ========= =========
</TABLE>
AS OF DECEMBER 31,
-----------------------------------------
1996 1997 1998 1999
-------- -------- -------- --------
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term marketable investments $ 3,406 $ 9,517 $ 18,529 $117,169
Working capital ................... 366 7,653 24,326 132,187
Total assets ...................... 4,056 12,332 36,209 165,775
Long-term debt and capital lease
obligation, less current portion 262 735 1,965 4,044
Total stockholders' equity ........ 749 9,069 26,843 143,321
- ----------
(1) See Note 1 of the Notes to Financial Statements for a description
of the computation of basic and diluted net income (loss) per share and
the number of shares used to compute basic and diluted net income (loss)
per share.
19.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
OVERVIEW
- --------
From Copper Mountain's inception in March 1996 through December 1997, its
operating activities related primarily to developing, building and testing
prototype products; building its technical support infrastructure; commencing
the staffing of its marketing, sales and customer service organizations; and
establishing relationships with its customers. We commenced shipments of our
CopperEdge product family in September 1997, including line cards for these
Copper Edge systems and our CopperRocket DSL customer premise equipment, or DSL
CPE.
Our revenue is generated primarily from sales of our central office-based
equipment: our CopperEdge 200 DSL concentrators, or CE200, the related wide area
network cards, line cards and, to a lesser extent, from sales of our DSL CPE.
Additionally, we sell network management software which provides monitoring and
management capabilities for the CE200, revenues from which have not been
material to date. We also sell our CopperEdge 150 DSL concentrators, or CE 150,
to customers in the multiple tenant unit, or MTU, market.
For the year ended December 31, 1999, sales to our three largest customers
accounted for approximately 88% of our revenue, of which sales to NorthPoint
Communications, Inc., Rhythms NetConnections Inc., and Lucent Technologies, Inc.
accounted for approximately 37%, 28% and 23% 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 through strategic original equipment manufacturers and
distributors. We generally recognize revenue from product sales upon shipment if
collection of the resulting receivable is probable and product returns are
reasonably estimated. No revenue is recognized on products shipped on a trial
basis. Estimated sales returns, based on historical experience by product, are
recorded at the time the product revenue is recognized. To date, we have not
generated any revenues from international sources.
We expect our gross margin to be affected by many factors including
competitive pricing pressures, fluctuations in manufacturing volumes, costs of
components and sub-assemblies, costs from our contract manufacturers, the mix of
products or system configurations sold and the volume and timing of sales of
follow-on line cards for CE200 systems shipped in prior periods. Additionally,
our gross margin may fluctuate due to changes in our mix of distribution
channels. Currently, we derive the majority of our revenue from sales made
directly to telecommunications service providers. A significant increase in our
original equipment manufacturer revenue would adversely impact or reduce our
gross margin.
To date, gross margin on sales of our CE200 and related wide area network
and line cards, typically sold as a combined system, has been higher than gross
margin on sales of DSL CPE. Furthermore, combined systems are not generally
fully-populated (i.e., less than the eight line cards which each system can
support or a capacity of 192 subscribers) when sold. When our customers add more
subscribers than are supported in the initial configuration, we expect that
these customers will purchase additional line cards from us to increase
subscriber capacity. The sale of additional line cards generates higher gross
margin than the initial sale of combined systems. Gross margin on our DSL CPE is
expected to decline in the future and we expect to face pricing competition
which may result in lower average selling prices for these products as other
suppliers of Copper Mountain compatible CPE enter the market. As the
telecommunications service providers that purchase our products make their
services broadly available to their customers, we expect our product mix to
continue to shift more heavily toward sales of the Copper Edge family and the
related line cards. We expect gross margin for our CE200 systems and follow-on
line cards to improve due to lower component costs and improved costs from our
subcontractors as our revenue from these products increases. However, we cannot
be sure that we will achieve or maintain the revenue volumes required for these
increases in gross margin.
20.
We outsource most of our manufacturing and supply chain management
operations, and we conduct manufacturing engineering, quality assurance, program
management, documentation control and product repairs at our facility in San
Diego, California. Accordingly, a significant portion of our cost of revenue
consists of payments to our current contract manufacturer, Flextronics
International Ltd. We selected Flextronics as our manufacturing partner with the
goal of lowering per unit product costs as a result of manufacturing economies
of scale. However, we cannot assure you when or if such cost reductions will
occur. The failure to obtain such cost reductions could materially adversely
affect our gross margins and operating results.
Research and development expenses consist principally of salaries and
related personnel expenses, consultant fees and prototype expenses related to
the design, development and testing of our products and enhancement of our
network management software. We expense all research and development expenses as
incurred. We believe that continued investment in research and development is
critical to attaining our strategic product and cost-reduction objectives and,
as a result, we expect these expenses to increase in absolute dollars in the
future.
Sales and marketing expenses consist of salaries, commissions and related
expenses for personnel engaged in marketing, sales and field service support
functions, as well as trade shows and promotional expenses. We intend to invest
in marketing, business development activities, 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 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 four years. We recorded total deferred stock
compensation of $1.8 million, $2.4 million, $11.1 million and $234,000 in 1996,
1997, 1998, and 1999, respectively, and amortized $189,000, $1.5 million, $3.9
million, and $5.4 million in 1996, 1997, 1998 and 1999, respectively, leaving
approximately $4.6 million to be amortized in future periods.
21.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain
income data for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0%
Cost of revenue 813.7 56.8 47.0
-------- ----- ----
Gross profit (loss) (713.7) 43.2 53.0
Operating expenses:
Research and development 2,252.6 33.1 13.8
Sales and marketing 715.6 24.6 14.3
General and administration 913.8 15.7 5.4
Amortization of deferred stock compensation 706.2 18.0 4.8
-------- ----- ----
Total operating expenses 4,588.2 91.4 38.3
-------- ----- ----
Income (loss) from operations (5,301.9) (48.2) 14.7
Interest and other income 127.0 1.9 3.9
Interest expense (46.0) (1.0) (.3)
-------- ----- ----
Income (loss) before income taxes (5,220.9) (47.3) 18.3
Provision for income taxes --- --- 7.5
-------- ----- ----
Net income (loss) (5,220.9)% (47.3)% 10.8%
-------- ----- ----
</TABLE>
YEARS ENDED DECEMBER 31, 1998 AND 1999
- --------------------------------------
Net Revenue. Our revenue increased from $21.8 million in 1998 to $112.7
million in 1999. This increase was primarily due to the increased commercial
acceptance of DSL technology, the commercial market acceptance of our products,
and investments made in our marketing and sales organization. Incremental sales
made to our established customers accounted for approximately $56.4 million of
the increase with the remaining $34.5 million of the increase being derived from
new customer relationships. Sales to our three largest customers, NorthPoint,
Rhythms and Lucent, increased from $13.2 million, $4.0 million and zero,
respectively, for the year ended December 31, 1998 to $42.2 million, $32.0
million and $25.4 million, respectively, for the year ended December 31, 1999.
Gross Profit (Loss). Our gross profit increased from $9.4 million in
1998 to $59.7 million in 1999. The increase in gross profit was primarily the
result of an increase in net revenue for the period. Gross profit percentages
also increased on a year-over-year basis, from 43.2% for the year ended December
31, 1998 to 53.0% for the year ended December 31, 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 $7.2 million in 1998 to $15.5 million in 1999. This increase was
primarily due to an increase in personnel expenses related to an increase in our
engineering staff, increased prototype material costs, increased facility
related costs, and higher depreciation related to an increase in capital
equipment. Research and development expenses as a percentage of net revenue
decreased from 33.1% in 1998 to 13.8% in 1999. The decrease in research and
development expense as a percentage of net revenue was primarily the result of
an increase in our net revenue during 1999. We intend to increase expenditures
in research and development programs in future periods for the purpose of
enhancing current products, reducing the cost of current products and developing
new products.
22.
Sales and Marketing. Our sales and marketing expenses increased from
$5.4 million in 1998 to $16.2 million in 1999. This increase was primarily the
result of an increase in personnel expenses for sales and marketing staff,
increased expenses related to customer support, increased sales commissions
associated with higher net revenue, and increased promotional and product
marketing expenses. The decrease in sales and marketing expense as a percentage
of net revenue was primarily the result of an increase in our net revenue in
1999.
General and Administrative. Our general and administrative expenses
increased from $3.4 million in 1998 to $6.0 million in 1999. This increase was
primarily the result of increased staffing for finance, management information
systems, and human resources, and growth in recruiting and facility related
expenses. General and administrative expenses as a percentage of net revenue
decreased from 15.7% for 1998 to 5.4% for 1999. This decrease was primarily the
result of an increase in our net revenue in 1999.
Interest and Other Income. Interest and other income increased from
$406,000 in 1998 to $4.4 million in 1999. This increase reflects an increase in
interest income generated from higher average cash balances and investments in
marketable securities in 1999, which included the proceeds from our initial
public offering completed in May of 1999.
Income taxes. Our effective income tax rate for 1999 was 41%, which
approximates the combined federal and California (net of federal benefit)
statutory rate. During 1999, our utilization of net operating loss and tax
credit carryforwards was limited under sections 382 and 383 of the Internal
Revenue Code. We have previously not recorded a tax provision (benefit) due to
our historical net losses. Additionally, the realization of our carryforwards is
considered uncertain and as a result a full valuation allowance has been
established which offsets these deferred tax assets for all periods presented.
YEARS ENDED DECEMBER 31, 1997 AND 1998
- --------------------------------------
Net Revenue. Our revenue increased from $211,000 in 1997 to $21.8
million in 1998. This increase was primarily due to the successful transition
from development of our products to commencement of commercial operations and
the general release of our products. In 1998, we successfully introduced our 24
port SDSL line card, our 24 port IDSL line card, our frame relay-based wide area
networks card and our IDSL CPE.
Gross Profit (Loss). Our gross profit increased from a loss of $1.5
million in 1997 to a profit of $9.4 million in 1998. The increase in gross
profit was primarily the result of the absorption of overhead associated with
greater unit volumes and increased economies of scale. As a result, our gross
margin in 1998 improved substantially over 1997.
Research and Development. Our research and development expenses
increased from $4.8 million in 1997 to $7.2 million in 1998. This increase in
our research and development expenses was related to increases in personnel and
personnel related costs, prototype material expenses, contract development
expense as well as expenses related to the completion and commercial release of
our initial products.
Sales and Marketing. Our sales and marketing expenses increased from
$1.5 million in 1997 to $5.4 million in 1998. This increase was primarily a
result of an increase in personnel and personnel-related costs, including
increases in staffing for marketing program management, product marketing,
account management, customer support and direct sales as well as a substantial
increase in sales commissions. To a lesser extent, the increase resulted from
higher trade show and marketing communications expenses.
General and Administrative. Our general and administrative expenses
increased from $1.9 million in 1997 to $3.4 million in 1998. This increase is a
result of an increase in personnel costs for executive officers and support
staff, legal, accounting and consulting fees. The increase in our general and
administrative staffing, was required to support the growth in our operations,
commercial activities and customer base.
23.
Interest and Other Income. Interest and other income increased from
$268,000 in 1997 to $406,000 in 1998. This increase reflects an increase in
interest income generated from higher average cash balances and investments in
marketable securities in 1998.
RECENT EVENTS
On February 29, 2000, we acquired OnPREM Networks Corporation, a company
developing products for the multi-tenant unit market. Based on the historical
financial statements of Copper Mountain and OnPREM, and giving effect to the
merger as a purchase of OnPREM by Copper Mountain and the costs associated with
the consummation of the merger, pro forma combined condensed data has been
derived to show what our statement of operations and balance sheet data would
have been for 1999 if the merger had been consummated on January 1, 1999. Our
pro forma net revenue for 1999 would have been $112.7 million and we would have
had a pro forma net loss of $11.3 million. Our pro forma net loss, basic and
diluted, would have been $0.35. These pro forma basic and diluted per share
calculations were reached assuming 32.6 million shares outstanding on December
31, 1999. Our cash and cash equivalents and short-term marketable investments
would have been $118.9 million, and we would have had total assets of $233.8
million and stockholders' equity of $209.0 million. As of December 31, 1999, our
tangible book value per common share, basic, would have been $2.94 and our
tangible book value per common share, diluted, would have been $2.46. The pro
forma basic book value calculation assumes a share number of 48.8 million and
the pro forma diluted book value calculation assumes a share number of 58.3
million. This pro forma combined condensed financial data is illustrative only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated on January 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through April 1999, we have financed our operations
primarily through the sale of preferred equity securities. In total, we raised
approximately $44.5 million, net of fees and expenses, through the sale of
preferred equity. In May 1999, we closed our initial public offering with
proceeds, net of underwriting fees, of approximately $89.9 million. We have also
utilized available financing for the purchase of capital equipment.
At December 31, 1999, we had cash and cash equivalents of $25.4 million,
short-term marketable investments of $91.8 million and long-term marketable
investments of $5.1 million. We have a $5.0 million financing agreement with a
bank which allows us to finance the purchase of capital equipment. As of
December 31, 1999 we had utilized $4.7 million of the available credit under the
financing agreement.
Cash provided by or (used in) operating activities for the years ended
December 31, 1999, 1998 and 1997 was $20.3 million, ($14.3) million and ($8.0)
million, respectively. The relative increase in cash provided by operating
activities for the year ended December 31, 1999 compared to the prior year was
primarily the result of the change in net income to $12.2 million in 1999
compared to a net loss of loss of $10.3 million in 1998. Additionally, the
company's provision for income tax for 1999 does not include $9.4 million of tax
benefits generated in 1999 as a result of sales of Copper Mountain stock by
employees in disqualifying disposition transactions. The relative increase in
cash used for operating activities for the year ended December 31, 1998 compared
to the prior year was primarily due to increases in accounts receivable,
inventory and other assets, as a result of the introduction of and growth in
demand for our products. This increase was partially offset by increases in
accounts payable and other accruals, as well as a $685,000 decrease in the net
loss.
Cash used in investing activities for the years ended December 31, 1999,
1998 and 1997 was $92.6 million, $12.1 million and $1.5 million, respectively.
The relative increase in cash used for investing activities for the year ended
December 31, 1999 compared to the prior period was the result of net purchases
of marketable investments, and to a lesser extent, the purchase of computers and
other equipment. The relative increase in cash used for investing activities for
the year ended December 31, 1998 compared to the prior year was primarily due to
the purchase of $10.9 million in short-term marketable investments, which was
partially offset by a decrease in the amount of equipment purchased.
24.
Cash provided by financing activities for the years ended December 31,
1999, 1998 and 1997 was $90.0 million, $24.5 million and $15.6 million,
respectively. The relative increase in cash provided by financing activities for
the year ended December 31, 1999 compared to the prior year was primarily due to
the receipt of the proceeds from our initial public offering. The relative
increase in cash provided from financing activities for the year ended December
31, 1998 compared to the prior year was primarily due to $24.1 million in net
proceeds from an equity financing in October 1998.
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 December 31, 1999, the full amount of
funds available under the equipment loan had been utilized. As of December 31,
1999, the Company had $316,000 available for future borrowings under the capital
lease agreement. The borrowings under the equipment loans and the capital lease
agreement are to be repaid in 48 equal monthly installments and accrue interest
at 10.8%. 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. See Notes 5, 6 and 8 of Notes to
Financial Statements. Our future capital requirements will depend upon many
factors, including the timing of research and product development efforts and
expansion of our marketing efforts. We expect to continue to expend significant
amounts on property and equipment related to the expansion of facility
infrastructure, computer equipment and for research and development laboratory
and test equipment to support on-going research and development operations.
In future periods, we generally anticipate significant increases in working
capital on a period-to-period basis primarily as a result of planned increased
product revenue. In conjunction with the expected increase in revenue, we expect
higher relative levels of inventory and accounts receivable. While we also
expect an increase in accounts payable and other liabilities, we do not expect
that they will offset the increases in inventory and accounts receivable.
We believe that our cash and cash equivalents balances, short-term
marketable investments and funds available under our existing credit facilities
will be sufficient to satisfy our cash requirements for at least the next 12
months. Our management intends to invest our cash in excess of current operating
requirements in interest-bearing, investment-grade securities.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $100,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, it internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
25.
SUMMARIZED QUARTERLY DATA (UNAUDITED)
The following tables present unaudited quarterly financial information for
the eight quarters ended December 31, 1999. We believe this information reflects
all adjustments (consisting only of normal recurring adjustments) that we
consider necessary for a fair presentation of such information in accordance
with generally accepted accounting principles. The results for any quarter are
not necessarily indicative of results for any future period. (in thousands,
except per share data):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
Net revenue $ 13,217 $ 22,890 $ 32,016 $ 44,601
Gross profit 6,833 12,075 16,999 23,815
Income (loss) from operations (1,135) 2,545 6,189 9,011
Net income (loss) (1,036) 2,343 4,646 6,264
Basic net income (loss) per share (1) (0.24) 0.09 0.10 0.13
Diluted net income (loss) per share (1) (0.24) 0.05 0.08 0.11
1998
Net revenue $ 317 $ 1,281 $ 5,556 $ 14,667
Gross profit 100 486 2,197 6,638
Loss from operations. (3,367) (3,545) (3,210) (402)
Net loss (3,287) (3,545) (3,257) (242)
Basic net loss per share (1) (1.54) (1.44) (1.16) (0.07)
Diluted net loss per share (1) (1.54) (1.44) (1.16) (0.07)
</TABLE>
- ----------
(1) Basic and diluted net income (loss) per share computations for each quarter
are independent and may not add up to the net income (loss) per share
computation for the respective year. Net income (loss) per share data for
all periods presented has been adjusted to reflect the two-for-one stock
dividend that was effective December 10, 1999. See Note 1 and Note 7 of
Notes to the Financial Statements for an explanation of the determination
of basic and diluted net income (loss) per share.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET INDEX
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 December 31, 1999.
26.
BUSINESS
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.
OVERVIEW
Copper Mountain supplies Digital Subscriber Line (DSL) communications
products to telecommunications service providers allowing them to effectively
utilize the existing copper infrastructure to deliver high-speed data and voice
services to their customers. Copper Mountain designs, manufactures, sells and
supports these products and believes the demand for high speed access solutions
which are enabled by such products is significant and will continue to grow with
the use of the Internet, the proliferation of data intensive applications and
the proliferation of and corporate networking applications.
From our inception in March 1996 through December 1997, our operating
activities related primarily to developing, building and testing prototype
products; building our technical support infrastructure; commencing the staffing
of our marketing, sales and customer service organizations; and establishing
relationships with our customers. We commenced shipments of our CopperEdge
product family in September 1997, including the Copper Edge 200 or CE200
concentrator, the related line cards and our CopperRocket DSL customer premise
equipment, or DSL CPE. During 1999, we introduced the CopperEdge 150 DSL
concentrator, or CE150, to support applications for users in the Multi-Tenant
Unit (MTU) market where our CE150 is deployed within a building which houses
multiple small to medium sized businesses. Prior to 1999, we have incurred
significant losses on an annual basis and as of December 31, 1999, we had an
accumulated deficit of $11.3 million. In February 2000 we purchased OnPREM
Networks Corporation, a developer of highly integrated DSL solutions for the
small and medium MTU market. To date OnPREM's operations have consisted
primarily of developing, building and testing prototype products. Commercial
shipments of the OnPREM product line are expected to begin in 2000.
Our revenue is generated primarily from sales of our central office based
equipment: our CE200s, the related wide area network cards, line cards and, to a
lesser extent, from sales of our DSL CPE. Additionally, we 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, 1999, sales to our three largest customers accounted for
approximately 88% of our revenue, of which sales to NorthPoint Communications,
Inc., Rhythms NetConnections Inc. and Lucent Technologies, Inc. accounted for
approximately 37%, 28%, and 23% 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 from
these three customers for the foreseeable future.
27.
We market and sell our products directly to telecommunications service
providers, through strategic original equipment manufacturers and through
distributors. Currently, we derive approximately 76% of our revenue from sales
made directly to telecommunications service providers.
SUMMARY OF 1999 SIGNIFICANT EVENTS
. The closing of our initial public offering, which raised approximately $90
million, net of underwriting fees.
. The announcement of the CopperEdge 150 DSL Concentrator, a new member of
the CopperEdge family that is optimized for use in mid-sized multi-tenant
unit buildings such as office buildings, business parks, multi-family
apartments, campuses, and hotels. The CopperEdge 150 system has since been
deployed by several MTU-focused service providers.
. The introduction of our AutoDetect(TM) SDSL capability, which automatically
learns the characteristics of the local loop and determines the maximum
SDSL speed that the line can sustain, thereby eliminating manually
intensive testing process and enabling cost-effective accelerated
deployments.
. The addition of product functionality enhancements to the CopperEdge
platform to support toll-quality voice services over DSL, and the
introduction of the CopperVIP(TM) (voice in packets) interoperability
program.
. The announcement of a technology licensing and marketing partnership with
TollBridge Technologies for delivering IP-based multi-line voice over DSL
broadband access. In addition, we unveiled partnerships with other leading
voice gateway providers Jetstream Communications and CopperCom Inc.
. The confirmation by the Dell'Oro Group, in a report issued on February 15,
2000, that our revenues accounted for 42.5 percent of total business DSL
equipment sales in 1999. In addition, we are classified in the study as the
leader for the number of business central office (CO) ports shipped in
1999, accounting for 42.9 percent of total ports delivered. In a prior
report published by Dell'Oro on May 24, 1999, we were ranked the leader in
both categories for 1998 as well.
. The results of a survey by Infonetics released in May 1999, which ranked us
first with Competitive Local Exchange Carrier (CLEC) service providers with
respect to their anticipated purchases of DSL equipment through May 2000.
. The announcement of two new Inverse Multiplexing (IMUX) customer premise
equipment (CPE) devices that can bond up to eight copper pairs to deliver
high-bandwidth services at speeds up to 12 Mbps.
. The announcement of a 24-port, G.lite line card for the CopperEdge family
of DSL concentrators that complies with the G.lite G.992.2 standard
ratified by the International Telecommunication Union (ITU) in 1999. This
line card allows service providers to support high-speed data and POTS
voice, integrated over one line, to the residential DSL market.
. The shipment in the fourth quarter of 1999 of over 1,500 CopperEdge DSL
concentrators bringing the cumulative figure to over 4,600 DSL
concentrators shipped since our inception, with a potential capacity in
excess of 870,000 DSL ports.
. The formation of the CopperPowered Hotel(TM) initiative, an industry-wide,
open coalition with leading Service Selection Gateway and equipment vendors
serving the hotel industry. With this initiative, we continued our
expansion to the multi-tenant unit and hospitality marketplaces.
28.
SUMMARY OF 2000 SIGNIFICANT EVENTS
. The acquisition of OnPREM Networks Corporation in February 2000 which
expands our addressable market, and distinguishes Copper Mountain as the
only DSL equipment manufacturer with a complete line of cost-effective low,
medium, and high-density DSL solutions and a dedicated MTU business unit
focused on capturing MTU market share.
. The announcement by Fastwire.com, McLeodUSA, Inc., and Maverix.net, Inc. of
their intentions to use our equipment to build their DSL networks.
. The formation of our Singapore office. The office will serve the
Asia/Pacific region, representing Copper Mountain's complete line of
CopperEdge(R) concentrators as well as CopperRocket(R) and
CopperCompatible(TM) customer premise equipment (CPE) to established and
new Asia/Pacific-based carriers and service providers.
. The expansion of Copper Mountain's strategic alliance with 3Com
Corporation, which began reselling Copper Mountain's CopperRocket(R) 201
DSL customer premise equipment (CPE) as the 3Com SDSL and ISDL Modem in
early 1999, will now distribute the entire Copper Rocket product line under
the 3Com(R) brand, including integrated access devices (IADs) and inverse
multiplexing (IMUX) devices. 3Com will resell the CopperRocket product line
on an OEM basis. In addition, Copper Mountain and 3Com will collaborate on
the design of future DSL CPE products.
. The announcement by Copper Mountain and CoSine Communications of the
availability of the industry's first "IP intelligent edge" DSL solution
that will enable service providers to deliver advanced IP services over DSL
using their existing network infrastructures. The combined Copper
Mountain/CoSine intelligent edge solution provides carriers with a cost-
effective and scalable means of offering value-added services over DSL,
including secure IP virtual private networks (VPNs) and managed firewalls,
to tens of thousands of subscriber networks.
INDUSTRY BACKGROUND
Over the past few years, the volume of data traffic across public
communications networks has increased significantly due to the use of the
Internet as a communications and transaction medium. According to International
Data Corporation, the number of Internet users worldwide reached approximately
63 million in 1998 and is forecasted to grow to approximately 177 million by
2003. International Data Corporation also estimates that the value of goods and
services sold worldwide through the Internet will increase from $4 billion in
1998 to over $39 billion in 2003. In addition to electronic commerce, business
usage of web-based communications, remote access for teleworkers, applications
hosting and other services have generated enormous traffic for the existing
communications infrastructure. To meet this demand, service providers have
installed high-bandwidth fiber optic transmission equipment, high-speed switches
and core routers in backbone and interoffice networks.
In contrast to these core networks, which support digital transmission
speeds exceeding nine gigabits per second, or Gbps, most access networks, or
connections between subscribers and central offices, often called the "last
mile," are made through the copper infrastructure originally built to transmit
analog voice signals. In fact, over 140 million businesses and homes in the
United States are served by this copper infrastructure, and the worldwide
installed base of copper lines exceeds 700 million. We believe most business and
residential users have found narrowband access, using dial-up analog modems with
connection speeds that do not exceed 56.6 kilobits per second, or Kbps,
inadequate to meet their high-bandwidth requirements.
Until recently, local telephone companies such as the Regional Bell
Operating Companies and GTE Corporation, collectively the incumbent local
exchange carriers, or ILECs, were the exclusive operators of this last-mile,
copper wire-based infrastructure and primarily offered ISDN and T-1 services to
address the need for high-speed connectivity. These service offerings enable
symmetrical data transmission at rates up to 128 Kbps and 1.5 megabits per
second, or Mbps, respectively. ISDN, which requires the installation of special
equipment at each end of the copper access line, has achieved limited success
due to complexity and high cost of deployment. T-1 services
29.
provide 12 times the bandwidth of ISDN, but require expensive infrastructure
modification and investment. While there are various transmission media
alternatives for providing broadband connectivity, such as coaxial cable and
wireless, we believe none have the cost and coverage advantages of using the
existing copper infrastructure.
Digital Subscriber Line technology was developed to address the last-mile
bottleneck. While there are several variants of DSL implementations, they all
share several important advantages over traditional high-speed services
delivered over the copper infrastructure as well as cable and wireless broadband
alternatives.
. Guaranteed, Dedicated Bandwidth. DSL is a point-to-point technology
that allows for guaranteed levels of bandwidth. Because DSL
connections are dedicated to each user, DSL does not suffer from
service degradation as other subscribers are added to the system, and,
in addition, allows a higher level of security. Alternative broadcast
solutions, such as cable and wireless, are shared systems which suffer
service degradation and increase the risk of security breaches as
additional users share bandwidth.
. Low Cost. Because DSL uses the existing copper-based last-mile
connection, it can be significantly less expensive to deploy to
businesses and homes than other broadband solutions. In addition,
recent advances in semiconductor technology and industry
standardization have made the widespread deployment of DSL
increasingly economical to both service providers and subscribers.
. Universal Coverage. Since virtually all businesses and homes in the
United States already have installed copper wire connections, DSL
technologies can be made immediately available to a large percentage
of potential customers. In addition, the leading variants of DSL can
enable data transmission up to and beyond 20,000 feet without
requiring repeaters.
Despite the advantages of deploying DSL over existing copper
infrastructure, ILECs historically have largely sought to protect their existing
T-1 and ISDN businesses. In the mid-1990s, however, the prospect of greater
competition from cable operators deploying cable modems to deliver
high-bandwidth services prompted the ILECs to accelerate their investments in
those DSL technologies that appeared most appropriate for residential
subscribers. The ILECs promoted a DSL variant called asymmetrical DSL, or ADSL,
that permits one-way high-bandwidth data transfer. Most DSL vendors focused on
ADSL solutions for the residential market because consumers typically download
large quantities of data-intensive content from the Internet, while the amount
of data sent upstream by consumers is typically limited.
More recently, DSL transmission technology has been embraced by a new set
of telecommunications service providers that emerged as a result of the
Telecommunications Reform Act of 1996 (Telecom Act). The Telecom Act redefined
the competitive landscape in the telecommunications industry by creating a legal
framework for new service providers to provide competing local
telecommunications services. The Telecom Act also eliminated a substantial
barrier to entry for these competitive local exchange carriers, or CLECs, by
allowing them to use the existing copper-based network infrastructure built by
the ILECs.
The realization of all of the objectives of the Telecom Act, however, is
still subject to certain uncertainties, including:
. legal proceedings that will further define rights and duties under the
Telecom Act;
. actions or inactions by telephone companies or other carriers that
affect the pace at which changes contemplated by the Telecom Act will
occur;
. resolution of questions concerning which parties will finance such
changes; and
. other regulatory, economic and political factors.
30.
Since the implementation of the Telecom Act, some of the new CLECs have
focused on providing competitively priced, high-bandwidth connectivity for
business customers who typically had used T-1 lines from the ILECs to meet their
bandwidth needs or who used dial-up modems but are currently seeking
cost-effective broadband services. These CLECs are focused on providing DSL
solutions that meet the current needs of business subscribers and provide
flexibility for future services.
While many DSL equipment vendors focus on the needs of the residential
market, few focus on the unique needs of business subscribers. In particular,
CLECs are seeking equipment solutions that enable the deployment of
cost-effective, full-coverage, high-bandwidth data access services. Moreover, as
the demands of high-bandwidth users and technology mature, other
telecommunications service providers are also looking for vendors that can
effectively incorporate DSL into communications equipment solutions. Finally,
telecommunications service providers generally want their equipment providers to
support a variety of end-user devices. As the DSL market naturally evolves from
business to residential users, telecommunications service providers will require
equipment that enables them to provide high-speed services across their
subscriber base.
THE COPPER MOUNTAIN SOLUTION
We provide broadband access solutions based on DSL technology to
telecommunication service providers. Our solutions enable CLECs, ILECs and other
telecommunications service providers to provide high-speed, cost-effective,
last-mile connectivity over the existing copper wire telephone infrastructure to
the business, multiple tenant unit and residential markets. Our DSL solutions
provide the following key benefits:
Support for Business Applications. Our products enable CLECs, ILECs and
other telecommunications service providers to deliver business services such as
high-speed Internet access, corporate networking, teleworking and packet-based
voice solutions. We focused our initial service offerings on symmetrical data
transmission addressing the bi-directional bandwidth needs of business users
because relevant applications, such as e-mail, file transfer, web hosting and
corporate intranets, require subscribers to send as well as receive data. Our
CopperEdge DSL Concentrator provides multiple networking models and advanced
packet processing to meet the evolving needs of business subscribers by enabling
simultaneous support for Internet access, Frame Relay, virtual private network
(VPN) and voice-over-packet services.
Full Coverage DSL. Our products allow our service provider customers the
flexibility to reach their targeted subscribers. Our symmetric DSL, or SDSL,
service offering delivers symmetrical bandwidth up to 1.5 Mbps on a single
copper pair, and up to 12 Mbps using inverse multiplexing (IMUX) technology, to
distances up to 28,000 feet from the Central Office while supporting multiple
services over DSL, including Internet access, toll-quality voice services,
corporate VPNs, and Frame Relay. We also offer ISDN-based DSL, or IDSL, which is
the only variant of DSL that can reach those U.S. subscribers connected through
existing remote digital loop carriers without requiring an upgrade of these
remote systems.
Multi-Vendor Interoperability. We have partnered with third-party DSL
customer premise equipment manufacturers through the CopperCompatible program to
develop a broad line of customer premise equipment, or CPE, which are compatible
with our CopperEdge DSL concentrators. We provide CPE manufacturers with
interoperability specifications and intellectual property to assist their
development, and we run a test laboratory to certify the CopperCompatible status
of their products. This program gives telecommunications service providers
multiple sources of compatible CPE. Additionally, the Company has a
compatibility program, known as CopperVIP (Voice in Packets), which tests and
validates compatibility between the CopperEdge family of products and the
leading providers of voice gateways which facilitates the simultaneous delivery
of voice and data over our product platform.
Trouble-Free Operations. Our products are designed to reduce installation
time and support requirements for our telecommunications service provider
customers. Our CopperEdge 200 DSL concentrator is designed to meet the stringent
requirements of the telephone company central office environment. Each
concentrator supports full redundancy and is designed for easy support and
service. In addition, our products and management software are designed for and
proven in large-scale national deployments. Our initial service implementations,
SDSL and IDSL,
31.
are based on a mature protocol that is spectrally compatible to existing ISDN
and T-1 network elements which minimizes potential interference within the
central offices of host ILECs. Finally, we have reduced CPE deployment
complexity with a zero-installation "plug-and-play" CPE procedure that
eliminates end-user configuration, removes the need to send a technician to the
customer premise and provides centralized management and control.
Support for Multiple Services. Our platform is a highly-scalable and
cost-effective platform that addresses the strong demand for Internet access
services. In addition, the CopperEdge products maximize return on investment
through support of value added Frame Relay, VPN and voice services. Unlike most
DSL access multiplexer platforms, the CopperEdge solution delivers advanced
packet processing, class of service using weighted fair queuing, and subscriber
aggregation to support multiple simultaneous services.
STRATEGY
Our objective is to be the leading supplier of DSL solutions to
telecommunications service providers. The key elements of our strategy include:
Extend Position in the Business DSL Market. Since our inception, we have
focused on providing cost-effective solutions for telecommunications service
providers targeting business subscribers. Business users increasingly require
high-speed data services to conduct business, and non-DSL alternatives are often
expensive, complex and lack sufficient bi-directional bandwidth. We are
targeting telecommunications service providers focused on the business market,
including well-financed CLECs and other telecommunications service providers.
Currently, our major customers include NorthPoint Communications, Inc., Rhythms
NetConnections Inc., Lucent Technologies, Inc., DSL.NET, Onsite Access, and MCI
WorldCom, Inc. We will continue to focus on supporting the requirements of our
existing customers as well as providing solutions to existing and new carriers
that are focused on business users.
Expand Service Offerings Supported by Our Platform. We intend to
continue to add functionality and support for the multiple data and voice
services to increase the usefulness and performance of our products. We believe
that we have enhanced our core product offerings to support a variety of
services which offer better value to service providers and their end-user
customers. Our products are designed to support future services and technology.
In addition, we are developing new offerings with DSL technologies such as
full-rate ADSL, and plan to enhance our offerings as needed by subscribers and
service providers.
Leverage Original Equipment Manufacturer and Develop Relationships. We
have formed original equipment manufacturer relationships with Lucent
Technologies, Inc. and 3Com Corporation. Lucent currently resells our product
line as a co-branded sale. Under the original equipment manufacturer and
development agreement with 3Com, they may sell our CPE products directly or
through their distribution channels. We intend to leverage 3Com's broad
distribution network in the commercial and retail markets. We believe that our
current original equipment manufacturer and development relationships will
enhance our market position, and we will continue to seek additional original
equipment manufacturer relationships.
Target Multi-Tenant Building Deployments Outside the Central Office. In
addition to deploying DSL equipment in ILEC central offices for our CLEC and
other telecommunications service provider customers, we have deployed our DSL
150 concentrators in commercial office buildings and apartment and condominium
buildings. We believe that this market, known as the multi-tenant unit or MTU
market, will significantly expand the deployment of DSL technology. While we
believe that our current product offerings are well suited to this market, we
will continue to develop new products that will allow carriers to reduce the
cost of high-speed data access to tenants in these types of properties.
Recently, we completed the purchase of OnPREM Networks Corporation who has
developed a low to medium density DSL concentrator, which will complement our
existing product offerings. In addition, we are working with service providers
who are targeting multi-tenant property managers to focus on this emerging
market.
32.
Drive Interoperability. We actively support the interoperability of DSL
technology to facilitate faster and broader market acceptance. We have formed
the CopperCompatible program through which we offer licenses of our DSL CPE
technology to a number of third-party manufacturers of CPE equipment.
Additionally, we support the interoperability of DSL technology with voice
related equipment through our CopperVIP program. Under this program we work
directly with makers of voice equipment to achieve and maintain interoperability
with our CopperEdge products. Our efforts in the area of interoperability also
enables our technology to be combined with other networking products such as
routers, access and aggregation devices.
Address Emerging Opportunities in Residential Market. We believe that
with the continued deployment of alternative data-based networks,
telecommunications service providers will seek to offer DSL-based services
beyond the core market for business subscribers. Specifically,
telecommunications service providers will target residential subscribers seeking
high-speed access to public communications networks.
PRODUCTS
We provide end-to-end DSL solutions that enable service providers to deploy
high-bandwidth services over traditional copper wire telephone infrastructure.
Our product family is designed to offer telecommunication service providers
flexibility in network implementation as well as a wide range of subscriber
equipment offerings. Telecommunications service providers using our products can
allow subscribers access to a full range of DSL services at rates up to 25 times
faster than the current speed (56.6 Kbps) of existing analog modems. Our
products are scalable to enable carriers to cost effectively deploy DSL services
on a selective, regional basis or on a national level addressing thousands of
subscribers. Our products are designed to support the various network
architectures, wide-area network (WAN) interfaces and deployment models of our
service provider customers. Our solution consists of the following product
lines:
. CopperEdge DSL concentrators: Telecommunications service providers
install CopperEdge products in their co-location areas within ILEC
central offices and in multi-tenant buildings to deliver services to
their end user customers.
. CopperRocket DSL CPE: Subscriber connection to the service provider
network is provided at the subscriber's premises with CopperRocket DSL
CPE.
. CopperView Network Management Software Tools: Our network management
tools enable telecommunications service providers to manage their
Copper Mountain DSL equipment as well as configure and provision
subscriber services.
Because of the large scale deployment of DSL equipment by our CLEC
customers, our shipments of the CE 200 DSL concentrators and the related line
and WAN interface cards have accounted for substantially all of our revenue to
date.
COPPEREDGE 200 DSL CONCENTRATORS
- --------------------------------
Our 192-port, high density DSL concentrator, the CopperEdge 200, or CE200,
is a carrier-class platform designed specifically for ILEC central office
environments, and meets or exceeds industry standards, and applicable regulatory
requirements. The CE200 can be deployed in a central office environment or
within multi-tenant buildings and consists of a modular chassis containing power
supplies, control system, wide area network interface modules and DSL line
cards. All line cards, indicators and switches are accessible from the front of
the system, consistent with current telco industry practices. The following are
characteristics of the CE200:
. contains redundant power supplies that can be replaced without
interrupting power to the chassis to ensure high-availability for
subscriber services;
. supports a range of interfaces for wide area network connections;
33.
. supports multiple advanced networking models implemented in the
control system, which can be used concurrently including Frame Relay
Multiplexing, Frame Relay to ATM interworking, Layer 3 IP multiplexing
and Layer 2 Ethernet frame multiplexing;
. contains up to 8 line cards containing DSL interfaces which connect to
the subscriber DSL CPE equipment.
SDSL Line Cards. Our SDSL line cards use technology that is already
widely deployed in access networks, enhancing the ability of
telecommunications service providers to deploy compatible solutions. Each
SDSL line card provides 24 ports, each of which can provide service to a
subscriber network at speeds between 160 Kbps and 1.544 Mbps over distances
between 22,000 feet and 9,100 feet, respectively.
IDSL Line Cards. For subscribers who can only be served over ISDN
capable copper lines we provide 24 port IDSL line cards. These line cards
deliver service at speeds between 64 Kbps and 144 Kbps up to a distance of
18,000 feet from the central office. The use of repeaters will increase the
reach to over 30,000 feet.
G.lite Line Cards. Our recently announced g.lite line card will
support the International Telecommunication Union (ITU) standard G.9922 or
g.lite standard. This 24 port line card will support concurrent telephone
and data services at downstream speeds ranging from 32 kbps to 1.536 Mbps
and upstream speeds ranging from 32 kbps to 512 kbps extending to a maximum
distance of 19,000 feet.
COPPEREDGE 150 DSL CONCENTRATORS
- --------------------------------
Copper Mountain's mid-density DSL concentrator, the CopperEdge 150, or
CE150, is a DSL concentrator optimized for use in Multi-Tenant Unit (MTU)
Buildings. The CopperEdge 150, available in configurations supporting up to 48
end user customers, offers symmetric bandwidth at selectable speeds ranging from
128 kbps to 1.5 Mbps. Service providers use the CopperEdge 150 to deliver
multiple high-bandwidth services concurrently, including Internet access,
corporate virtual private networks (VPNs), and Frame Relay services, as well as
PBX extension and other voice services.
OnPREM 2400 MTU CONCENTRATOR
- ----------------------------
Copper Mountain's mid to low-density concentrator, the OnPREM 2400, or OP
2400, is a DSL concentrator optimized for use in small and medium MTU buildings.
The OP 2400 is available in configurations supporting up to 24 end user
customers, offers symmetric bandwidth at selectable speeds ranging from 64 kbps
to 2.3 Mbps. Network Address Translation (NAT) enables service providers to
offer flexible services while preserving internet protocol address space and
enabling subscribers to "hide" computers and servers from general access for
additional security.
COPPERROCKET CUSTOMER PREMISE EQUIPMENT
- ---------------------------------------
The CopperRocket family of CPE products consists of SDSL and IDSL modems
and SDSL and IDSL inverse mutiplexers (IMUX). These CPE products can operate at
multiple transmission speeds and distances to satisfy the price and performance
needs of each subscriber. The CopperRocket is a "plug-and-play" device. Unlike
ISDN modems, there are no hardware switches, configuration parameters or
end-user software configuration required. Copper Mountain's ZIP! (Zero
Installation Procedure) feature enables the CopperRocket to communicate with a
CopperEdge DSL concentrator and automatically download all the necessary
configuration parameters to immediately begin full operation.
The CopperRocket operates over standard copper telephone wire and provides
dedicated, full-duplex throughput at multiple speeds to support network
activities such as file transfers, intranet access and Internet Web browsing.
The CopperRocket's multi-speed DSL feature enables service providers to remotely
adjust line speed based upon subscriber requirements with no additional
investment or software upgrade by the service provider. In
34.
addition to offering our own CPE products, we work with third-party providers to
offer a broad range of interoperable customer premise equipment through our
CopperCompatible program.
COPPERVIEW NETWORK MANAGEMENT TOOLS
- -----------------------------------
Our CopperView suite of network management tools are used to configure and
manage our DSL solutions. This set of tools provides user interfaces necessary
to manage large, geographically separated DSL concentrator networks, individual
concentrators and simple on-site or remote management. Because the CopperEdge
DSL concentrator also manages CopperRocket modems by proxy, CopperView allows
carriers to manage their DSL networks end-to-end from one site.
. The CopperView DSL Management System provides global management of
large networks of CopperEdge DSL concentrators with a simple,
intuitive user interface.
. The CopperView Element Management System provides a graphical user
interface which allows precise configuration and management of a
single CopperEdge DSL concentrator and its CPE.
. The CopperCraft text based interface provides a simple interface for
on-site technicians and for remote access to a DSL concentrator.
PRODUCT DEPLOYMENT
- ------------------
We sell our products for deployment into both central offices and
multi-tenant buildings. Telecommunications service providers may deploy in
either or both of these environments in order to reach their target market in
the most effective manner.
Central Office-Based DSL Service Deployment. Telecommunications Service
Providers may install our CopperEdge DSL concentrator product in a central
office in order to offer service to any subscriber served by that central office
(within the distance limitations of DSL service). Typically, the CLEC leases
from the ILEC a high-bandwidth trunk, usually a 45 Mbps DS-3 circuit, in order
to connect the DSL concentrator to the CLEC's regional switching office. The
CLEC then requests from the ILEC an individual copper loop to a subscriber, for
which the CLEC pays a monthly fee. The copper loop is provisioned through the
ILEC's distribution facilities out to the subscriber premise. The CLEC then
provisions the wiring inside the subscriber premise and installs the CPE.
CLECs or ILECs deploying DSL from central offices may elect do so in
selected central offices where the number of potential subscribers is highest,
or they may choose to cover a region by installing in all central offices in
that region. A CLEC may choose a regional deployment strategy or a nationwide
deployment strategy.
Multi-Tenant Building DSL Service Deployment. A telecommunications
service provider can deploy our CopperEdge DSL concentrators within multi-tenant
buildings in order to provide Internet access and other data and voice services
to the tenants of that building. For a CLEC or an independent service provider,
multi-tenant building deployment can provide access to DSL subscribers in a
highly selective manner without the high costs of central office collocation.
Inside the building, the service provider can utilize the existing telephone
wiring to deliver high-bandwidth connections to each tenant with no building
re-wiring expense. A high-bandwidth leased circuit or wireless transmitter on
the roof connects the building to the service provider's regional switching
office or point of presence. Tenants in the building can use a single,
high-bandwidth connection from the building to the service provider's switching
office, providing good application performance at a lower cost than the same
bandwidth dedicated to a single subscriber.
CUSTOMERS
In 1999, sales to our top three largest customers accounted for
approximately 88% of our revenue, of which sales to NorthPoint Communications,
Inc., Rhythms NetConnections, Inc. and Lucent Technologies, Inc., accounted for
approximately 37%, 28%, and 23%, of our revenue, respectively. While the level
of sales to any specific
35.
customer is anticipated to vary from period to period, we expect that we will
continue to have significant customer concentration for the foreseeable future.
The loss of a significant customer could have a material adverse effect on our
business.
STRATEGIC RELATIONSHIPS
We have established several strategic partnerships and licensing agreements
with leading CPE and voice gateway vendors to facilitate the deployment and
acceptance of our products and technology.
. Lucent. Under an original equipment manufacturer agreement, Lucent
combines our DSL equipment with its NetCare(R)installation, network
management and customer support professional services to create
turnkey DSL solutions for CLECs. Under the agreement Lucent will
co-brand and market our DSL equipment through November 2001. We have
agreed to manufacture, co-brand and sell our products to Lucent and to
provide Lucent with training, installation and technical support for
these products. Lucent also plans to offer our DSL equipment in
combination with some of its existing data networking, switching and
access products to enable service providers to create broader voice
and data network solutions that can evolve and grow with their
business.
. 3Com. 3Com has agreed to market our DSL CPE through November 2001.
Under this agreement we have agreed to manufacture, co-brand and sell
our products to 3Com and to collaborate on future development
projects. Additionally, this agreement calls for both companies to
co-market their DSL products. Moreover, 3Com may request to
manufacture its own DSL CPE products. Both parties have agreed to use
good faith efforts to effect such manufacturing license.
INTEROPERABILITY PARTNERSHIPS
We have established several CPE licensing relationships with certain
vendors through our CopperCompatible interoperability program in order to
promote the interoperability of our CopperEdge DSL concentrators with such
equipment. Under this interoperability program, licensees are allowed access to
our technology which can be used in the design of their CPE. These CPE licensing
relationships have been established with ADC Kentrox, Netopia, Cayman Systems,
Escalate Networks, and Ramp Networks, among others.
Our CopperVIP initiative, which falls under the CopperCompatible umbrella,
facilitates interoperability of customer premise equipment (CPE), Integrated
Access Devices (IADs), and Integrated Communications Platforms (ICPs) with voice
gateways from Copper Mountain's voice partners and Copper Mountain's widely
deployed DSL platform. Our voice partners include CopperCom, Inc., JetStream
Communications, and Tollbridge Technologies.
SALES AND MARKETING
We sell and market our products primarily through our direct sales
organization. Additionally, we have relationships with selected original
equipment manufacturers and distributors in order to expand our distribution
capabilities.
Direct Sales. Our direct sales responsibilities are divided into three
North American geographic regions: West, Central and East. Our sales effort is
directed by regional directors and sales managers who are responsible for
relationships with targeted customers. A key feature of our selling effort is
the relationships we establish at various levels in our customer's organization.
The sales management team for each customer is responsible for maintaining
contact with key individuals who have planning and policy responsibility within
the customer's organization. At the same time, our sales engineers work with
customers to sell our products at key levels throughout the customer's
organization. Direct sales accounted for approximately 77% of our revenue in
1999.
Original Equipment Manufacturer Sales. We have established key original
equipment manufacturer relationships with leaders in the telecommunications
equipment and customer premise equipment markets. We intend to maintain a
limited number of relationships with key strategic original equipment
manufacturers who may
36.
offer products or have existing customer relationships which may complement
ours. In line with our strategy to offer our telecommunications service provider
customers and their subscribers a broad line of CPE, we have entered into
several original equipment manufacturer relationships for our CopperRocket
product line and a number of interoperability partnerships with CPE providers.
We receive sales revenues from our original equipment manufacturer partners, but
do not currently receive royalty revenue from interoperability arrangements.
Marketing is structured along product and distribution channel lines for
each of our major product areas. For each major product area, we employ
dedicated product marketing and marketing program management specialists. The
corporate marketing staff coordinates activities among our various business
units and provides marketing support services, including marketing
communications, marketing research, trademark administration and other support
functions. Our marketing organization performs the following functions:
. develops specific marketing strategies for each product line;
. works with our direct sales force to develop key account and segmented
market strategies; and
. defines the functions and features of our product and service
offerings.
Marketing is responsible for sales support, contract negotiations, in-depth
product presentations, interfacing with operations, setting price levels to
achieve targeted margins, developing new services and business opportunities and
writing proposals in response to customer requests for information or
quotations.
CUSTOMER SERVICE AND SUPPORT
A high level of continuing service and support is critical to our objective
of developing long-term customer relationships. The majority of our service and
support activities are related to installation support and network configuration
issues. These services are provided by telephone and directly at customer
installations with resources from our customer support group based in San Diego,
California. To date, our revenues from on-site installation and technical
assistance has not been significant. In June 1998, we engaged Lucent NetCare(R),
Lucent's data communications service organization, to provide field installation
and maintenance support for our products.
We provide technical support for our products which have warranties of up
to 12 months, both directly and through our selected service subcontractors. We
have a variety of comprehensive and flexible hardware and software maintenance
and support programs available for products no longer under warranty, with
services ranging from time and materials remote service support to 24-hour
on-site support, depending on our customer's preferences. We also offer various
training courses for our third-party resellers and telecommunications service
provider customers. To date, revenues attributable to customer service and
support services has not been significant.
RESEARCH AND DEVELOPMENT
We believe that our future success depends on our ability to adapt to the
rapidly changing telecommunications environment, to maintain our significant
expertise in core technologies, and to continue meeting and anticipating our
customers' needs. We continually review and evaluate technological changes
affecting the telecommunications market and invest substantially in
applications-based research and development. We are committed to an ongoing
program of new product development that combines internal development efforts
with acquisitions, joint ventures and licensing or marketing arrangements
relating to new products and technologies from outside sources.
We have focused our recent research and development expenditures on
commercializing our DSL systems, including our CopperEdge solutions and
CopperRocket modems along with CopperView network management tools which support
these technologies. We believe that our extensive experience designing and
implementing high-quality network components has enabled us to develop
high-value integrated systems solutions. As a result of these development
efforts, we believe we have created an industry-leading platform for
cost-effective DSL delivery.
37.
COMPETITION
The telecommunications equipment industry is highly competitive, and we
believe that competition may increase substantially as the introduction of new
technologies, deployment of broadband networks and potential regulatory changes
create new opportunities for established and emerging companies in the industry.
In addition, a number of our competitors have significantly greater financial
and other resources than Copper Mountain to address new competitive
opportunities. We compete directly with other providers of DSL concentrators
including, Cisco Systems, Inc., Lucent Technologies, Inc., Alcatel S.A., Nokia
Corporation and Paradyne Corporation, among others. In addition, DSL as a
technology for deploying broadband connections is competing with alternative
technologies including ISDN, T-1 and wireless solutions. In the residential
market, we will compete against certain other companies, including companies
relying on coaxial cable infrastructure and cable modem technology.
The rapid technological developments within the telecommunications industry
have resulted in frequent changes to our group of competitors. The principal
competitive factors in our market include:
. brand recognition;
. key product features;
. system reliability and performance;
. pricing and vendor-sponsored financing;
. ease of installation and use;
. technical support and customer service; and
. size and stability of operations.
We believe our success in competing with other manufacturers of
telecommunications products depends primarily on our engineering, manufacturing
and marketing skills, the price, quality and reliability of our products and our
delivery and service capabilities. We may face increasing pricing pressures from
current and future competitors in certain or all of the markets for our products
and services.
We believe that technological change, the increasing addition of voice,
video and other services to networks, continuing regulatory change and industry
consolidation or new entrants will continue to cause rapid evolution in the
competitive environment of the telecommunications equipment market, the full
scope and nature of which is difficult to predict. Increased competition could
result in price reductions, reduced margins and loss of market share by us. We
believe regulatory change in the industry may create new opportunities for
suppliers of telecommunications equipment; however, we expect that such
opportunities may attract increased competition from others as well. We also
believe that the rapid technological changes which characterize the data
communications industry will continue to make the markets in which we compete
attractive to new entrants. There can be no assurance that we will be able to
compete successfully with our existing or new competitors or that competitive
pressures faced by us will not materially and adversely affect our business,
financial condition and results of operations.
MANUFACTURING
Our manufacturing operations consist primarily of supporting prototype
development, materials planning and procurement, final assembly, testing and
quality control. We use several independent suppliers to provide certain printed
circuit boards, chassis and subassemblies. We subcontract substantially all of
our manufacturing to one company, Flextronics International Ltd. located in
Freemont, California.
38.
Our manufacturing process enables us to configure our products to meet a
wide variety of individual customer requirements. We have initiated the process
of seeking International Standard Organization 9001 registration for quality
assurance in design, sale, production, installation and service. We plan to
strengthen manufacturing capability both in our existing facilities and through
expansion of activities with independent suppliers and manufacturers. Our future
growth will require an extension of existing internal and external manufacturing
resources, hiring of additional technical personnel, improved coordination of
supplier relationships with our inventory ordering and management practices, and
expansion of information systems to accommodate planned growth across these
areas.
We use a combination of standard parts and components, which are generally
available from more than one vendor, and three key components that are purchased
from sole or single source vendors for which alternative sources are not
currently available: two semi-conductor chips and a system control module. If
supply of these key components should cease, we would be required to redesign
our products. We are evaluating alternate source vendors for each of these key
components but these vendors may not meet our quality standards for component
vendors. While we work closely with some well-established vendors, we have no
supply commitments from our vendors and we generally purchase components on a
purchase order basis, as opposed to entering into long term procurement
agreements with vendors. To date, we have generally been able to obtain adequate
supplies in a timely manner from vendors or, when necessary, to meet production
needs from alternative vendors. We believe that, in most cases, alternative
supplies of standard parts and components can be identified if current vendors
are unable to fulfill our needs. However, delays or failure to identify an
alternate vendor, if required, or a reduction or interruption in supply, or a
significant increase in the price of components would materially and adversely
affect our business, financial condition and results of operations and could
impact customer relationships.
INTELLECTUAL PROPERTY
We rely on a combination of copyright, trademark, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect our
trade secrets and know-how. Although we employ a variety of intellectual
property in the development and manufacturing of our products, we believe that
none of such intellectual property is individually critical to our current
operations. Taken as a whole, we believe our intellectual property rights are
significant and that the loss of all or a substantial portion of such rights
could have a material adverse effect on our results of operations. There can be
no assurance that our intellectual property protection measures will be
sufficient to prevent misappropriation of our technology. In addition, the laws
of many foreign countries do not protect our intellectual properties to the same
extent as the laws of the United States. From time to time, we may desire or be
required to renew or to obtain licenses from others in order to further develop
and market commercially viable products effectively. There can be no assurance
that any necessary licenses will be available on reasonable terms.
EMPLOYEES
As of February 29, 2000, and including the employees we hired in connection
with our acquisition of OnPREM, we employed approximately 282 full-time
employees, including 57 in sales and marketing, 30 in manufacturing, 128 in
engineering, 47 in finance and administration and 20 in customer service. All of
our employees are located in the United States. None of our employees is
represented by collective bargaining agreements, and management considers
relations with its employees to be good.
PROPERTIES
We lease two facilities in Palo Alto, California. One facility is
approximately 14,000 square feet, which we use for administrative, sales and
marketing purposes. The lease for this facility expires in April 2001. The
second facility in Palo Alto is approximately 22,000 square feet which we use
for administration and research and development. The lease for this facility
expires in May 2007. We also lease an approximately 86,000 square foot facility
in San
39.
Diego, California, which is used for manufacturing, engineering and
administration. The current lease for this facility expires in July 2005. In
addition, we lease an approximately 11,000 square foot facility in San Diego,
California which we are currently subleasing. The lease for this facility
expires in August 2003. We also lease two facilities in Fremont, California for
our OnPREM operations. One facility, which we are currently attempting to
sublease, is approximately 5,000 square feet. The lease for this facility
expires in February 2002. The second Fremont facility is approximately 21,000
square feet. The lease for this facility expires in February 2005.
We are currently seeking additional facilities to meet the requirements
projected in our business plan.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
40.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Copper Mountain, the positions held
by them and their ages as of February 29, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard S. Gilbert.......... 47 President, Chief Executive Officer and Director
John A. Creelman............ 43 Vice President of Finance, Chief Financial Officer and Secretary
Joseph D. Markee............ 46 Chief Technical Officer and Chairman of the Board of Directors
Mark Handzel................ 44 Vice President of Quality and Customer Support
Steven Hunt................. 42 Vice President of Engineering
Michael Kelly............... 49 Vice President of Sales
Bryan Long.................. 41 Vice President of Marketing
Michael Staiger............. 35 Vice President of Business Development
Joseph Harrington........... 50 Vice President of Operations
Chris Carroll............... 41 Vice President of Human Resources
Diana Helfrich.............. 39 Vice President of Marketing Communications
Wilson O. Cochran, II....... 54 Vice President and General Manager, MTU Business Unit
Robert L. Bailey(1)......... 42 Director
Tench Coxe(1)............... 42 Director
Roger Evans(1).............. 54 Director
Richard H. Kimball(2)....... 43 Director
Raymond V. Thomas(2)........ 57 Director
Andrew W. Verhalen(2)....... 43 Director
</TABLE>
- ----------
(1) Member of compensation committee
(2) Member of audit committee
Richard S. Gilbert has served as President and Chief Executive Officer of
Copper Mountain since April 1998, and as a director of Copper Mountain since
August 1998. From July 1992 to April 1998, he worked for ADC Telecommunications
Inc., most recently as Senior Vice President and, concurrently, as President and
General Manager of its subsidiary, ADC Kentrox, a provider of high-speed access
equipment for global networks. Mr. Gilbert holds an MS in Computer Science from
Stanford University and a BA in Mathematics from the University of California at
Berkeley.
John A. Creelman has served as Vice President of Finance and Chief
Financial Officer of Copper Mountain since March 1998 and as Secretary of Copper
Mountain since February 1999. From July 1997 to March 1998, he worked as a
Financial Consultant to DataWorks Corporation, a developer of Enterprise
Resource Planning software. From July 1995 to May 1997, he served as Vice
President Finance and Chief Financial Officer of ESI Software, Inc., a provider
of Internet authoring software and services. From July 1994 to June 1995 he
served as Financial Controller at Western Digital Corporation, a manufacturer of
hard disk drives. From February 1992 to June 1994, he served as Director of
Finance at MTI Technology Corporation, a manufacturer of high-end storage
systems. Mr. Creelman holds an MBA and a BA in Social Sciences from the
University of California at Irvine.
Joseph D. Markee co-founded Copper Mountain in March 1996 and has served as
Chief Technical Officer of Copper Mountain since December 1998 and as Chairman
of the board of directors since inception. From Copper Mountain's inception in
March 1996 to April 1998, he served as its President and Chief Executive Officer
and from inception to February 1999, he served as Secretary of Copper Mountain.
In June 1987, he co-founded Primary Access, a remote access server company
acquired by 3Com Corporation. From June 1987 to January 1996, he served as Vice
President of Operations and Vice President of Support of 3Com Primary Access.
Mr. Markee holds a BS in Electrical Engineering from the University of
California at Davis.
41.
Mark Handzel co-founded Copper Mountain in March 1996 and has served as
Vice President of Quality and Customer Support since May 1998. From March 1996
to May 1998, he served as Vice President of Product Management of Copper
Mountain. From June 1994 to March 1996, he served as Director of Marketing and
Sales at Orckit Communications, a manufacturer of advanced DSL modems. From May
1993 to June 1994, he served as Vice President of Product Development at Coral
Systems, a provider of software products for the wireless telecommunications
industry. Mr. Handzel holds an MBA from the University of California at Irvine,
a MS in Computer Science from the University of California at Los Angeles and a
BA in Computer Science from the State University of New York at Potsdam.
Steven Hunt has served as Vice President of Engineering of Copper Mountain
since August 1996. From June 1980 to August 1996, he held various positions with
AT&T Bell Laboratories, most recently as Department Head of the Internetworking
Technology Department of Paradyne Corporation, which was then a subsidiary of
AT&T. Paradyne is a provider of internetworking product definition, development
and support. While at Paradyne, Mr. Hunt was responsible for the development of
broadband DSL products. Mr. Hunt holds an MSEE from Stanford University and a
BSEE from Drexel University.
Michael Kelly has served as Vice President of Sales of Copper Mountain
since April 1997. From November 1995 to March 1997, he served as Vice President
of Sales at Ramp/Trancell Networks, a developer of small business network
solutions. From September 1994 to October 1995, he served as Vice President of
Sales at CoroNet Systems, a developer of network management software. From
January 1994 to September 1994, Mr. Kelly served as Vice President of Sales at
Brixton Systems, a developer of software. Mr. Kelly holds an MS in Computer
Science from George Washington University, and a BA in General Studies from the
University of Maryland.
Bryan Long has served as Vice President of Marketing of Copper Mountain
since May 1998. From June 1997 to May 1998, he founded and served as marketing
consultant for the Apheta Group, a marketing consultant company. From January
1997 to June 1997, he served as Vice President, Marketing and Customer Support
of Verilink, Inc., a supplier of wide-area network access products. From July
1996 to December 1996, he served as Director, Global Alliance Business
Development of Cisco Systems Inc., a manufacturer of networking products. From
May 1991 until its acquisition by Cisco Systems, Inc. in July 1996, he served in
various positions at StrataCom, Inc., a developer of networking products, most
recently serving as Director, Business Development and previously serving as
Director of Marketing, Channel Development and Product Line Director, Enterprise
Networks. Mr. Long holds an MS in Management from the Massachusetts Institute of
Technology, and a BA in Mathematics from the University of Colorado.
Michael Staiger has served as Vice President of Business Development of
Copper Mountain since June 1998. From June 1996 to June 1998, he worked at Shiva
Corporation, a provider of direct-dial business access solutions, serving most
recently as Vice President of Business Development and previously as Senior
Director of Business Development. From its inception in August 1993 until its
acquisition by Shiva Corporation in June 1996, he served as a co-founder and
Vice President of Business Development of AirSoft, Inc., a developer of remote
access software. Mr. Staiger holds an MBA from the University of Chicago
Graduate School of Business and a BA in English from the University of Michigan.
Joseph Harrington has served as Vice President of Operations of Copper
Mountain since October 1998. From February 1996 to October 1998, he served as
Director of Operations of the Corollary Division of Intel Corporation, a
manufacturer of symmetric multi-processing computers and network communications
equipment. From June 1995 to February 1996, Mr. Harrington served as Director of
Production of the Symtak Division of Aetrium, Inc., a manufacturer of handlers
and test equipment for the integrated circuit industry.
Chris Carroll has served as Vice President of Human Resources of Copper
Mountain since October 1999. From May 1998 to October 1999, he was a Group
Director of Human Resources for ADC Telecommunications, a provider of
transmission and networking systems. He served as a Director of Human Resources
for Litton Data Systems, a division of Litton Industries, from March 1997 to May
1998. From March 1987 to March 1997, he served in various positions with SAIC, a
provider of information technology and system integration solutions, most
recently as a Vice President of Human Resources. Mr. Carroll holds an MBA from
the University of San Diego and a BS in Business Management from San Diego State
University.
Diana Helfrich has served as Vice President of Marketing Communications of
Copper Mountain since July 1997. From April 1996 to July 1997, she was the
principal of her own direct marketing and management consulting
42.
firm. From November 1991 to March 1996, she served as President and Managing
Director of the Council on Education in Management, an employment law educator.
Ms. Helfrich holds an MBA from St. Mary's College and a BA in English Literature
from the University of California at Berkeley.
Wilson O. Cochran, II has served as Vice President and General Manager of
Copper Mountain's MTU business unit since February 29, 2000. Mr. Cochran served
as President and Chief Executive Officer of OnPREM Networks Corporation from
August 1998 until February 29, 2000. From October 1997 to July 1998, Mr. Cochran
was a Management Consultant for The Capstone Group, a management consulting firm
for emerging growth companies. From July 1995 to September 1997, Mr. Cochran was
the Vice President of Business Development for Censtor Corporation, a developer
of thin film magnetic recording components for the data storage industry. Prior
to that time, Mr. Cochran served as the Vice President of Sales and Marketing
for StereoGraphics Corporation, a manufacturer of stereo visualization products
used in conjunction with work stations in vertical markets, as well as President
of Priam Systems Corporation, a data storage company. Mr. Cochran founded Domain
Technology, which went public in 1987.
Robert L. Bailey has served as a director of Copper Mountain since March
1999. Mr. Bailey has served as President and Chief Executive Officer of
PMC-Sierra, Inc., formerly Sierra Semiconductor, a leading maker of high speed
internetworking semiconductor products since July 1997. From November 1993 to
July 1997, Mr. Bailey served as President and Chief Executive Officer of
PMC-Sierra Ltd, a predecessor of PMC-Sierra, Inc. Mr. Bailey holds a BSEE from
the University of Bridgeport in Connecticut and an MBA from the University of
Dallas in Texas.
Tench Coxe has served as a director of Copper Mountain since March 1996.
Mr. Coxe joined Sutter Hill Ventures, a venture capital firm, in October 1987
and is currently a Managing Director of the General Partner of Sutter Hill
Ventures. Mr. Coxe currently serves as a director of Alteon WebSystems, Inc.,
Clarus Corporation, eLoyalty Corporation and NVIDIA Corporation and several
privately-held companies. Mr. Coxe holds an MBA from Harvard University and a BA
in Economics from Dartmouth College.
Roger Evans has served as a director of Copper Mountain since March 1996.
Mr. Evans joined Greylock Management Corporation in 1989 and is currently a
General Partner of Greylock Limited Partnership, Greylock Equity Limited
Partnership, Greylock IX Limited Partnership and Greylock X Limited Partnership,
each a venture capital firm. Mr. Evans is a director of Phone.com, Maker
Communications Inc. and several privately-held companies. Mr. Evans holds an MA
in Economics from King's College, Cambridge.
Richard H. Kimball has served as a director of Copper Mountain since
October 1998. Since 1995, Mr. Kimball has been a founding General Partner of
Technology Crossover Ventures, a venture capital firm. Preceding Technology
Crossover Ventures, Mr. Kimball spent more than ten years at Montgomery
Securities, where he was a Managing Director from 1991 until his departure. He
also serves on the board of directors of several privately-held technology
companies. Mr. Kimball holds an MBA from the University of Chicago and an AB in
History from Dartmouth College. He also serves on the board of directors of two
privately held companies.
Raymond V. Thomas has served as a director of Copper Mountain since March
1999. From February 1995 to January 2000, Mr. Thomas served as Vice President,
Finance and Chief Financial Officer of HNC Software Inc., a software company and
as secretary of HNC Software from May 1995 to January 2000. From May 1993 to
February 1995, he served as Executive Vice President and Chief Financial Officer
of Golden Systems Inc., a power supply manufacturer, and from September 1994 to
February 1995 he also served as Chief Operating Officer of Golden Systems. Mr.
Thomas holds a BS degree in industrial management from Purdue University.
Andrew W. Verhalen has served as a director of Copper Mountain since
February 1999. Mr. Verhalen has been a partner of Matrix Partners, a venture
capital firm, since April 1992. He also serves on the board of directors of
several privately-held technology companies. Prior to Matrix Partners, Mr.
Verhalen held senior management positions at 3Com Corporation and Intel
Corporation. Mr. Verhalen holds BSEE, MEng and MBA degrees from Cornell
University.
Messrs. Markee and Handzel are brothers-in-law. There are no other family
relationships between any of the directors or executive officers of the Company.
43.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an audit committee and a
compensation committee. The audit committee consists of Andrew W. Verhalen,
Richard H. Kimball and Raymond V. Thomas. The audit committee makes
recommendations to the board of directors regarding the selection of independent
auditors, reviews the results and scope of the audit and other services provided
by our independent auditors and reviews and evaluates our audit and control
functions.
The compensation committee consists of Tench Coxe, Roger Evans and
Robert L. Bailey. The compensation committee makes recommendations regarding our
1996 Equity Incentive Plan and makes decisions concerning salaries and incentive
compensation for our employees and consultants.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services
on the Board of Directors or any committee thereof, but directors may be
reimbursed for certain expenses in connection with attendance at board of
directors and committee meetings. All directors are eligible to participate in
our 1996 Equity Incentive Plan. Non-employee directors are eligible to
participate in our 1999 Non-Employee Directors' Plan.
BOARD-COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
44.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
awarded to, earned by, or accrued for services rendered to us in all capacities
during the years ended December 31, 1998 and 1999 by our Chief Executive Officer
and our four other most highly compensated executive officers. The compensation
described in this table does not include medical, group life insurance or other
benefits which are available generally to all our salaried employees and certain
perquisites and other personal benefits received which do not exceed the lesser
of $50,000 or 10% of any officer's salary and bonus disclosed in this table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES
ALL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) COMPENSATION($) OPTIONS (#) COMPENSATION($)
- ---------------------------- ---- ------- --------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Gilbert ..................... 1998 $185,358 $ 74,330 $ -- 1,689,290 $ 65,177
President and Chief Executive Officer 1999 218,315 154,000 -- -- 9,854
Michael Kelly .......................... 1998 130,863 160,000 559,230 300,000 --
Vice President of Sales ............. 1999 150,116 10,000 571,522 -- --
Joseph D. Markee ....................... 1998 157,256 40,000 -- -- --
Chief Technical Officer and ......... 1999 178,598 63,000 -- 240,000 --
Chairman of the Board of Directors
Bryan Long ............................. 1998 99,840 90,000 -- 676,584 --
Vice President of Marketing ......... 1999 159,266 56,000 -- -- --
Steven Hunt ............................ 1998 138,572 30,000 -- 150,000 --
Vice President of Engineering ....... 1999 149,605 52,500 -- -- --
</TABLE>
45.
STOCK OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
The following table sets forth certain information regarding options
granted to certain of our executive officers during the year ended December 31,
1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK APPRECIATION
SHARES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM ($)
OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------------------
NAME GRANTED (#) YEAR (%) SHARE ($) DATE 5% 10%
- ---- ----------- ---------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Joseph D. Markee 240,000 5.4% $6.00 03/25/09 $905,608 $2,294,989
</TABLE>
These options vest in equal installments each month over the four-year
period beginning on March 10, 2000. Options were granted at an exercise price
equal to the fair market value of our common stock, as determined by the board
of directors on the date of grant. In making this determination, the board
considered a number of factors, including:
. our historical and prospective future revenue and profitability;
. our cash balance and rate of cash consumption;
. the development and size of the market for our products;
. the status of our financing activities;
. the stability and tenure of our management team; and
. the breadth of our product offerings.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC. There can be no assurance provided to any
executive officer or any other holder of our securities that the actual stock
price appreciation over the option term will be at the assumed 5% and 10% levels
or at any other defined level.
46.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information as of December 31, 1999
regarding options held by certain of our executive officers. There were no stock
appreciation rights outstanding at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($)
ACQUIRED ON VALUE ----------------------- --------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- ------------ ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Gilbert 195,000 4,120,566 508,872 985,418 24,726,090 47,881,461
Michael Kelly 402,618 3,103,749 17,111 291,271 830,228 14,132,715
Bryan Long 78,400 3,407,281 189,415 408,769 9,203,675 19,862,086
Steven Hunt 420,000 3,547,199 100,000 200,000 4,860,000 9,720,000
</TABLE>
In the table above, the value of unexercised in-the-money options represent
the positive spread between the respective exercise prices of the outstanding
stock options and the $48.75 closing price of Copper Mountain's Common Stock on
December 31, 1999.
1996 EQUITY INCENTIVE PLAN
In August 1996, our board of directors adopted our 1996 Equity Incentive
Plan (the "1996 Plan"). A total of 15,746,766 shares of common stock are
currently reserved for issuance pursuant to the 1996 Plan. In addition, the 1996
Plan provides for automatic annual increases in the number of shares reserved
for issuance thereunder (beginning in 2000) equal to the least of: (i) 4% of
Copper Mountain's outstanding shares on a fully diluted basis taking into
account stock options and warrants and (ii) a lesser amount determined by the
board of directors. The 1996 Plan provides for the grant of options to our
directors, officers, key employees, consultants and certain advisors.
The 1996 Plan permits the granting of options intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code to employees (including officers and employee directors) and
nonstatutory stock options to employees (including officers and employee
directors), directors and consultants (including non-employee directors). In
addition, the 1996 Plan permits the granting of stock appreciation rights in
conjunction with or independently of options, as well as stock bonuses and
rights to purchase restricted stock. No person is eligible to be granted options
and SARs covering more than 1,000,000 shares of common stock in any calendar
year.
The 1996 Plan is administered by the board of directors or a committee
appointed by the board of directors. Subject to the limitations set forth in the
1996 Plan, the board of directors has the authority to select the persons to
whom grants are to be made, to designate the number of shares to be covered by
each stock award, to determine whether an option is to be an incentive stock
option or a nonstatutory stock option, to establish vesting schedules, to
specify the option exercise price and the type of consideration to be paid to us
upon exercise and, subject to certain restrictions, to specify other terms of
stock awards.
The maximum term of options granted under the 1996 Plan is ten years. The
aggregate fair market value, determined at the time of grant, of the shares of
common stock with respect to which incentive stock options are exercisable for
the first time by an optionee during any calendar year (under all such plans of
the Company and its affiliates) may not exceed $100,000, or the options or
portion thereof which exceed such limit (according to the order in which they
are granted) shall be treated as nonstatutory stock options. Incentive stock
options granted under the 1996 Plan generally are non-transferable. Nonstatutory
stock options are generally transferable. Options expire three months after the
termination of an optionee's service. In general, if an optionee is permanently
disabled or dies during his or her service, such person's options may be
exercised up to 12 months following such disability or 18 months following such
death.
47.
The exercise price of options granted under the 1996 Plan is determined by
the board of directors in accordance with the guidelines set forth in the 1996
Plan. The exercise price of an incentive stock option cannot be less than 100%
of the fair market value of the common stock on the date of the grant. The
exercise price of a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of grant. Options granted
under the 1996 Plan vest at the rate specified in the option agreement. The
exercise price of incentive stock options granted to any person who at the time
of grant owns stock representing more than 10% of the total combined voting
power of all classes of capital stock must be at least 110% of the fair market
value of such stock on the date of grant and the term of such incentive stock
options cannot exceed five years.
Any stock bonuses or restricted stock purchase awards granted under the
1996 Plan shall be in such form and will contain such terms and conditions as
the board of directors deems appropriate. The purchase price under any
restricted stock purchase agreement will not be less than 85% of the fair market
value of the common stock on the date of grant. Stock bonuses and restricted
stock purchase agreements awarded under the 1996 Plan are generally
transferable.
Pursuant to the 1996 Plan, shares subject to stock awards that have expired
or otherwise terminated without having been exercised in full again become
available for grant, but exercised shares that we repurchase pursuant to a right
of repurchase will not again become available for grant.
Upon certain changes in control, all outstanding stock awards under the
1996 Plan must either be assumed or substituted by the surviving entity. In the
event the surviving entity does not assume or substitute such stock awards, such
stock awards will be terminated to the extent not exercised prior to such change
in control.
As of December 31, 1999, we had outstanding options to purchase 10,055,562
shares of common stock under the 1996 Plan.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In March 1999, we adopted our 1999 Non-Employee Directors' Stock Option
Plan (the "Directors' Plan") to provide for the automatic grant of options to
purchase shares of common stock to our non-employee directors. The Directors'
Plan is administered by the board, unless the board delegates administration to
a committee of at least two disinterested directors.
A total of 720,000 shares of common stock has been reserved for issuance
under the Directors' Plan. Pursuant to the terms of the Directors' Plan:
. on the effective date of the Directors' Plan, each person who was then
a non-employee director was granted an option to purchase 60,000
shares of common stock;
. each person who, after the effective date of the plan, for the first
time becomes a non-employee director automatically will be granted,
upon the date of his or her initial appointment or election to be a
non-employee director, a one-time option to purchase 60,000 shares of
common stock; and
. on the date of each annual meeting of our stockholders commencing with
the 2000 annual meeting of stockholders, each person who was initially
elected or appointed to be a non-employee director at least six months
prior to the date of such annual meeting automatically will be granted
an option to purchase 20,000 shares of common stock.
Options granted under the Directors' Plan shall be fully vested and
exercisable on the date of grant and must be exercised within five years from
the date they are granted. The exercise price of options under the Directors'
Plan will equal 100% of the fair market value of the common stock on the date of
grant. Options granted under the Directors' Plan are generally transferable to
family members and trusts under which the director or members of the director's
family are beneficiaries. Unless otherwise terminated by the board of directors,
the Directors' Plan
48.
automatically terminates when all of our common stock reserved for issuance
under the Directors' Plan has been issued. As of the date hereof, options to
purchase 360,000 shares of common stock have been granted under the Directors'
Plan.
EMPLOYEE STOCK PURCHASE PLAN
In February 1999, we adopted the 1999 Employee Stock Purchase Plan. A total
of 600,000 shares of common stock has been reserved for issuance under the
purchase plan. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
Under the purchase plan, the board of directors may authorize participation by
eligible employees, including officers, in periodic offerings following the
commencement of the purchase plan. The initial offering under the purchase plan
will terminate on July 31, 2000.
Unless otherwise determined by the board, employees are eligible to
participate in the purchase plan only if they are employed by us or one of our
subsidiaries designated by the board of directors for at least 20 hours per week
and are customarily employed for at least five months per calendar year.
Employees who participate in an offering may have up to 10% of their earnings
withheld pursuant to the purchase plan. The amount withheld is then used to
purchase shares of common stock on specified dates determined by the board of
directors. The price of common stock purchased under the purchase plan will be
equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment.
In the event of a merger, reorganization, consolidation or liquidation, the
board of directors has discretion to provide that each right to purchase common
stock will be assumed or an equivalent right substituted by the successor
corporation or the board of directors may provide for all sums collected by
payroll deductions to be applied to purchase stock immediately prior to such
merger or other transaction. The board of directors has the authority to amend
or terminate the purchase plan, provided, however, that no such action may
adversely affect any outstanding rights to purchase common stock.
OnPREM 1998 STOCK PLAN
In connection with our acquisition of OnPREM Networks Corporation in
February, 2000, we assumed the 1998 Stock Plan of OnPREM and all outstanding
options to purchase common stock of OnPREM under such plan. By virtue of the
acquisition, the OnPREM options were proportionally adjusted with respect to
exercise prices and the number of shares subject to each option based on the
exchange ratio used in the acquisition. All other terms of the OnPREM options,
such as vesting schedules, remained unchanged. As of February 29, 2000, the
assumed options were exercisable for a total of 130,563 shares of our common
stock with exercise prices ranging from $0.39 to $2.34 per share. We will not
make future grants under the 1998 Stock Plan of OnPREM.
401(k) PLAN
We have established a tax-qualified employee savings and retirement plan
commonly known as a 401(k) Plan. The 401(k) plan provides that each participant
may contribute up to 10% of his or her pre-tax gross compensation (up to a
statutorily prescribed annual limit of $10,000 in 1999). Employees must be
twenty-one years old to participate and are eligible on the first day of the
first quarter following commencement as an employee. All amounts contributed by
employee participants and earnings on these contributions are fully vested at
all times. Employee participants may elect to invest their contributions in
various established funds.
EMPLOYMENT AGREEMENTS
On July 26, 1996, we entered into an employment offer letter with Steven
Hunt, our Vice President, Engineering, pursuant to which Mr. Hunt's annual
compensation was initially set at $130,000. In addition, we
49.
granted Mr. Hunt an option to purchase 600,000 shares of common stock. This
option vests 25% on the first anniversary of the date of hire with the remainder
vesting monthly over the following three years. Pursuant to his employment offer
letter, in the event Mr. Hunt's employment is terminated without cause, he will
receive severance compensation equal to three months salary.
On March 18, 1998, we entered into an employment agreement with Richard S.
Gilbert, our President and Chief Executive Officer. Mr. Gilbert's annual
compensation was initially set at a base salary of $200,000 and an on-target
bonus of $100,000 for the 1998 calendar year, prorated from April 6, 1998. In
addition, we granted Mr. Gilbert an option to purchase 1,689,290 shares of
common stock. This option vests 25% on the first anniversary of the date of hire
with the remainder vesting monthly over the following three years. Pursuant to
Mr. Gilbert's employment agreement, in the event Mr. Gilbert's employment is
terminated by us without cause or by Mr. Gilbert for good reason, as defined in
his option agreement, following the occurrence of a change in control, as
defined in his option agreement, the vesting of his option accelerates such that
one half of the unvested portion of the option becomes immediately exercisable.
Pursuant to Mr. Gilbert's employment agreement, we reimbursed Mr. Gilbert for
relocation expenses of $65,177, and we loaned Mr. Gilbert $1 million pursuant to
an interest-free promissory note for the purchase of his principal residence in
California. The principal amount of such note is due on March 30, 2003. The note
is secured by a second trust deed on Mr. Gilbert's residence. Mr. Gilbert's
obligation to repay the note may be accelerated upon the occurrence of certain
events, including the termination of Mr. Gilbert's employment.
On March 12, 1999, we entered into an employment agreement with Joseph D.
Markee, our Chairman of the Board and Chief Technical Officer. Pursuant to the
terms of his agreement, if the board of directors removes him, elects someone
else as Chief Technical Officer, or assigns him to work outside San Diego
County, and he subsequently resigns, Mr. Markee is entitled to certain severance
benefits. These benefits include pay equal to six months of his base salary and
twelve months of accelerated vesting of his unvested stock options.
On February 29, 2000, we entered into an employment agreement with Wilson
O. Cochran, II, the Vice President and General Manager of our MTU business unit,
pursuant to which Mr. Cochran's annual compensation was initially set at
$150,000. Assuming Mr. Cochran's continuous employment throughout the one year
term of his employment agreement, Mr. Cochran will also receive an additional
payment of $125,000, payable in equal monthly installments during the first year
of his employment with us. In addition, pursuant to the employment agreement, we
granted Mr. Cochran options to purchase a total of 100,000 shares of common
stock. These options vest 25% on the first anniversary of the date of Mr.
Cochran's employment agreement, with the remainder vesting monthly over the
following three years. Under Mr. Cochran's employment agreement, in the event
Mr. Cochran's employment is terminated by us without cause or by Mr. Cochran for
good reason, as defined in his employment agreement, Mr. Cochran is entitled to
the balance of the $125,000, and the vesting of the initial stock option to
purchase 50,000 shares accelerates such that 100% of the unvested portion of the
option becomes exercisable as of the date of termination. In addition, on
February 29, 2000, Mr. Cochran entered into a non-competition agreement with us,
pursuant to which he agreed not to compete directly or indirectly in the DSL
solutions business for three years from the date of such agreement. Mr. Cochran
also agreed not to solicit any of our employees or to become associated with or
hold an interest in any individual or entity in the DSL solutions business.
Additionally, Mr. Cochran agreed to hold all of our confidential information in
strict confidence. Contingent upon Mr. Cochran's compliance with the non-
competition agreement, the Company will pay Mr. Cochran $400,000 as follows:
$125,000 in each of the first and second years of the agreement, and $150,000
during the third year of the agreement, payable in equal monthly installments.
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by Delaware law, except with respect to certain
proceedings initiated by such persons. We are also empowered under our bylaws to
enter into indemnification contracts with our directors and executive officers
and to purchase insurance on behalf of any person we are required or permitted
to indemnify. Pursuant to this provision, we have entered into indemnification
agreements with each of our directors and certain of our executive officers.
50.
In addition, our certificate of incorporation, as it will be amended and
restated upon the close of this offering, provides that our directors will not
be personally liable to us or our stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability
. for any breach of the director's duty of loyalty to us or our
stockholders,
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. under Section 174 of the Delaware General Corporation Law or
. for any transaction from which the director derives an improper
personal benefit.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of the
restated certificate to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of our
directors shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as so amended. The provision does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws.
51.
CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1997, to
which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest other than compensation arrangements which are otherwise required to be
described under "Management."
In January 1997, we sold 1,850,063 shares of series B preferred stock in a
private placement at a purchase price of $3.39 per share, pursuant to a Series B
Preferred Stock Agreement dated January 14, 1997. Upon the closing of our
initial public offering in May 1999, and after accounting for a subsequent stock
split, each share of Series B preferred stock automatically converted into three
shares of Common Stock. The following directors and beneficial owners of more
than 5% of our common stock acquired beneficial ownership of series B preferred
stock pursuant to the Series B Preferred Stock Agreement.
DIRECTORS / 5% STOCKHOLDERS NO. OF SHARES
- --------------------------- -------------
Andrew W. Verhalen/Entities Affiliated with Matrix Partners...... 739,725
Roger Evans/Greylock Equity Limited Partnership.................. 368,732
Tench Coxe/Entities Affiliated with Sutter Hill Ventures......... 368,731
Joseph D. Markee................................................. 50,000
Tench Coxe....................................................... 12,492
In January 1997, in connection with the execution of an ATM Technology
Agreement with Intel Corporation, we issued Intel a warrant to purchase up to
147,401 shares of series B preferred stock at an exercise price of $3.39 per
share. This warrant expires on January 14, 2004. Upon the closing of our initial
public offering, and after accounting for a subsequent stock split, this warrant
became exercisable for common stock at the rate of three shares of common stock
for each share of series B preferred stock underlying the warrant.
In October 1997, we sold 2,422,361 shares of series C preferred stock in a
private placement at a purchase price of $4.75 per share, pursuant to a Series C
Preferred Stock Agreement, dated October 29, 1997. Upon the closing of our
initial public offering, and after accounting for a subsequent stock split, each
share of series C preferred stock automatically converted into three shares of
common stock. The following directors and beneficial owners of more than 5% of
our common stock acquired beneficial ownership of series C preferred stock
pursuant to the Series C Preferred Stock Agreement.
DIRECTORS / 5% STOCKHOLDERS NO. OF SHARES
- --------------------------- -------------
Roger Evans/Greylock Equity Limited Partnership.................. 242,106
Tench Coxe/Entities Affiliated with Sutter Hill Ventures......... 242,106
Andrew W. Verhalen/Entities Affiliated with Matrix Partners...... 210,527
Tench Coxe....................................................... 8,059
In October 1998, we sold 3,225,806 shares of series D preferred stock in a
private placement at a purchase price of $7.75 per share, pursuant to a Series D
Preferred Stock Agreement dated October 9, 1998. Upon the closing of our initial
public offering, and after accounting for a subsequent stock split, each share
of series D preferred stock automatically converted into three shares of common
stock. The following directors and beneficial owners of more than 5% of our
common stock acquired beneficial ownership of series D preferred stock pursuant
to the Series D Preferred Stock Agreement.
52.
<TABLE>
<CAPTION>
DIRECTORS / 5% STOCKHOLDERS NO. OF SHARES
--------------------------- -------------
<S> <C>
Richard H. Kimball/Entities Affiliated with Technology Crossover Ventures....... 774,194
Roger Evans/Greylock Equity Limited Partnership................................. 147,805
Tench Coxe/Entities Affiliated with Sutter Hill Ventures........................ 147,805
Andrew W. Verhalen/Entities Affiliated with Matrix Partners..................... 75,478
Tench Coxe/Wells Fargo Bank, Trustee SHV M/P/T FBO Tench Coxe................... 4,918
Richard S. Gilbert.............................................................. 1,422
</TABLE>
All of the securities referenced above were sold and purchased at prices
equal to the fair market value of the securities, as determined by our board of
directors, on the date of issuance.
In February 2000, in connection with our acquisition of OnPREM, we issued
39,072 shares of common stock to Wilson O. Cochran, II, who, upon the
consummation of the merger became the Vice President and General Manager of our
MTU business unit. The shares were issued to Mr. Cochran in exchange for the
608,983 shares of OnPREM common stock he held prior to the merger, applying the
merger exchange ratio of 0.06416 of one share of Copper Mountain common stock
for each share of OnPREM common stock. In connection with the merger, we also
assumed the options to purchase shares of OnPREM common stock that were held by
Mr. Cochran, which options converted into options to purchase an aggregate of
43,308 shares of our common stock.
All of the securities referenced above were sold and purchased at prices
equal to the fair market value of the securities, as determined by our board of
directors, on the date of issuance.
53.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of February 29, 2000 and as adjusted
to reflect the sale of common stock in this offering for:
. each person who we know to own beneficially more than five percent of
our outstanding common stock;
. each of our directors;
. certain of our executive officers;
. all of our directors and executive officers as a group; and
. each selling stockholder.
In connection with our acquisition of OnPREM Networks Corporation, we
agreed to register common stock for those stockholders for resale. Our
registration of the shares of common stock does not necessarily mean that the
selling stockholders will sell all or any of the shares.
The information provided in the table below with respect to each selling
stockholder has been obtained from such selling stockholder.
Except as indicated, and subject to community property laws where
applicable, the persons named have sole voting and investment power with respect
to all shares shown as beneficially owned by them. Percentage of beneficial
ownership is based on 49,738,717 shares of common stock outstanding as of
February 29, 2000.
54.
Unless otherwise indicated in the table set forth below, each person or
entity named below has an address in care of Copper Mountain's principal
executive offices.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
SHARES NUMBER OF AFTER THIS OFFERING(2)
BENEFICIALLY SHARES BEING --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) PERCENTAGE OFFERED(2) NUMBER PERCENTAGE
- ------------------------------------ ------------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Roger Evans(3)............................... 280,840 * -- 280,840 *
Greylock Equity Limited Partnership
755 Page Mill Road, Suite A-100
Palo Alto, CA 94304
Tench Coxe(4)................................ 360,446 * 360,446 *
Sutter Hill Ventures
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Andrew W. Verhalen(5).......................... 1,107,552 2.22% -- 1,107,552 2.22%
Matrix Partners IV, L.P.
2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
Richard H. Kimball(6).......................... 913,154 1.83% -- 913,154 1.83%
Technology Crossover Ventures II, L.P.
575 High Street, Suite 400
Palo Alto, CA 94301
Joseph D. Markee(7)............................ 1,319,835 2.65% -- 1,319,835 2.65%
Mark Handzel(8)................................ 1,231,687 2.48% -- 1,231,687 2.48%
Richard Gilbert(9)............................. 642,912 1.28% -- 642,912 1.28%
Steve Hunt(10)................................. 512,500 1.03% -- 512,500 1.03%
Mike Kelly(11)................................. 259,496 * -- 259,496 *
Raymond V. Thomas(12).......................... 60,000 * -- 60,000 *
Robert L. Bailey(13)........................... 66,000 * -- 66,000 *
All directors and officers as a group
(17 persons) (14) 6,067,325 14.43% -- 6,067,325 14.43%
Sabine Austin.................................. 641 * 641 0 *
Rolf Brauchler................................. 5,646 * 5,646 0 *
Wilson O. Cochran, II(15)...................... 43,884 * 39,072 4,812 *
Casey E. Cox................................... 128,320 * 128,320 0 *
</TABLE>
55.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
SHARES NUMBER OF AFTER THIS OFFERING(2)
BENEFICIALLY SHARES BEING --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) PERCENTAGE OFFERED(2) NUMBER PERCENTAGE
- ------------------------------------ ------------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Les Denend..................................... 320 * 320 0 *
Satish Gune.................................... 641 * 641 0 *
William Ingram(16)............................. 2,138 * 1,737 391 *
Steven Langham................................. 320 * 320 0 *
David Laone(17)................................ 641 * 449 192 *
James Lawson................................... 1,002 * 1,002 0 *
David M. Marshall.............................. 64 * 64 0 *
George D. Marshall............................. 141,023 * 141,023 0 *
Lois F. Marshall............................... 6,416 * 6,416 0 *
Paul J. Marshall............................... 64 * 64 0 *
Sharon K. Marshall............................. 6,416 * 6,416 0 *
Philip Monin(18)............................... 534 * 427 107 *
Vic Para....................................... 5,646 * 5,646 0 *
Chris Robbins(19).............................. 940 684 256 *
Steven Santos (20) ........................... 320 * 213 107 *
Ramadoss Venkatesan(21)........................ 7,485 * 6,416 1,069 *
James S. Acquistapace.......................... 36,705 * 36,705 0 *
Paul J. Ake.................................... 3,645 * 3,645 0 *
Charles Giancarlo.............................. 22,124 * 22,124 0 *
John Lee(22)................................... 72,908 * 51,036 21,872 *
Robert Leppo................................... 144,801 * 144,801 0 *
Marla Lipsky................................... 4,977 * 4,977 0 *
Robert R. Lux.................................. 3,937 * 3,937 0 *
Charles S. Mitchell............................ 2,916 * 2,916 0 *
</TABLE>
56.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
SHARES NUMBER OF AFTER THIS OFFERING(2)
BENEFICIALLY SHARES BEING --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) PERCENTAGE OFFERED(2) NUMBER PERCENTAGE
- ------------------------------------ ------------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Amit Shah...................................... 11,062 * 11,062 0 *
Thomas A. Skornia.............................. 11,062 * 11,062 0 *
Richard White.................................. 80,428 * 80,428 0 *
CIBC Bank and Trust Co. Limited as Trustee of
Trust T304 (Randall Rose).................. 72,909 * 72,909 0 *
SBIC Partners II, L.P.......................... 109,363 * 109,363 0 *
Tallac Corporation(23)......................... 72,908 * 21,872 51,036 *
TGI Fund III, LLC.............................. 212,894 * 212,894 0 *
The Selig Capital Group........................ 7,061 * 7,061 0 *
</TABLE>
- ----------
* Represents beneficial ownership of less than 1%.
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual or
entity has sole or shared voting power or investment power and any shares
as to which the individual or entity has the right to acquire beneficial
ownership within 60 days after February 29, 2000 through the exercise of
any stock option or other right. The inclusion herein of such shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of, or receives the economic benefit
from, such shares.
(2) Assumes the sale by the selling stockholders of all of the shares of Copper
Mountain common stock issued in connection with the acquisition of OnPREM
Networks Corporation.
(3) Mr. Evans is a general partner of the general partner of Greylock Equity
Limited Partnership.
(4) Includes 15,092 shares held in Mr. Coxe's Keogh account, and 60,000 shares
issuable upon exercise of options exercisable within 60 days of February
29, 2000. Mr. Coxe is a managing director of the general partner of Sutter
Hill Ventures.
(5) Includes 982,370 shares held by entities affiliated with Matrix Partners
IV, L.P. and 60,000 shares issuable upon exercise of options held by Mr.
Verhalen exercisable within 60 days of February 29, 2000. Mr. Verhalen is a
general partner of Matrix Partners IV, L.P.
(6) Includes:
. 11,953 shares held by TCV II, V.O.F., which represent less than 1% of
total shares before and after this offering, respectively;
. 367,987 shares held by Technology Crossover Ventures II, L.P. which
represent 3.0% and 2.5% of total shares before and after this
offering, respectively;
57.
. 282,912 shares held by TCV II (Q), L.P. which represent 2.3% and 1.9%
of total shares before and after this offering, respectively;
. 50,209 shares held by TCV II Strategic Partners, L.P. which represent
less than 1% of total shares before and after this offering,
respectively;
. 56,185 shares held by Technology Crossover Ventures II, C.V. which
represent less than 1% of total shares before and after this offering,
respectively; and
. 60,000 shares issuable upon exercise of options held by Mr. Kimball
exercisable within 60 days of February 29, 2000.
Mr. Kimball, a director of Copper Mountain, is a managing member of
the general partner of each of these entities.
(7) Includes 19,656 shares of common stock held by Teresa L. Boley, Mr.
Markee's spouse, 5,000 shares issuable upon exercise of options exercisable
within 60 days of February 29, 2000, and 32,429 shares subject to
repurchase by Copper Mountain as of February 29, 2000.
(8) Includes 32,429 shares subject to repurchase by Copper Mountain as of
February 29, 2000, and 3,333 shares issuable upon exercise of options
exercisable within 60 days of February 29, 2000.
(9) Includes 529,646 shares issuable upon exercise of options exercisable
within 60 days of February 29, 2000.
(10) Includes 142,500 shares of common stock issuable upon exercise of options
exercisable within 60 days of February 29, 2000.
(11) Includes 53,543 shares issuable upon exercise of options exercisable within
60 days of February 29, 2000.
(12) Includes 60,000 shares issuable upon exercise of options exercisable within
60 days of February 29, 2000.
(13) Includes 60,000 shares issuable upon exercise of options exercisable within
60 days of February 29, 2000.
(14) Includes 1,297,219 shares subject to options exercisable within 60 days of
February 29, 2000.
(15) Includes 4,812 shares issuable upon exercise of options exercisable within
60 days of February 29, 2000.
(16) Includes 391 shares issuable upon exercise of options exercisable within 60
days of February 29, 2000.
(17) Includes 192 shares issuable upon exercise of options exercisable within 60
days of February 29, 2000.
(18) Includes 107 shares issuable upon exercise of options exercisable within 60
days of February 29, 2000.
(19) Includes 256 shares issuable upon exercise of options exercisable within 60
days of February 29, 2000.
(20) Includes 107 shares issuable upon exercise of options exercisable within 60
days of February 29, 2000.
(21) Includes 1,069 shares issuable upon exercise of options exercisable within
60 days of February 29, 2000.
(22) Includes 21,872 shares of common stock held by Tallac Corporation. Mr. Lee
is the president of Tallac Corporation.
(23) Includes 51,036 shares of common stock held by John Lee. Mr. Lee is the
president of Tallac Corporation.
58.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
As of February 29, 2000, there were 49,738,717 outstanding shares of our
common stock, outstanding options to purchase 10,757,179 shares of our common
stock and outstanding warrants to purchase 472,202 shares of our common stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive ratably such dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up, holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There
are no redemption or sinking fund provisions applicable to the common stock.
PREFERRED STOCK
Under the restated certificate, the board has the authority, without
further action by stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges,
qualifications and restrictions granted to or imposed upon such preferred stock,
including dividend rights, conversion rights, voting rights, rights and terms of
redemption, liquidation preference and sinking fund terms, any or all of which
may be greater than the rights of the common stock. The issuance of preferred
stock could adversely affect the voting power of holders of common stock and
reduce the likelihood that such holders will receive dividend payments and
payments upon liquidation. Such issuance could have the effect of decreasing the
market price of the common stock. The issuance of preferred stock could have the
effect of delaying, deterring or preventing a change in control of Copper
Mountain. We have no present plans to issue any shares of preferred stock.
WARRANTS
In October 1996, in conjunction with the execution of an equipment
financing agreement, we issued ten-year warrants to purchase up to 10,000 shares
and 40,000 shares of series A preferred stock at an exercise price of $1.00 per
share. In January 1997, in connection with the execution of a license agreement
with Intel, we issued a seven-year warrant to purchase up to 147,401 shares of
series B preferred stock at an exercise price of $3.39 per share. In October
1997 and in April 1998, in connection with the execution of an equipment
financing agreement, we issued ten-year warrants to purchase 8,421 and 6,316
shares of series C preferred stock at an exercise price of $4.75 per share. In
August 1998, in connection with the execution of a loan agreement, we issued a
five-year warrant to purchase up to 25,000 shares of series C preferred stock at
an exercise price of $4.75 per share.
Upon the closing of our initial public offering and after accounting for a
subsequent stock dividend, all warrants described herein became exercisable for
common stock at the rate of three shares of common stock for each share of
preferred stock underlying the warrants.
REGISTRATION RIGHTS
We entered into the Amended and Restated Investor Rights Agreement dated
October 9, 1998 with the purchasers of our Series A, Series B, Series C and
Series D preferred stock. Under this agreement, these purchasers are entitled to
rights relating to the registration of their shares with the Securities and
Exchange Commission. These rights have been waived as to this offering by the
holders of common stock obtained upon the conversion of preferred stock in the
initial public offering. The registration rights will survive this offering and
terminate no later than May 2004.
59.
DELAWARE ANTI-TAKEOVER LAW
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sale or
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in control of Copper Mountain.
Our restated certificate, which will become effective upon the effective
date of this offering, provides that any action required or permitted to be
taken by stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing. In
addition, our bylaws provide that special meetings of the stockholders may be
called only by the Chairman of the board of directors, the Chief Executive
Officer, by the board of directors pursuant to a resolution adopted by a
majority of the total number of authorized directors, or by the holders of 10%
of the outstanding voting stock. Our restated certificate also specifies that
the authorized number of directors may be changed only by resolution of the
board of directors and does not include a provision for cumulative voting for
directors. Under cumulative voting, a minority stockholder holding a sufficient
percentage of a class of shares may be able to ensure the election of one or
more directors. These and other provisions contained in the restated certificate
and our bylaws could delay or discourage certain types of transactions involving
an actual or potential change in control or its management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current prices) and may limit the ability of stockholders to
remove current management or approve transactions that stockholders may deem to
be in their best interests and, therefore, could adversely affect the price of
our common stock.
60.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
PLAN OF DISTRIBUTION
The shares of common stock offered by the selling stockholders, or by their
pledgees, transferees or other successors in interest, may be sold from time to
time to purchasers directly by any of the selling stockholders acting as
principal for its own account in one or more transactions at a fixed price,
which may be changed, or at varying prices determined at the time of sale or at
negotiated prices. Alternatively, any of the selling stockholders may from time
to time offer the common stock through underwriters, dealers or agents who may
receive compensation in the form of underwriting discounts, commissions or
concessions from the selling stockholders and/or the purchasers of shares for
whom they may act as agent. Sales may be made on the Nasdaq National Market or
in private transactions. In addition to sales of common stock pursuant to the
registration statement of which this prospectus is a part, the selling
stockholders may sell such common stock in compliance with Rule 144 promulgated
under the Securities Act.
The selling stockholders and any agents, broker-dealers or underwriters
that participate in the distribution of the common stock offered hereby may be
deemed to be underwriters within the meaning of the Act, and any discounts,
commissions or concessions received by them and any profit on the resale of the
common stock purchased by them might be deemed to be underwriting discounts and
commissions under the Act.
In order to comply with the securities laws of certain states, if
applicable, the common stock may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
common stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.
In connection with our acquisition of OnPREM Networks Corporation, we have
agreed to register the selling stockholders' common stock under applicable
federal and state securities laws under certain circumstances and at certain
times. We will pay substantially all of the expenses incident to the offering
and sale of the common stock to the public, other than commissions, concessions
and discounts of underwriters, dealers or agents. Such expenses (excluding such
commissions and discounts) are estimated to be approximately $63,000. The
agreements referenced above provide for cross-indemnification of the selling
stockholders to the extent permitted by law, for losses, claims, damages,
liabilities and expenses arising, under certain circumstances, out of any
registration of the common stock.
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward LLP, San Diego, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999, as well as OnPREM Networks Corporation's
financial statements at June 30, 1998 and 1999 and for the year ended June 30,
1999 and for the periods from January 7, 1998 (inception) through June 30, 1998
and 1999, as set forth in their reports. We've included our financial statements
as well as OnPREM Network Corporation's financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
61.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the common stock offered hereby. As permitted by
the rules and regulations of the SEC, this prospectus, which is a part of the
Registration Statement, omits certain information, exhibits, schedules and
undertakings set forth in the registration statement. For further information
pertaining to our common stock, reference is made to such registration statement
and the exhibits and schedules thereto. Statements contained in this prospectus
as to the contents or provisions of any contract or other document referred to
herein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference. A copy of the registration statement may be inspected without
charge at the office of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any
part of the registration statement may be obtained from such offices upon the
payment of the fees prescribed by the SEC. In addition, registration statements
and certain other filings made with the SEC through its Electronic Data
Gathering, Analysis and Retrieval, or EDGAR, system are publicly available
through the SEC's Web site on the Internet's World Wide Web, located at
http://www.sec.gov. The registration statement, including all exhibits thereto
and amendments thereof, was filed with the SEC through EDGAR.
62.
COPPER MOUNTAIN NETWORKS, INC.
INDEX TO FINANCIAL STATEMENTS
Contents Page
- -------- ----
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Introduction to Pro Forma Financial Information............ F-2
Unaudited Pro Forma Combined Condensed
Statement of Operations................................... F-3
Unaudited Pro Forma Combined Condensed
Balance Sheet............................................. F-4
Notes to Pro Forma Financial Information................... F-5
COPPER MOUNTAIN NETWORKS, INC.
Report of Ernst & Young LLP, Independent Auditors.......... F-7
Balance Sheets............................................. F-8
Statements of Operations................................... F-9
Statement of Stockholders' Equity.......................... F-10
Statements of Cash Flows................................... F-12
Notes to Financial Statements.............................. F-13
OnPREM NETWORKS CORPORATION
Report of Ernst & Young LLP, Independent Auditors.......... F-26
Balance Sheets............................................. F-27
Statements of Operations................................... F-28
Statement of Shareholders' Equity.......................... F-29
Statements of Cash Flows................................... F-31
Notes to Financial Statements.............................. F-32
F-1
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Introduction to Pro Forma Financial Information
On February 29, 2000, Copper Mountain Networks, Inc. ("Copper Mountain")
completed its merger with OnPREM Networks Corporation ("OnPREM") whereby OnPREM
became a wholly-owned subsidiary of Copper Mountain. At the time of the Merger,
all of the outstanding shares of OnPREM common stock and common stock options
immediately prior to the completion of the Merger were converted into the right
to receive approximately 1.1 million shares of Copper Mountain common stock and
Copper Mountain assumed all of OnPREM's options for the acquisition of
approximately 131,000 additional shares of Copper Mountain common stock. In
addition, as a condition to completion of the merger, all outstanding shares of
OnPREM preferred stock converted into shares of OnPREM common stock and all
outstanding warrants to purchase OnPREM stock were exercised prior to closing.
Thus, upon the closing of the Merger, no OnPREM preferred stock or OnPREM
warrants remained outstanding.
Pro Forma Condensed Statement of Operations
The following unaudited pro forma condensed statements of operations give
effect to the acquisition of OnPREM using the purchase method of accounting.
The pro forma condensed statement of operations for the year ended December 31,
1999 gives effect to the acquisition as if it had occurred on January 1, 1999.
The unaudited pro forma condensed statements of operations are presented
for illustrative purposes only and are not necessarily indicative of the results
of operations that would have actually been reported had the acquisition of
OnPREM occurred at the beginning of the applicable period, as assumed, nor is it
necessarily indicative of the Company's future results of operations. These
unaudited pro forma condensed statements of operations do not incorporate, nor
do they assume, any benefits from cost savings or synergies of operations
resulting from the acquisition. They should be read in conjunction with the
historical financial statements and notes thereto of the respective entities.
Pro Forma Condensed Balance Sheet
The following unaudited pro forma condensed balance sheet reflects the
historical condensed balance sheet of Copper Mountain and OnPREM at December 31,
1999, adjusted to give effect to the acquisition of OnPREM as if it had occurred
on December 31, 1999.
The unaudited pro forma condensed balance sheet should be read in conjunction
with the historical financial statements and notes thereto of the respective
entities.
F-2
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical OnPREM Pro Forma
-------------------------- Acquisition Reflecting
Copper OnPREM Pro Forma OnPREM
Mountain Networks Adjustments Acquisition
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue............................................. $112,723 $ - $ - $112,723
Cost of revenue......................................... 53,002 - - 53,002
-------- -------- -------- --------
Gross profit........................................ 59,721 - 59,721
Operating expenses:
Research and development............................ 15,523 1,959 17,482
Sales and marketing................................. 16,158 236 16,394
General and administrative.......................... 5,998 314 6,312
Amortization of deferred stock compensation......... 5,431 240 5,671
Amortization of purchased intangibles............... - - 21,884(a) 21,884
-------- -------- -------- --------
Total operating expenses......................... 43,110 2,749 21,884 67,743
Income (loss) from operations........................... 16,611 (2,749) (21,884) (8,022)
Other income (expense):
Interest and other income........................... 4,385 20 4,405
Interest expense.................................... (289) (9) (298)
-------- -------- -------- --------
Income (loss) before income taxes....................... 20,707 (2,738) (21,884) (3,915)
Provision for income taxes.............................. 8,490 - (1,123)(b) 7,367
-------- -------- -------- --------
Net income (loss)....................................... $ 12,217 $ (2,738) $(20,761) $(11,282)
======== ======== ======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Data.
F-3
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Historical OnPREM Pro Forma
-------------------- Acquisition Reflecting
Copper Pro Forma OnPREM
Mountain OnPREM Adjustments Acquisition
-------- ------ ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents.................................................. $ 25,405 $ 2,078 $ (300)(f) $ 27,183
Short-term marketable investments.......................................... 91,764 - 91,764
Accounts receivable........................................................ 18,992 - 18,992
Inventories................................................................ 12,801 - 12,801
Other current assets....................................................... 1,530 10 1,540
-------- ------- ------- --------
Total current assets....................................................... 150,492 2,088 (300) 152,280
Property and equipment, net................................................. 8,825 406 9,231
Marketable investments...................................................... 5,139 - 5,139
Purchased intangibles....................................................... - - 65,652(d) 65,652
In-process research and development......................................... - - 6,300(d) -
(6,300)(e) -
Other assets................................................................ 1,319 129 1,448
-------- ------- ------- --------
Total assets................................................................ $165,775 $ 2,623 $65,352 $233,750
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 7,887 $ 168 $ - $ 8,055
Accrued liabilities........................................................ 8,800 131 2,040(d) 10,971
Convertible notes payable, related parties................................. - 300 (300)(f) -
Current portion of obligations under
capital leases and equipment notes payable............................... 1,618 1,618
-------- ------- ------- --------
Total current liabilities............................................ 18,305 599 1,740 20,644
Obligations under capital leases and equipment notes payable, less current
portion.................................................................. 4,044 - 4,044
Other accrued............................................................... 105 - 105
Stockholders' equity:
Preferred stock............................................................. - 12 (12)(a) -
Common stock................................................................ 48 5 (5)(b) 49
1(d)
Additional paid in capital.................................................. 159,149 6,242 12(a) 232,448
(6,254)(b)
73,299(d)
Deferred compensation....................................................... (4,565) (1,364) (5,929)
Accumulated deficit......................................................... (11,311) (2,871) 2,871(c) (17,611)
(6,300)(e)
-------- ------- ------- --------
Total stockholders' equity................................................. 143,321 2,024 63,612 208,957
-------- ------- ------- --------
Total liabilities and stockholders' equity.................................. $165,775 $ 2,623 $65,352 $233,750
======== ======= ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Data.
F-4
NOTES TO PRO FORMA FINANCIAL INFORMATION
NOTE 1.
The unaudited pro forma financial statements reflect the acquisition of
OnPREM Networks Corporation ("OnPREM") for an aggregate purchase price of
$73.3 million.
NOTE 2.
Copper Mountain Networks, Inc. ("Copper Mountain") acquired all of the
common stock and all outstanding rights to acquire shares of common stock of
OnPREM in exchange for approximately 1.1 million shares of Copper Mountain
common stock and the assumption by Copper Mountain of options to acquire up to
approximately 131,000 additional shares of Copper Mountain common stock at a
weighted average exercise price of $1.25 per share. The purchase price is
calculated to be $73.3 million based on the average fair market value of $56.11
per share of Copper Mountain common stock at the time the Merger Agreement was
signed. The purchase price also includes estimated merger costs of $2.0 million.
The purchase price was allocated as follows based upon a valuation of the
tangible and intangible assets, including acquired technology and in-process
technology, by an independent appraiser, as well as management's best estimates
(in thousands):
<TABLE>
<S> <C>
Current assets acquired $ 2,088
Property and equipment 406
Other assets 129
In-process technology 6,300
Goodwill 65,652
Liabilities assumed (599)
Liabilities for Merger-related costs (2,040)
Deferred compensation 1,364
-------
$73,300
=======
</TABLE>
The pro forma combined statement of operations includes the adjustments
necessary as if the proposed merger had occurred on January 1, 1999. These
adjustments are summarized as follows:
(a) To reflect 12 months of amortization of the purchased intangibles
based on the allocation of the assumed purchase price as of January 1,
1999.
(b) To adjust the combined tax provision for the year ending December 31,
1999.
The pro forma combined statement of operations does not include a $6.3 million
in-process research and development charge to be recorded by Copper Mountain in
conjunction with the Merger for the estimated fair value of the in-process
research and development of OnPREM.
The pro forma combined balance sheet includes the adjustments necessary as
if the proposed merger had occurred on December 31, 1999 and reflects the
allocation of the purchase price, issuance of Copper Mountain common stock and
elimination of OnPREM's equity accounts. These adjustments are summarized as
follows:
(a) Conversion of all outstanding preferred stock into common stock.
F-5
(b) Elimination of existing OnPREM common stock and paid-in capital.
(c) Elimination of OnPREM's accumulated deficit.
(d) Issuance of Copper Mountain common stock (approximately 1.1 million
shares @ $0.001 par value), accrual of estimated merger cost to be
incurred by Copper Mountain, and to record the excess purchase price
(purchased intangibles and in-process research and development).
(e) Write off of OnPREM's in-process research and development.
(f) Repayment of OnPREM's outstanding convertible notes.
NOTE 4.
The allocation of the purchase price was applied to the historical balance sheet
of Copper Mountain and OnPREM to arrive at the pro forma combined balance sheet.
The purchased intangibles are amortized over their estimated useful lives of
three years due to the telecommunications and data communications markets being
characterized by rapid technological advances, evolving industry standards,
changes in end-user requirements, frequent new product introductions and
evolving offerings by telecommunications service providers. It is not uncommon
for a specific technology, product or service in Copper Mountain's industry to
become obsolete in a relatively short period of time. More specifically the
business of providing infrastructure for high-speed Internet access is in its
infancy stage with rapidly shifting trends, technologies, consumer preferences
and competitive pressures. The management of OnPREM has indicated that the
technologies and business models developed by their company appear generally to
have a useful life of no more than three years before they require significant
redevelopment. It is anticipated that this rapid rate of change will continue in
the future. The technology currently under development, for which technological
feasibility has not been established and for which there are no future
alternative uses, will be written off at the date of acquisition. The pro forma
combined statements of operations for the year ended December 31, 1999 reflect
amortization expense of $21.9 million.
F-6
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Copper Mountain Networks, Inc.
We have audited the accompanying balance sheets of Copper Mountain Networks,
Inc. as of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Copper Mountain Networks, Inc.
at December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
San Diego, California
January 28, 2000,
except for Note 12, as
to which the date is
February 29, 2000
F-7
COPPER MOUNTAIN NETWORKS, INC.
BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 25,405 $ 7,631
Short-term marketable investments 91,764 10,898
Accounts receivable, net 18,992 8,026
Inventory 12,801 4,668
Other current assets 1,530 476
-------- --------
Total current assets 150,492 31,699
Property and equipment, net 8,825 3,214
Marketable investments 5,139 ---
Other assets 1,319 1,296
-------- --------
Total assets $165,775 $ 36,209
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 7,887 $ 4,371
Accrued liabilities 8,800 2,219
Current portion of obligations under capital leases
and equipment notes payable 1,618 783
-------- --------
Total current liabilities 18,305 7,373
Obligations under capital leases and equipment
notes payable, less current portion 4,044 1,965
Other accrued 105 28
Stockholders' equity:
Preferred stock, $.001 par value, 5,000 shares
authorized, none issued and outstanding as of December 31, 1999
and 1998, respectively ---- ----
Convertible preferred stock, no par value, zero and
10,223 shares issued and outstanding at December 31,
1999 and 1998, respectively ---- 44,502
Common stock, $.001 par value, 100,000 shares
authorized, 47,662 and 5,034 shares issued and
outstanding at December 31, 1999 and 1998, respectively 48 5
Notes receivable from stockholders ---- (41)
Additional paid in capital 159,149 15,667
Deferred compensation (4,565) (9,762)
Accumulated deficit (11,311) (23,528)
-------- --------
Total stockholders' equity 143,321 26,843
-------- --------
Total liabilities and stockholders' equity $165,775 $ 36,209
======== ========
</TABLE>
See accompanying notes to financial statements
F-8
COPPER MOUNTAIN NETWORKS, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Net revenue $112,723 $ 21,821 $ 211
Cost of revenue 53,002 12,400 1,717
--------------- --------------- ---------------
Gross profit (loss) 59,721 9,421 (1,506)
Operating expenses:
Research and development 15,523 7,225 4,753
Sales and marketing 16,158 5,363 1,510
General and administrative 5,998 3,428 1,928
Amortization of deferred stock compensation 5,431 3,929 1,490
--------------- --------------- ---------------
Total operating expenses 43,110 19,945 9,681
--------------- --------------- ---------------
Income (loss) from operations 16,611 (10,524) (11,187)
Other income (expense):
Interest and other income 4,385 406 268
Interest expense (289) (213) (97)
--------------- --------------- ---------------
Income (loss) before income taxes 20,707 (10,331) (11,016)
Provision for income taxes 8,490 ---- ----
--------------- --------------- ---------------
Net income (loss) $ 12,217 $(10,331) $(11,016)
=============== =============== ===============
Basic net income (loss) per share $ 0.39 $ (3.87) $ (7.81)
=============== =============== ===============
Diluted net income (loss) per share $ 0.23 $ (3.87) $ (7.81)
=============== =============== ===============
Basic common equivalent shares 31,289 2,666 1,410
=============== =============== ===============
Diluted common equivalent shares 52,282 2,666 1,410
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements
F-9
COPPER MOUNTAIN NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- ------------------
Notes
Receivable Additional
Number of Number of From Paid in
Shares Amount Shares Amount Stockholders Capital
--------- -------- --------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,723 $ 2,723 3,929 $4 (69) $ 1,896
Issuance of Series B convertible preferred stock
at $3.39 per share for cash and conversion of
convertible bridge note payable, net 1,850 6,196 ---- ---- ---- ----
Issuance of Series C convertible preferred stock
at $4.75 per share for cash 2,422 11,506 ---- ---- ---- ----
Exercise of options to purchase common stock ---- ---- 477 ---- ---- 16
Stock grants for consulting services 2 ---- 55 ---- ---- 15
Issuance of warrants to purchase convertible
preferred stock in connection with technology
agreement, notes payable, and consulting
services ---- ---- ---- ---- ---- 113
Deferred compensation related to the grant of
stock options ---- ---- ---- ---- ---- 2,429
Amortization related to deferred stock
compensation ---- ---- ---- ---- ---- ----
Net loss ---- ---- ---- ---- ---- ----
--------- -------- --------- ------ ------------ ----------
Balance at December 31, 1997 6,997 20,425 4,461 4 (69) 4,469
Exercise of options to purchase common stock ---- ---- 1,030 1 ---- 60
Stock grants for consulting services ---- ---- 19 ---- ---- 5
Deferred compensation related to the grant of
stock options ---- ---- ---- ---- ---- 11,128
Amortization related to deferred stock
compensation ---- ---- ---- ---- ---- ----
Stock forfeited by employee ---- ---- (476) ---- 16 (16)
Repayment of note receivable from stockholder ---- ---- ---- ---- 12 ----
Issuance of Series C convertible preferred stock
warrants in connection with a financing
agreement ---- ---- ---- ---- ---- 21
Issuance of Series D convertible preferred stock
at $7.75 per share for cash, net 3,226 24,077 ---- ---- ---- ----
Net loss ---- ---- ---- ---- ---- ----
--------- -------- --------- ------ ------------ ----------
Balance at December 31, 1998 10,223 $44,502 5,034 $5 $(41) $15,667
<CAPTION>
Total
Deferred Accumulated Stockholders'
Compensation Deficit Equity
------------ ----------- -------------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ (1,624) $ (2,181) $ 749
Issuance of Series B convertible preferred stock
at $3.39 per share for cash and conversion of
convertible bridge note payable, net ---- ---- 6,196
Issuance of Series C convertible preferred stock
at $4.75 per share for cash ---- ---- 11,506
Exercise of options to purchase common stock ---- ---- 16
Stock grants for consulting services ---- ---- 15
Issuance of warrants to purchase convertible
preferred stock in connection with technology
agreement, notes payable, and consulting
services ---- ---- 113
Deferred compensation related to the grant of
stock options (2,429) ---- ----
Amortization related to deferred stock
compensation 1,490 ---- 1,490
Net loss ---- (11,016) (11,016)
------------ ----------- -------------------
Balance at December 31, 1997 (2,563) (13,197) 9,069
Exercise of options to purchase common stock ---- ---- 61
Stock grants for consulting services ---- ---- 5
Deferred compensation related to the grant of
stock options (11,128) ---- ----
Amortization related to deferred stock
compensation 3,929 ---- 3,929
Stock forfeited by employee ---- ---- ----
Repayment of note receivable from stockholder ---- ---- 12
Issuance of Series C convertible preferred stock
warrants in connection with a financing
agreement ---- ---- 21
Issuance of Series D convertible preferred stock
at $7.75 per share for cash, net ---- ---- 24,077
Net loss ---- (10,331) (10,331)
------------ ----------- -------------------
Balance at December 31, 1998 $ (9,762) $(23,528) $ 26,843
</TABLE>
See accompanying notes to financial statements
F-10
COPPER MOUNTAIN NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CON'T)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- -----------------
Notes
Receivable Additional
Number of Number of from Paid in
Shares Amount Shares Amount Stockholders Capital
--------- --------- --------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Conversion of preferred to common stock (10,223) $(44,502) 30,670 $31 $ ---- $ 44,471
Issuance of common stock, net ---- ---- 9,200 9 ---- 88,664
Stock grants for consulting services ---- ---- 1 ---- ---- 7
Repayment of notes receivable from stockholders ---- ---- ---- ---- 41 ----
Deferred compensation related to the grant of stock options ---- ---- ---- ---- ---- 234
Amortization related to deferred stock compensation ---- ---- ---- ---- ---- ----
Net exercise of warrant to purchase common stock ---- ---- 235 ---- ---- ----
Tax benefit from the exercise of stock options ---- ---- ---- ---- ---- 9,389
Exercise of options to purchase common stock ---- ---- 2,522 3 ---- 717
Net income ---- ---- ---- ---- ---- ----
--------- --------- --------- ------ ------------ ----------
Balance at December 31, 1999 ---- $ ---- 47,662 $48 $ ---- $159,149
========= ========= ========= ====== ============ ==========
<CAPTION>
Total
Deferred Accumulated Stockholders'
Compensation Deficit Equity
------------- --------- ------------
<S> <C> <C> <C>
Conversion of preferred to common stock $ ---- $ ---- $ ----
Issuance of common stock, net ---- ---- 88,673
Stock grants for consulting services ---- ---- 7
Repayment of notes receivable from stockholders ---- ---- 41
Deferred compensation related to the grant of stock options (234) ---- ----
Amortization related to deferred stock compensation 5,431 ---- 5,431
Net exercise of warrant to purchase common stock ---- ---- ----
Tax benefit from the exercise of stock options ---- ---- 9,389
Exercise of options to purchase common stock ---- ---- 720
Net income ---- 12,217 12,217
--------- --------- ---------
Balance at December 31, 1999 $ (4,565) $ (11,311) $ 143,321
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-11
COPPER MOUNTAIN NETWORKS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 12,217 $(10,331) $(11,016)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 3,089 1,231 511
Non-cash compensation 5,438 3,934 1,503
Loss on disposal of equipment 193 ---- ----
Tax benefit from the sale of stock options 9,389 ---- ----
Changes in operating assets and liabilities:
Accounts receivable (10,966) (7,843) (183)
Inventory (8,133) (4,285) (383)
Other current assets and other assets (1,095) (1,469) (155)
Accounts payable and accrued liabilities 10,174 4,435 1,735
--------- -------- --------
Net cash provided by (used in) operating activities 20,306 (14,328) (7,988)
--------- -------- --------
Cash flows from investing activities:
Purchases of marketable investments (113,416) (11,140) ----
Maturities of marketable investments 27,411 242 ----
Purchases of property and equipment (6,572) (1,171) (1,515)
--------- -------- --------
Net cash used in investing activities (92,577) (12,069) (1,515)
--------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of equipment notes payable 2,464 921 615
Payments on capital lease obligations (429) (293) (18)
Payments on equipment notes payable (1,424) (267) (201)
Proceeds from issuance of preferred stock ---- 24,077 15,202
Repayment of shareholders notes receivable 41 ---- ----
Proceeds from issuance of common stock 89,393 73 16
--------- -------- --------
Net cash provided by financing activities 90,045 24,511 15,614
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 17,774 (1,886) 6,111
Cash and cash equivalents at beginning of year 7,631 9,517 3,406
--------- -------- --------
Cash and cash equivalents at end of year $ 25,405 $ 7,631 $ 9,517
========= ======== ========
Supplemental information:
Interest paid $ 289 $ 150 $ 74
========= ======== ========
Capital lease obligations entered into for equipment $ 2,303 $ 1,307 $ 327
========= ======== ========
Conversion of convertible bridge note payable to
preferred stock $ ---- $ ---- $ 2,500
========= ======== ========
Stock forfeited for notes receivable $ ---- $ (16) $ ----
========= ======== ========
Issuance of convertible preferred stock warrants $ ---- $ 21 $ 113
========= ======== ========
Issuance of stock for consulting services $ 7 $ 5 $ 13
========= ======== ========
</TABLE>
See accompanying notes to financial statements
F-12
COPPER MOUNTAIN NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization and Business Activity
Copper Mountain Networks, Inc. (the "Company" or "Copper Mountain"), a
Delaware corporation, is a supplier of high-speed DSL-based communication
solutions for the broadband access market. The Company's solutions enable
telecommunication service providers to provide high-speed, cost-effective
connectivity over the existing copper wire infrastructure to the business,
multiple tenant unit and residential markets.
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. The carrying value of these instruments approximates fair value. The
Company generally invests its excess cash in debt instruments of the U.S.
Treasury, government agencies and corporations with strong credit ratings. Such
investments are made in accordance with the Company's investment policy, which
establishes guidelines relative to diversification and maturities designed to
maintain safety and liquidity. These guidelines are periodically reviewed and
modified to take advantage of trends in yields and interest rates. The Company
has not experienced any significant losses on its cash and cash equivalents.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, marketable investments,
accounts receivable, accounts payable, accrued liabilities, short-term bank
borrowings and notes payable approximates fair value.
Investments
At December 31, 1999, the Company held investments in investment grade debt
securities with various maturities through January 2001. Management determines
the appropriate classification of its investments in debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date. The
Company's total investments in these securities as of December 31, 1999 totaled
$106.7 million. The Company has included $9.8 million of these securities in
cash and cash equivalents, as of December 31, 1999, as they have original
maturities of less than 90 days. The remaining debt securities totaling $91.8
million and $5.1 million as of December 31, 1999 have been classified as short-
term and long-term marketable investments, respectively. The Company has
designated all of its investments as held to maturity.
F-13
Concentration of Credit Risk
The Company operates in one business segment, developing, marketing and
supporting advanced communications products which enable high-speed data access
to business, multi-tenant unit and residential users. The markets for high-speed
data access products are characterized by rapid technological developments,
frequent new product introductions, changes in end user requirements and
evolving industry standards. The Company's future success will depend on its
ability to develop, introduce and market enhancements to its existing products,
to introduce new products in a timely manner which meet customer requirements
and to respond to competitive pressures and technological advances. Further, the
emergence of new industry standards, whether through adoption by official
standards committees or widespread use by telephone companies or other
telecommunications service providers, could require the Company to redesign its
products.
A relatively small number of customers account for a significant percentage of
the Company's revenues. The Company expects that the sale of its products to a
limited number of customers may continue to account for a high percentage of
revenues for the foreseeable future. The Company's revenues for the year ended
December 31, 1999 include sales to three significant customers totaling $42.2
million, $32.0 million and $25.4 million. The Company's revenues for the year
ended December 31, 1998 include sales to two significant customers totaling
$13.2 million and $4.0 million.
The Company performs ongoing credit evaluations of its customers and generally
requires no collateral. The Company had significant accounts receivable balances
due from four customers individually representing 39%, 24%, 12% and 10% of total
accounts receivable at December 31, 1999.
The Company from time to time maintains a substantial portion of its cash and
cash equivalents in money market accounts with one financial institution. The
Company invests its excess cash in debt instruments of the U.S. Treasury,
governmental agencies and corporations with strong credit ratings. The Company
has established guidelines relative to diversification and maturities that
attempt to maintain safety and liquidity. The Company has not experienced any
significant losses on its cash equivalents or marketable investments.
Inventory
Inventory is stated at the lower of cost, principally standard costs, which
approximate actual costs on a first-in, first-out basis, or market. The Company
recorded charges to reduce the carrying costs of inventory totaling $750,000,
$504,000 and $315,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. The reduction in the value of the inventory was primarily due to
the discontinuance of certain products, which was the result of the development
and introduction of new products. For the year ended December 31, 1997, the
Company also incurred a loss on purchase commitments totaling $582,000 to
purchase inventory used in the production of the discontinued products which had
not yet been received by December 31, 1997. All such reductions to inventory
value and losses on revenue commitments for the years ended December 31, 1999
and 1998 are included in cost of revenues.
Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets, ranging from two to five years, using the straight-
line method.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment or, in some
cases, on customer receipt if collection of the resulting receivable is probable
and product returns can be reasonably estimated. Sales returns are estimated
based on historical experience and management's expectations and are recorded at
the time product revenue is recognized.
F-14
Revenue from service and support arrangements is recognized ratably as
services are performed. Annual service and support arrangements can be purchased
by customers for products no longer under warranty and are billed quarterly.
The Company may extend limited stock rotation, product return and price
protection rights to certain distributors and resellers. The Company may not be
able to estimate product returns if the relationship with the distributor is new
or if there is limited historical basis to determine product returns. Deferred
revenue, which is included in accrued liabilities, represents the margin on
shipments of products to distributors or resellers that will be recognized when
the Company can reasonably estimate product returns.
Research and Development Costs
Costs incurred in connection with research and development are charged to
operations as incurred.
Software Costs
Software product development costs incurred from the time technological
feasibility is reached until the product is available for general release to
customers are capitalized and reported at the lower of cost or net realizable
value. There have been no such costs capitalized to date as the costs incurred
subsequent to reaching technological feasibility have not been significant.
Impairment of Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when there
is evidence that events or changes in circumstances have made recovery of the
asset's carrying value unlikely. An impairment loss would be recognized when the
sum of the expected future undiscounted net cash flows is less than the carrying
amount of the asset. Should an impairment exist, the impairment loss would be
measured based on the excess of the carrying amount of the asset over the
asset's fair value. The Company has identified no such impairment losses.
Substantially all of the Company's long-lived assets are located in the United
States.
Warranty Reserves
The Company provides limited warranties on certain of its products for periods
of up to one year. The Company recognizes warranty reserves when products are
shipped based upon an estimate of total warranty costs, and such reserves are
included in accrued liabilities.
Income Taxes
Deferred income taxes result primarily from temporary differences between
financial and tax reporting. Deferred tax assets and liabilities are determined
based on the difference between the financial statement bases and the tax bases
of assets and liabilities using enacted tax rates. A valuation allowance is
established to reduce a deferred tax asset to the amount that is expected more
likely than not to be realized.
Stock Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income (loss) and net income (loss) per share as if the fair
value method had been applied in measuring compensation expense (See Note 7).
F-15
Deferred compensation for options granted to non-employees has been determined
in accordance with SFAS No. 123 and EITF 96-18 as the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. Deferred charges for options granted to
non-employees are periodically remeasured as the underlying options vest.
Net Income (Loss) 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
and common stock equivalents during the period. Options, warrants, and preferred
stock were not included in the computation of diluted net loss per share for the
years ended December 31, 1998 and 1997 because the effect would be anti-
dilutive.
A reconciliation of shares used in the calculation of basic and diluted net
loss per share attributable to common shareholders is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Weighted average common shares outstanding 31,289 2,666 1,410
Dilutive effect of preferred shares 11,091 ---- ----
Dilutive effect of stock options 8,585 ---- ----
Dilutive effect of restricted shares 708 ---- ----
Dilutive effect of warrants 609 ---- ----
------ ----- -----
Shares used in computing diluted net income (loss) per
common share 52,282 2,666 1,410
====== ===== =====
</TABLE>
Dilutive securities include options, warrants, preferred stock as if converted
and restricted stock subject to vesting. Potentially dilutive securities
totaling 40.9 million and 27.6 million for the years ended December 31, 1998 and
1997, respectively, were excluded from basic and diluted earnings per share
because of their anti-dilutive effect.
Recapitalization
In April 1999, the Company reincorporated as a Delaware corporation. The
authorized shares of the Company were set at 100 million shares of common stock
($.001 par value) and 5 million shares of preferred stock ($.001 par value).
Under the restated certificate, the Company's board of directors has the
authority, without further action by stockholders, to issue up to 5 million
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon such preferred stock. The issuance of preferred stock could adversely
affect the voting power of holders of common stock. All common share data in the
accompanying financial statements have been adjusted retroactively to give
effect to the reincorporation.
In November 1999, the Company's Board of Directors declared a two-for-one
stock split of the Company's common stock in the form of a stock dividend. The
stock dividend was distributed on December 10, 1999 to stockholders of record on
November 24, 1999. All references in the financial statements and notes to
number of shares and per share amounts have been restated to reflect this stock
split.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." In May 1999, the FASB voted to
delay the effective date of FAS 133 by one year. The Company will be required to
adopt FAS 133 for
F-16
fiscal year 2001. This statement establishes a new model for accounting for
derivatives and hedging activities. Under FAS 133, all derivatives must be
recognized as assets and liabilities and measured at fair value. The Company has
not completed its determination of the impact of the adoption of this new
accounting standard on its financial position or results of operations.
2. Completion of Initial Public Offering
On May 13, 1999, the Company completed its initial public offering for the
sale of 9.2 million shares of common stock at a price to the public of $10.50
per share, which resulted in net proceeds to the Company of $89.8 million after
payment of the underwriters' commissions but before offering expenses.
Simultaneously with the closing of the initial public offering, all of the
Company's convertible preferred stock was automatically converted into an
aggregate of 30.7 million shares of common stock.
3. Composition of Certain Balance Sheet Captions
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------- --------------
(in thousands)
<S> <C> <C>
Accounts receivable:
Trade receivables $19,132 $ 8,026
Allowance for doubtful accounts (140) ----
------- -------
$18,992 $ 8,026
======= =======
Inventory:
Raw materials $ 6,003 $ 2,582
Work in process 3,148 790
Finished goods 3,650 1,296
------- -------
$12,801 $ 4,668
======= =======
Property and equipment:
Laboratory equipment and software $ 8,590 $ 2,265
Computer equipment and software 3,294 1,885
Office furniture and fixtures 1,669 840
------- -------
13,553 4,990
Less accumulated depreciation and amortization (4,728) (1,776)
------- -------
$ 8,825 $ 3,214
======= =======
Accrued liabilities:
Accrued compensation $ 2,293 $ 621
Accrued warranty 1,930 418
Accrued vacation 1,385 493
Other 3,192 687
------- -------
$ 8,800 $ 2,219
======= =======
</TABLE>
F-17
4. Investments
At December 31, 1999 and 1998, investments consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Current Noncurrent
-------------------------------- --------------------------------
December 31, December 31,
-------------------------------- --------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Held to maturity:
Commercial paper $31,856 $ 995 $ ---- $----
U.S. government securities 33,514 9,903 ---- ----
Corporate medium-term notes 26,394 ---- 5,139 ----
------- ------- ------ -----
$91,764 $10,898 $5,139 $----
======= ======= ====== =====
</TABLE>
At December 31, 1999, non-current held-to-maturity debt securities of $5.1
million had maturities of less than fourteen months.
5. Short-Term Bank Borrowings
In August 1998, the Company entered into a $4.0 million line of credit
agreement with a bank which allows it to borrow an amount equal to 80% of
eligible accounts receivable plus the lesser of 25% of the Company's eligible
inventory or $500,000. Interest accrued at the bank's prime rate plus .25% (8.0%
at December 31, 1998). There were no borrowings outstanding as of December 31,
1999 and the line of credit expired on August 13, 1999.
In connection with this financing agreement, the Company granted warrants to
the bank to purchase an aggregate of 25,000 shares of Series C convertible
preferred stock at $4.75 per share. The warrants are exercisable for five years
from the date of issuance. The estimated fair value of the warrants was
approximately $21,000, which has been capitalized as debt issuance costs and was
amortized over the life of the financing agreement. These warrants were
exercised in 1999 and converted into 75,000 shares of common stock.
6. Notes Payable
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 December 31, 1999, the full amount of
funds available under the equipment loan had been utilized. As of December 31,
1999, the Company had $316,000 available for future borrowings under the capital
lease agreement. The borrowings under the equipment loans and the capital lease
agreement are to be repaid in 48 equal monthly installments and accrue interest
at 10.8%. Both obligations are secured by the related equipment. All borrowings
under the capital lease agreement must be completed by March 31, 2000.
In August 1998, the Company entered into an equipment line of credit with a
bank that allows the Company to borrow up to $1.0 million for the purchase of
equipment. The Company used a portion of the equipment loans entered into in
August 1999 to repay all amounts outstanding under this equipment line.
In 1996, the Company entered into an equipment financing agreement with a
bank and leasing company that allows the Company to borrow up to $1.0 million
for purchases of equipment. The notes are secured by the related equipment. As
of December 31, 1999 the full amount of funds available under the equipment
financing agreement was utilized.
In connection with the 1996 equipment financing agreement, the Company agreed
to make a final payment equal to 12.5% of the equipment financed at the end of
the amortization period. Additionally, the Company granted warrants to the bank
and leasing company to purchase an aggregate of 50,000 shares of Series A
convertible preferred stock at $1.00 per share of which 40,000 warrants were
exercised in 1999 and converted into 120,000 shares of
F-18
common stock. The warrants are exercisable for the longer of ten years from the
date of issuance or five years after an initial public offering. The estimated
fair value of the warrants was approximately $18,000, which has been capitalized
as debt issuance costs and is being amortized over the life of the equipment
financing agreement.
In December 1996, the Company received $2.5 million in connection with a
convertible bridge note that accrued interest at 8.0% per annum. During 1997,
the note was converted into Series B convertible preferred stock at a rate of
$3.39 per share.
A summary of the notes payable is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
-------------- --------------
(in thousands)
<S> <C> <C>
Bank installment loan, with a various maturity dates through October
2003, total monthly payments of $57,000, bearing interest at $2,254 $ ----
10.8%, collateralized by equipment
Bank and leasing company installment loans, with various maturity
dates through December 2000, total monthly payments of $27,000
with interest rates ranging between 8.99% and 9.76%, collateralized
by equipment 212 504
Bank installment loan, with a maturity date of August 2002, interest
only payments until August 1999 with a variable interest rate at the
bank prime rate plus 0.25%, collateralized by equipment ---- 921
------ ------
2,466 1,425
Less current portion (753) (395)
------ ------
$1,713 $1,030
====== ======
</TABLE>
At December 31, 1999, future aggregate annual principal payments on the notes
payable are $753,000, $513,000, $571,000 and $629,000 for 2000, 2001, 2002 and
2003, respectively.
7. Stockholders' Equity
Preferred Stock
At December 31, 1998, the Company had 10.2 million shares of its convertible
preferred stock outstanding. On May 18, 1999, the Company completed its initial
public offering which resulted in the conversion of all of the outstanding
convertible preferred stock into 30.7 million shares of common stock. Following
the conversion, and upon the Company's reincorporation in Delaware, the
Company's certificate of incorporation was amended and restated to delete all
references to such shares of preferred stock. Under the restated certificate,
the Board has the authority, without further action by stockholders, to issue up
to 5.0 million shares of preferred stock in one or more series and to fix the
rights, preferences, privileges, qualifications and restrictions granted to or
imposed upon such preferred stock, including dividend rights, conversion rights,
voting rights, rights and terms of redemption, liquidation preference and
sinking fund terms, any or all of which may be greater than the rights of the
common stock.
Common Stock
The Company has issued 3.9 million shares of common stock to the founders of
the Company at prices ranging from $.02 to $.04 per share in exchange for
promissory notes bearing interest at rates ranging from 5.5% to 10% and maturing
March 12, 2000. The Company has the option to repurchase, at the original issue
price, unvested shares in the event of termination of employment. In 1998,
476,000 unvested common shares were forfeited upon the termination of one of the
founders. Shares issued under these agreements generally vest over four years.
As of December 31, 1999 all amounts outstanding under the remaining promissory
notes had been repaid by the founders. At December 31, 1999, 195,000 shares of
common stock are subject to repurchase by the Company.
F-19
1996 Equity Incentive Plan
In August 1996, the Company adopted the 1996 Equity Incentive Plan (the
"1996 Plan"). A total of 15.7 million shares of common stock are currently
reserved for issuance pursuant to the 1996 Plan. In addition, the 1996 Plan
provides for automatic annual increases in the number of shares reserved for
issuance thereunder (beginning in 2000) equal to the lesser of: (i) 4% of Copper
Mountain's outstanding shares on a fully diluted basis taking into account stock
options and warrants and (ii) a lesser amount determined by the board of
directors.
The 1996 Plan provides for the grant of options to the Company's directors,
officers, key employees, consultants and certain advisors. The 1996 Plan
provides for the grant of incentive and nonstatutory stock options, stock
bonuses and rights to purchase stock to employees, directors or consultants of
the Company. The 1996 Plan provides that incentive stock options will be granted
only to employees at no less than the fair market value of the Company's common
stock (no less than 85% of the fair market value for nonstatutory stock
options). Options generally vest 25% one year from date of grant and ratably
each month thereafter for a period of 36 months, and are exercisable up to ten
years from date of grant.
Certain option grants under the 1996 Plan are subject to an early exercise
provision. Common shares obtained on early exercise of unvested options are
subject to repurchase by the Company at the original issue price and will vest
according to the respective option agreement. At December 31, 1999, 70,000
shares are subject to repurchase by the Company.
Non-Employee Directors' Stock Option Plan
In March 1999, the Company adopted the 1999 Non-Employee Directors' Stock
Option Plan ("Directors Plan") to provide for the automatic grant of options to
purchase shares of common stock to our non-employee directors. The Directors
Plan is administered by the board, unless the board delegates administration to
a committee of at least two disinterested directors. A total of 720,000 shares
of common stock has been reserved for issuance under the Directors Plan.
On the effective date of the Directors Plan, each person who was then a non-
employee director was granted an option to purchase 60,000 shares of common
stock. Each person who, after the effective date of the plan, for the first time
becomes a non-employee director automatically will be granted, upon the date of
his or her initial appointment or election to be a non-employee director, a one-
time option to purchase 60,000 shares of common stock. On the date of each
annual meeting of our stockholders commencing with the 2000 annual meeting of
stockholders, each person who was initially elected or appointed to be a non-
employee director at least six months prior to the date of such annual meeting
automatically will be granted an option to purchase 20,000 shares of common
stock.
Options granted under the Directors Plan shall be fully vested and
exercisable on the date of grant and must be exercised within five years from
the date they are granted. The exercise price of options under the Directors
Plan will equal 100% of the fair market value of the common stock on the date of
grant. Unless otherwise terminated by the board of directors, the Directors Plan
automatically terminates when all of our common stock reserved for issuance
under the Directors Plan has been issued. As of December 31, 1999, 360,000 stock
options have been granted under the Directors Plan.
F-20
All stock option transactions are summarized as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
----------------- ---------------
<S> <C> <C>
Balance at December 31, 1996 2,321 $ .04
Granted 2,140 $ .12
Exercised (477) $ .04
Cancelled (231) $ .04
------
Balance at December 31, 1997 3,753 $ .08
Granted 6,173 $ .33
Exercised (1,029) $ .06
Cancelled (366) $ .12
------
Balance at December 31, 1998 8,531 $ .26
Granted 4,829 $18.09
Exercised (2,522) $ .28
Cancelled (82) $ 1.97
------
Balance at December 31, 1999 10,756 $ 8.25
======
</TABLE>
As of December 31, 1999, 1998, and 1997 there were 1.9 million, 1.3 million
and 1.2 million options, respectively, exercisable at weighted average exercise
prices of $1.22, $.08 and $.04, respectively.
The following table summarizes all options outstanding and exercisable by
price range as of December 31, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life-Years Price Exercisable Price
---------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .03 - 0.11 856 7.30 $ 0.09 248 $0.08
0.16 - 0.16 3,716 8.43 0.16 1,065 0.16
0.27 - 3.50 2,218 8.90 1.77 304 1.17
4.25 - 10.50 2,514 8.67 6.42 300 6.00
30.19 - 60.50 1,452 9.68 46.84 ---- ----
------ -----
$ 0.03 - 60.50 10,756 8.66 $ 8.25 1,917 $1.22
====== =====
</TABLE>
Stock Based Compensation
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" to account for their employee stock option plans. Under
APB No. 25, when the exercise price of the Company's employee stock options
equals the fair value price of the underlying stock on the date of grant, no
compensation expense is recognized in the Company's financial statements. In
previously issued financial statements the Company estimated the deemed fair
value of its common stock in connection with the accounting for stock options
granted
F-21
during the three fiscal years ended December 31, 1998, which resulted in the
Company recording deferred compensation of $1.1 million, with respect to certain
options granted during 1998. During April 1999, in conjunction with the
Company's initial public offering registration statement, the Company revised
the estimates of the deemed fair value of its common stock at various dates and
has recognized additional deferred compensation of $1.8 million, $2.4 million,
$10.0 million and $234,000 during the four fiscal years ended December 31, 1999.
The deferred compensation is being amortized to expense in accordance with FASB
Interpretation No. 28 over the vesting period of the individual options,
generally four years.
Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's pro forma amounts would
have been as indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) as reported $12,217 $(10,331) $(11,016)
Pro forma net loss under SFAS No. 123 (2,064) (10,884) (11,161)
Pro forma basic and diluted net loss per share
under SFAS No. 123 (0.07) (4.07) (7.92)
</TABLE>
The fair value of each option grant subsequent to the Company's initial public
offering in May 1999 was estimated on the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: no
dividend yield; volatility factor of 76.0%; risk free interest rate of 6.0%; and
expected life for the option of five years.
The fair value of each option grant prior to the Company's initial public
offering in May 1999 was estimated on the date of grant using the minimum value
method with the following weighted-average assumptions: no dividend yield; risk
free interest rate of 5.7% to 6.5%; and expected life for the option of five
years.
The weighted-average estimated fair value of employee stock options granted
during 1999, 1998 and 1997 was $14.01, $0.08 and $0.03 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the vesting period.
Employee Stock Purchase Plan
In February 1999, the Company adopted the 1999 Employee Stock Purchase Plan.
A total of 600,000 shares of common stock has been reserved for issuance under
the purchase plan. The purchase plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Internal Revenue
Code. Under the purchase plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the commencement of the purchase plan. The initial offering under the
purchase plan commenced on May 13, 1999 and terminates on July 31, 2000.
Unless otherwise determined by the Board, employees are eligible to
participate in the purchase plan only if they are employed by us or one of our
subsidiaries designated by the Board of Directors for at least 20 hours per week
and are customarily employed for at least five months per calendar year.
Employees who participate in an offering may have up to 10% of their earnings
withheld pursuant to the purchase plan. The amount withheld is then used to
purchase shares of common stock on specified dates determined by the Board of
Directors. The price of common stock purchased under the purchase plan will be
equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment.
F-22
Warrants
In January 1997, the Company entered into an agreement with a corporate
partner, whereby the two companies exchanged certain technology and services.
In addition, the Company issued a warrant to such corporate partner to purchase
147,401 shares of Series B convertible preferred stock at a price of $3.39 per
share. The warrant is exercisable for four years following the date of
issuance. The estimated fair value of the warrant was $88,000, which has been
capitalized as an intangible asset and was amortized over the two-year term of
the agreement. The warrant is convertible into 442,202 shares of common stock.
Common Shares Reserved for Future Issuance
At December 31, 1999, common shares reserved for future issuance consist of
the following (in thousands):
Warrants 472
Shares reserved for future option exercises 10,756
------
11,228
======
8. Commitments
The Company leases its facilities under noncancelable operating leases
expiring in 2005. The leases contain renewal options and are subject to cost
increases. Rent expense totaled $1.6 million, $501,000 and $219,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum payments under the noncancelable operating leases and equipment
under capital leases consist of the following at December 31, 1999 (in
thousands):
Operating Capital
Leases Leases
------------ -------------
Year ending December 31,
2000 $ 2,668 $1,138
2001 2,522 1,124
2002 2,330 792
2003 2,259 820
2004 2,194 ----
Thereafter 1,306 ----
------- ------
Total minimum lease payments $13,279 3,874
======= (678)
Less amount representing interest ------
Total present value of minimum payments 3,196
Less current portion (865)
------
Non-current portion $2,331
======
During September 1997, the Company entered into a capital lease agreement,
which allows for the Company to borrow up to $1,750,000 to finance capital
expenditures. As of December 31, 1999, the Company had borrowed all of the
available funds under this agreement.
In conjunction with the capital lease agreement, the Company issued a warrant
to the lessor to purchase 14,737 shares of Series C convertible preferred stock
at a price of $4.75 per share all of which were exercised in 1999 and converted
into 40,000 shares of common stock. The estimated fair value of the warrant was
$25,000, which has been capitalized as debt issuance costs and is being
amortized over the life of the financing agreement.
F-23
Equipment held under the capital leases totaled $4.1 million and $1.7 million
and the related accumulated amortization totaled $1.4 million and $559,000 at
December 31, 1999 and 1998, respectively. The obligations under the capital
leases are secured by the related equipment.
9. Income Taxes
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Current provision:
Federal $ ---- $ ----
State ---- ----
------- -------
Total current: ---- ----
Deferred provision:
Federal 822 ----
State 329 ----
------- -------
Total deferred: 1,151 ----
Benefit of net operating loss carryforwards (2,050)
Stock options - benefit to additional paid in capital 9,389 ----
------- -------
$ 8,490 $ ----
======= =======
</TABLE>
The following is a reconciliation from the expected statutory federal income
tax expense to the Company's actual income tax expense (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------
1999 1998
------------- --------------
<S> <C> <C>
Tax at U.S. statutory rate $7,237 $(3,616)
State income taxes, net of federal benefit 1,190 (620)
Net change in valuation allowance and other 63 4,236
------ -------
$8,490 $ ----
====== =======
</TABLE>
A valuation allowance of $13.3 million has been recorded at December 31, 1999
to offset the net deferred tax assets as realization is uncertain. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1999 and 1998 are shown below (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Deferred tax liability:
Depreciation $ ---- $ (12)
Deferred tax assets:
Net operating loss carryforwards 5,562 5,757
Tax credit carryforwards 2,993 1,185
Accruals and reserves 1,957 351
Deferred compensation 1,747 ----
Inventory reserves 927 500
Other, net 153 ----
-------- -------
Total deferred tax assets 13,339 7,793
Valuation allowance (13,339) (7,793)
-------- -------
Net deferred tax assets $ ---- $ ----
======== =======
</TABLE>
F-24
The Company had federal and California tax net operating loss carryforwards
at December 31, 1999 of approximately $14.5 million and $14.9 million,
respectively. The federal and California tax loss carryforwards will begin to
expire in 2011 and 2004, respectively, unless previously utilized. Included in
the net operating loss carryforwards are stock option deductions of
approximately $5.0 million. The benefit of these net operating loss
carryforwards will be credited to equity when realized. The Company also has
federal and California research tax credit carryforwards of approximately $2.0
million and $1.5 million, respectively, which will begin to expire in 2011
unless previously utilized.
Pursuant to Internal Revenue Service Code Sections 382 and 383, use of the
Company's net operating loss and credit carryforwards are limited because of a
cumulative change in ownership of more than 50% which occurred in prior years.
However, the Company does not believe such limitations will have a material
impact on the Company's ability to use these carryforwards.
10. Employee Savings Plan
The Company has a 401(k) plan, which allows participating employees to
contribute up to 15% of their salary, subject to annual limits. The Company may,
at its sole discretion, approve Company contributions. The Company has approved
a match of 50% of the first 4% of salary deferred by employees during the year
ending December 31, 2000. The Board has not approved any previous matching
contributions.
11. Related Party Transactions
At December 31, 1999, the Company had a note receivable from an officer with
a face value of $1.0 million included in other assets. This note was issued in
connection with the officer's employment and relocation agreement. The note
bears no interest, is secured by the officer's residence and is due at the
earlier of March 30, 2003, or 15 days from the date the officer ceases to be an
employee of the Company.
12. Recent Events
In February 2000, the Company completed its acquisition of privately-held
OnPREM Networks Corporation ("OnPREM") of Fremont, California. OnPREM is a
developer of highly integrated DSL solutions for the small and medium building
Multi-Tenant Unit ("MTU") market. Under the terms of the agreement, Copper
Mountain acquired OnPREM in exchange for the issuance of approximately 1.3
million shares of Copper Mountain common stock and Copper Mountain stock
options. The acquisition was accounted for as a purchase transaction.
F-25
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
OnPrem Networks Corporation
We have audited the accompanying balance sheets of OnPrem Networks Corporation
(a development stage company) as of June 30, 1998 and 1999 and the related
statements of operations, shareholders' equity and cash flows for the year ended
June 30, 1999 and for the periods from January 7, 1998 (inception) through June
30, 1998 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated February 18, 2000,
which report contained an explanatory paragraph regarding the Company's ability
to continue as a going concern, the Company, as discussed in Note 7, has been
acquired by Copper Mountain Networks, Inc. Therefore, the conditions that raised
substantial doubt about whether the Company will continue as a going concern no
longer exist.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OnPrem Networks Corporation (a
development stage company) at June 30, 1998 and 1999, and the results of its
operations and its cash flows for the year ended June 30, 1999 and for the
periods from January 7, 1998 (inception) through June 30, 1998 and 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
February 18, 2000,
except for Note 7, as to which the date is
February 29, 2000
F-26
OnPrem Networks Corporation
(a development stage company)
<TABLE>
<CAPTION>
Balance Sheets
June 30, December 31,
1998 1999 1999
-------------------------------------------------
Assets (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 6,051 $ 408,519 $ 2,077,875
Prepaid expenses 800 15,500 10,000
-------------------------------------------------
Total current assets 6,851 424,019 2,087,875
Property and equipment, net 4,924 233,943 405,511
Software license, net 26,917 5,041 -
Deposits - 47,623 129,280
Other assets 2,655 - -
-------------------------------------------------
$ 41,347 $ 710,626 $ 2,622,666
=================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 11,998 $ 148,404 $ 167,094
Accounts payable, related party - 9,674 -
Accrued compensation - 39,829 131,103
Convertible notes payable, related parties - - 300,000
-------------------------------------------------
Total current liabilities 11,998 197,907 598,197
Shareholders' equity:
Preferred stock, $.001 par value; 12,513,949
shares authorized;
Series A convertible preferred stock,
4,827,586 shares designated, 4,215,513
shares issued and outstanding at both
December 31, 1999 (unaudited) and June 30,
1999 and 0 shares at June 30, 1998 - 4,215 4,215
Series B redeemable convertible preferred
stock; 7,686,363 shares designated;
7,686,363 shares issued and outstanding at
December 31, 1999 (unaudited) and 0 shares
at June 30, 1999 and 1998 - - 7,686
Common stock, $.001 par value; 50,000,000 shares
authorized; 5,032,941, 4,817,316 and 4,400,000
shares issued and outstanding at December 31,
1999 (unaudited) and June 30, 1999 and 1998,
respectively 4,400 4,817 5,033
Deferred compensation - (606,560) (1,364,108)
Additional paid-in capital 70,400 1,966,972 6,242,274
Deficit accumulated during the development stage (45,451) (856,725) (2,870,631)
-------------------------------------------------
Total shareholders' equity 29,349 512,719 2,024,469
-------------------------------------------------
Total liabilities and shareholders' equity $ 41,347 $ 710,626 $ 2,622,666
=================================================
</TABLE>
See accompanying notes.
F-27
OnPrem Networks Corporation
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
Period from Period from
January 7, January 7, Period from
1998 1998 January 7, 1998
(inception) to Year ended (inception) to Six months (inception) to
June 30, June 30, June 30, ended December 31, December 31,
1998 1999 1999 1999 1999
-------------- ------------ -------------- -------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $ 31,536 $ 496,239 $ 527,775 $ 1,471,832 $ 1,999,607
Sales and marketing 6,435 64,691 71,126 178,123 249,249
General and administrative 7,763 180,785 188,548 189,762 378,310
Amortization of deferred compensation - 77,567 77,567 177,601 255,168
-------- --------- --------- ------------ -----------
Total operating expenses 45,734 819,282 865,016 2,017,318 2,882,334
-------- --------- --------- ------------ -----------
Loss from operations (45,734) (819,282) (865,016) (2,017,318) (2,882,334)
-------- --------- --------- ------------ -----------
Interest and other income, net 283 8,008 8,291 3,412 11,703
-------- --------- --------- ------------ -----------
Net loss $(45,451) $(811,274) $(856,725) $ 2,013,906) $(2,870,631)
======== ========= ========= ============ ===========
</TABLE>
See accompanying notes.
F-28
OnPrem Networks Corporation
(a development stage company)
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Series B redeemable
Series A convertible convertible
preferred stock preferred stock Common stock
Shares Amount Shares Amount Shares Amount
--------------------- ------------------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 7, 1998 (inception) - $ - - $ - - $ -
Issuance of common stock at $.017 per
share to founders for cash in January
1998 - - - - 2,400,000 2,400
Issuance of common stock at $.017 per
share to founders for donated
technology in January 1998 - - - - 2,000,000 2,000
Net loss - - - - - -
--------------------- ------------------------------ --------------------
Balance at June 30, 1998 - - - - 4,400,000 4,400
Exercise of stock options in October
1998 - - - - 83,983 84
Issuance of common stock at $.09 per
share for cash from October through
December 1998 - - - - 333,333 333
Stock options granted for services in
December 1998 - - - - - -
Issuance of Series A convertible
preferred stock at $.29 per share in
March 1999, net of offering costs of
$64,000 3,275,858 3,275 - - - -
Conversion of convertible debt at $.29
per share in March 1999 862,069 862 - - - -
Issuance of Series A convertible
preferred stock at $.29 per share for
services in March 1999 77,586 78 - - - -
Deferred compensation related to the
grant of stock options - - - - - -
Amortization of deferred compensation - - - - - -
Net loss - - - - - -
-----------------------------------------------------------------------------
Balance at June 30, 1999 4,215,513 $4,215 - $ - 4,817,316 $4,817
=============================================================================
<CAPTION>
Deficit
accumulated
Additional during the Total
Deferred paid-in development shareholders'
compensation capital stage equity
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 7, 1998 (inception) $ - $ - $ - $ -
Issuance of common stock at $.017 per
share to founders for cash in January
1998 - 38,400 - 40,800
Issuance of common stock at $.017 per
share to founders for donated
technology in January 1998 - 32,000 - 34,000
Net loss - - (45,451) (45,451)
---------------------------------------------------------------------
Balance at June 30, 1998 - 70,400 (45,451) 29,349
Exercise of stock options in October
1998 - 1,344 - 1,428
Issuance of common stock at $.09 per
share for cash from October through
December 1998 - 29,667 - 30,000
Stock options granted for services in
December 1998 - 27,150 - 27,150
Issuance of Series A convertible
preferred stock at $.29 per share in
March 1999, net of offering costs of
$64,000 - 882,724 - 885,999
Conversion of convertible debt at $.29
per share in March 1999 - 249,138 - 250,000
Issuance of Series A convertible
preferred stock at $.29 per share for
services in March 1999 - 22,422 - 22,500
Deferred compensation related to the
grant of stock options (684,127) 684,127 - -
Amortization of deferred compensation 77,567 - - 77,567
Net loss - (811,274) (811,274)
---------------------------------------------------------------------
Balance at June 30, 1999 $(606,560) $1,966,972 $(856,725) $ 512,719
=====================================================================
</TABLE>
See accompanying notes.
F-29
OnPrem Networks Corporation
(a development stage company)
Statements of Shareholders' Equity (continued)
<TABLE>
<CAPTION>
Series B redeemable
Series A convertible convertible
preferred stock preferred stock Common stock
Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 4,215,513 $4,215 - - 4,817,316 $4,817
Stock options granted for services in
September 1999 (unaudited) - - - - - -
Issuance of Series B convertible
preferred stock at $.44 per share in
October and November 1999, net of
offering costs of $50,000
(unaudited) - - 6,788,636 6,788 - -
Conversion of convertible debt at $.44
per share in November 1999
(unaudited) - - 897,727 898 - -
Exercise of stock options in November
1999 (unaudited) - - - - 215,625 216
Deferred compensation related to the -
grant of stock options (unaudited) - - - - -
Amortization of deferred compensation
(unaudited) - - - - - -
Net loss (unaudited) - - - - - -
----------------------------------------------------------------------------
Balance at December 31, 1999
(unaudited) 4,215,513 $4,215 7,686,363 $7,686 5,032,941 $5,033
============================================================================
<CAPTION>
Deficit
accumulated
Additional during the Total
Deferred paid-in development shareholders'
compensation capital stage equity
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1999 $ (606,560) $1,966,972 $ (856,725) $ 512,719
Stock options granted for services in
September 1999 (unaudited) 9,650 - 9,650
Issuance of Series B convertible
preferred stock at $.44 per share in
October and November 1999, net of
offering costs of $50,000
(unaudited) - 2,930,211 - 2,936,999
Conversion of convertible debt at $.44
per share in November 1999
(unaudited) - 394,102 - 395,000
Exercise of stock options in November
1999 (unaudited) - 6,190 - 6,406
Deferred compensation related to the
grant of stock options (unaudited) (935,149) 935,149 - -
Amortization of deferred compensation
(unaudited) 177,601 - - 177,601
Net loss (unaudited) - - (2,013,906) (2,013,906)
------------------------------------------------------------------
Balance at December 31, 1999
(unaudited) $(1,364,108) $6,242,274 $(2,870,631) $ 2,024,469
==================================================================
</TABLE>
See accompanying notes.
F-30
OnPrem Networks Corporation
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
January 7, 1998 Period from Period from
(inception) January 7, 1998 Six months January 7, 1998
through Year ended (inception) to ended (inception) to
June 30, June 30, June 30, December 31, December 31,
1998 1999 1999 1999 1999
--------------- ----------- --------------- ------------ ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss $(45,451) $ (811,274) $ (856,725) $(2,013,906) $(2,870,631)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 8,314 56,121 64,435 104,491 168,926
Amortization of deferred compensation - 77,567 77,567 177,601 255,168
Non-cash compensation - 49,650 49,650 9,650 59,300
Changes in operating assets and liabilities:
Prepaid expenses (800) (14,700) (15,500) 5,500 (10,000)
Deposits and other assets (2,655) (44,968) (47,623) (81,657) (129,280)
Accounts payable and accrued expenses 11,998 185,909 197,907 100,290 298,197
--------------- ----------- --------------- ------------ ---------------
Net cash used in operating activities (28,594) (501,695) (530,289) (1,698,031) (2,228,320)
Investing activities
Purchase of property and equipment (6,155) (263,264) (269,419) (271,018) (540,437)
--------------- ----------- --------------- ------------ ---------------
Net cash used in investing activities (6,155) (263,264) (269,419) (271,018) (540,437)
Financing activities
Proceeds from convertible notes payable - 250,000 250,000 695,000 945,000
Net proceeds on issuance of common stock 40,800 31,428 72,228 6,406 78,634
Net proceeds on issuance of preferred stock - 885,999 885,999 2,936,999 3,822,998
--------------- ----------- --------------- ------------ ---------------
Net cash provided by financing activities 40,800 1,167,427 1,208,227 3,638,405 4,846,632
Net increase in cash and cash equivalents 6,051 402,468 408,519 1,669,356 2,077,875
Cash and cash equivalents at beginning of period - 6,051 - 408,519 -
--------------- ----------- --------------- ------------ ---------------
Cash and cash equivalents at end of period $ 6,051 $ 408,519 $ 408,519 $ 2,077,875 $ 2,077,875
=============== =========== =============== ============ ===============
Supplemental information
Conversion of convertible notes payable $ - $ 250,000 $ 250,000 $ 395,000 $ 645,000
=============== =========== =============== ============ ===============
Issuance of stock for services $ - $ 22,500 $ 22,500 $ - $ 22,500
=============== =========== =============== ============ ===============
</TABLE>
See accompanying notes.
F-31
OnPREM Networks Corporation
(a development stage company)
Notes to Financial Statements
(Information subsequent to June 30, 1999 and pertaining to December 31, 1999 and
for the six months ended December 31, 1999 is unaudited)
1. Summary of Significant Accounting Policies
Organization and Business
OnPrem Networks Corporation (the "Company") was organized under the laws of the
State of California on January 7, 1998. The Company develops hardware and
software to provide on-premises solutions for high-speed, low-cost Internet
access in multi-tenant buildings.
As of December 31, 1999, the Company has commenced planned principal operations,
however, as there has been no revenue therefrom, the Company is considered to be
in the development stages.
Interim Financial Data
The financial statements as of December 31, 1999 and for the six months ended
December 31, 1999 are unaudited. The unaudited financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary to state fairly the financial information set
forth therein, in accordance with generally accepted accounting principles.
The results of operations for the interim period ended December 31, 1999 are not
necessarily indicative of the results which may be reported for any other
interim period or for the fiscal year ending June 30, 2000.
F-32
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market funds. The Company
considers all highly liquid investments with a maturity of three months or less
from the date of purchase that are readily convertible into cash to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (one to three
years), except leasehold improvements which are amortized over the lesser of the
estimated lives of the asset or the remaining lease term.
Long-Lived Assets
The Company investigates potential impairments of its long-lived assets when
there is evidence that events or changes in circumstances may have made recovery
of an asset's carrying value unlikely. An impairment loss is recognized when
the sum of the expected undiscounted cash flows is less than the carrying amount
of the asset. The Company has not identified any such losses.
Stock Compensation
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123,
the Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, when the exercise
price of the Company's employee stock options is not less than the fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.
Use of Estimates
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 the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, accounts payable, and accrued
expenses approximates fair value.
Income Taxes
Current income tax expense or benefit is the amount of income taxes expected to
be payable or refundable for the current year. A deferred income tax asset or
liability is computed for the expected future impact of differences between the
financial reporting
F-33
and tax basis of assets and liabilities and for the expected future tax benefit
to be derived from tax credits and loss carryforwards. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
Comprehensive Income (Loss)
Effective January 1998, the Company adopted SFAS 130, Reporting Comprehensive
Income. SFAS 130 establishes new rules for the reporting and display of
comprehensive income (loss) and its components. The Company's comprehensive
loss is the same as its net loss for all periods presented.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. In May 1999, the FASB voted to delay the effective date of SFAS 133
by one year meaning that the Company will be required to adopt this standard in
2001. The Company has not completed its determination of the impact of the
adoption of this new accounting standard on its financial position or results of
operations.
2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Useful June 30,
Lives 1998 1999
------------ ------------------------
<S> <C> <C> <C>
Computer and test equipment 3 years $ 4,802 $ 99,234
Furniture and fixtures 1-2 years 1,353 5,614
Purchased software 2 years - 164,571
------------------------
6,155 269,419
Accumulated depreciation and
amortization (1,231) (35,476)
------------------------
$ 4,924 $233,943
========================
</TABLE>
F-34
3. Commitments
The Company leases its facilities under operating leases which expire in 2002.
Rent expense was $5,796, $34,401, and $43,473 for the period from January 7,
1998 (inception) through June 30, 1998, for the year ended June 30, 1999, and
for the six months ended December 31, 1999. At June 30, 1999 annual minimum
future payments under the operating leases are as follows:
Operating
Leases
---------
2000 $ 73,916
2001 98,552
2002 68,224
---------
Total future lease payments $240,692
=========
4. Convertible Notes Payable
In September and October 1999, the Company issued promissory notes convertible
into shares of Series B convertible preferred stock totaling $695,000. The notes
accrue interest at 5.54% payable at maturity. The notes mature on February 28,
2000. The notes are convertible, at the option of the lender, at either the
closing date of the next equity round following the notes issuance with
aggregate gross proceeds of not less than $1 million, or immediately prior to a
change in control. The notes are convertible to a number of shares equal to
outstanding principal and interest divided by the offering price per share in a
qualified equity round, or divided by $.45 per share in the event of a change in
control.
In November 1999, notes totaling $395,000 were converted into 897,727 shares of
Series B convertible preferred stock. As of December 31, 1999, $300,000 remains
outstanding. The lenders of the outstanding convertible notes payable at
December 31, 1999 are shareholders of the Company.
5. Shareholders' Equity
Stock Options
In 1998, the Company adopted the 1998 Stock Option Plan (the "Plan") and
reserved 3,050,000 shares of common stock for grants under the Plan. The Plan
provides for the grant of incentive and nonstatutory stock options, stock
bonuses and rights to purchase stock to employees, directors or consultants of
the Company. The Plan provides that incentive stock options will be granted only
to employees at no less than the fair value of the Company's common stock (no
less than 85% of the fair value for nonstatutory stock options), as determined
by the Board of Directors at the date of the grant. Options generally vest 25%
one year from date of grant and ratably each month thereafter for a period of 36
months and expire up to ten years from date of grant.
F-35
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Options Exercise
Price
---------------------
<S> <C> <C>
Outstanding at June 30, 1998 - $ -
Granted 2,339,983 0.05
Exercised (83,983) 0.02
Cancelled - -
---------------------
Outstanding at June 30, 1999 2,256,000 0.06
Granted (unaudited) 685,000 0.13
Exercised (unaudited) (215,625) 0.03
Cancelled (unaudited) - -
---------------------
Outstanding at December 31, 1999 (unaudited) 2,725,375 $0.08
=====================
</TABLE>
The exercise price of the options outstanding as of June 30, 1999 and December
31, 1999 ranged from $0.025 to $0.09 and $0.025 to $0.15, respectively. The
weighted average fair value of options granted during the year ended June 30,
1999 was $.29 per share.
The following table summarizes all options outstanding and exercisable by price
range as of June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life-Years Price Exercisable Price
- ---------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
$ 0.03 1,200,000 8.93 $0.03 412,500 $0.03
0.09 1,056,000 9.12 0.09 235,792 0.09
- ---------------------------------------------------------- -----------------------------
$ 0.03-0.09 2,256,000 9.02 $0.06 648,292 $0.05
========================================================== =============================
</TABLE>
F-36
The following table summarizes all options outstanding and exercisable by price
range as of December 31, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life-Years Price Exercisable Price
- ----------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
$ 0.03 1,000,000 8.93 $0.03 525,000 $0.03
0.09 1,257,875 9.24 0.09 331,312 0.09
0.15 467,500 9.97 0.15 - -
- ----------------------------------------------------------- -----------------------------
$0.03-0.15 2,725,375 9.25 $0.08 856,312 $0.05
=========================================================== =============================
</TABLE>
Pro forma information regarding net income (loss) is required by Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), and has been determined as
if the Company had accounted for its employee stock options under the fair value
method of SFAS 123. The fair value for these options was estimated at the dates
of grant using the minimum value option pricing model with the following
weighted-average assumptions: (a) weighted average risk-free interest rate of
6%, (b) expected dividend yield of 0%, and (c) five year estimated life of the
options.
The effect of applying the minimum value of SFAS 123 to the stock options did
not result in pro forma net loss for any of the periods presented, which is
materially different from the reported amounts. Therefore, such pro forma
information is not presented herein. The effects of applying SFAS 123 for pro
forma disclosure is not likely to be representative of the pro forma effect on
net income (loss) in future years.
Convertible Preferred Stock
In March 1999, the Company issued an aggregate of 4,215,513 shares of Series A
convertible preferred stock at $0.29 per share. In October and November 1999,
the Company issued an aggregate of 7,686,363 shares of Series B convertible
preferred stock at $0.44 per share.
The holders of the Series A and B convertible preferred stock are entitled to
receive dividends at a rate of $0.02 and $0.036 per share per annum,
respectively, or if greater, an amount equal to that paid on the common stock.
The preferred stock dividends are payable when and if declared by the Board of
Directors. The Series A and B convertible preferred stock dividends are not
cumulative. As of June 30, 1999 and December 31, 1999, the Company has not
declared any dividends.
Each share of convertible preferred stock is convertible into one share of
common stock, at the option of the holder, subject to certain antidilutive
adjustments. Each share of Series B is automatically converted into common
stock, at the then applicable conversion rate, upon the earlier of the
consummation of an underwritten public offering of the Company's common stock in
which the aggregate proceeds are at least $25 million with the per share price
of at least $6.00; the date upon which the Company obtains the
F-37
consent of the holders of two-thirds of the then outstanding shares of Series B;
or the date upon which fewer than 100,000 shares of Series B remain outstanding.
Each share of Series A is automatically converted into common stock, at the then
applicable conversion rate, upon the earlier of the consummation of the
underwritten public offering of the Company's common stock in which the
aggregate proceeds of which are at least $15 million with the per share price of
at least $3.00; the date upon which the Company obtains the consent of the
holders of two-thirds of the then outstanding shares of Series A; or the date
upon which fewer than 100,000 shares of Series A remain outstanding. Each holder
of preferred stock is entitled to one vote for each share of common stock into
which such convertible preferred share would be converted.
At June 30, 1999, the holders of Series A and B convertible preferred stock are
entitled to receive liquidation preferences at the rate of $0.58 and $0.90 per
share, respectively, plus any declared but unpaid dividends.
The Series B preferred stock can be redeemed for the initial price per share of
$.44 plus the amount of all declared but unpaid dividends at any time after the
fourth anniversary from the original issue date upon request by the holders of
at least two-thirds of the then outstanding shares of Series B.
Series A Preferred Stock Warrants
In March 1999, the Company issued warrants to purchase 137,066 shares of Series
A Preferred Stock. The warrants have an exercise price of $.29 per share and
expire at the earlier of March 1, 2009, the effective date of a firm commitment,
underwritten public offering or the effective date of a merger, consolidation or
the sale of substantially all of the assets of the Company.
Shares Reserved for Future Issuance
The following common stock is reserved for future issuance at June 30, 1999:
Conversion of preferred stock 4,827,586
Stock and outstanding options and warrants issued 2,393,066
Reserved for future grants 460,017
---------
7,680,669
=========
F-38
6. Income Taxes
Significant components of the Company's deferred tax assets as of June 30, 1999
and 1998 are shown below. A valuation allowance has been recognized as of June
30, 1999 and 1998 to offset the deferred tax assets as realization of such
assets is uncertain.
June 30,
1999 1998
------------------------
Deferred tax assets:
Net operating loss carryforwards $ 288,000 $ 15,000
Credit carryforwards 43,000 3,000
Deferred compensation 247,000 -
Other, net 6,000 -
------------------------
Total deferred tax assets 584,000 18,000
Valuation allowance for deferred tax assets (584,000) (18,000)
------------------------
Net deferred tax assets $ - $ -
========================
At December 31, 1999, a full valuation allowance continues to be recognized to
offset the deferred tax assets as realization of such assets is uncertain.
At June 30, 1999, the Company has federal and California tax net operating loss
carryforwards of approximately $705,000 and $716,000, respectively. The federal
and California tax loss carryforwards will begin expiring in 2018 and 2006,
respectively, unless previously utilized. The Company also has federal and
California research and development tax credit carryforwards of approximately
$25,000 and $14,000, respectively, which will expire in 2013 unless previously
utilized. The Company also has state manufacturers investment credits of
approximately $14,000 which will expire in 2009, unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of the
Company's net operating loss and credit carryforwards may be limited in the
event of a cumulative change in ownership of more than 50% within a three year
period.
7. Subsequent Event
In February 2000, the Company was acquired by Copper Mountain Networks, Inc.
("Copper Mountain") of Palo Alto, California. Copper Mountain is a supplier of
high-speed DSL-based communications solutions for the broadband access market.
Under the terms of the agreement, Copper Mountain acquired all of the Company's
stock and assumed their stock options in exchange for the issuance of
approximately 1.3 million shares of Copper Mountain common stock and Copper
Mountain stock options.
F-39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates.
SEC registration fee.................................. $ 27,000
Printing and engraving expenses....................... $ 5,000
Legal fees and expenses............................... $ 20,000
Accounting fees and expenses.......................... $ 10,000
Blue sky fees and expenses............................ $ 1,000
Miscellaneous fees and expenses....................... $ ---
----------
Total................................................. $ 63,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law we have broad
powers to indemnify our directors and officers against liabilities they may
incur in such capacities, including liabilities under the Securities Act. Our
Bylaws provide that we will indemnify our directors and executive officers and
may indemnify other officers to the fullest extent permitted by law. Under our
Bylaws, indemnified parties are entitled to indemnification for negligence,
gross negligence and otherwise to the fullest extent permitted by law. The
Bylaws also require us to advance litigation expenses in the case of stockholder
derivative actions or other actions, against an undertaking by the indemnified
party to repay such advances if it is ultimately determined that the indemnified
party is not entitled to indemnification.
In addition, our Certificate of Incorporation provides that, pursuant to
Delaware law, our directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty of care to us and our stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to us for acts or omissions not in good faith or
involving intentional misconduct, for knowing violation of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
We have entered into indemnity agreements with each of our directors and
executive officers. Such indemnity agreements contain provisions that are in
some respects broader than the specific indemnification provisions contained in
Delaware law.
We maintain a policy providing directors' and officers' liability
insurance, which insures our directors and officers in certain circumstances
with a liability limit of $20 million per claim and in the aggregate, subject to
varying retentions. This coverage is on a claims made basis.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1997, the Registrant has sold and issued the following
unregistered securities:
II-1
(a) On January 14, 1997, the Registrant issued and sold 1,832,365 shares of
Series B Preferred Stock to certain accredited investors for an aggregate
purchase price of $6,211,717. Upon the closing of our initial public offering,
and after accounting for a subsequent stock split, the shares of Series B
Preferred Stock automatically converted into 5,497,090 shares of common stock.
The Registrant relied on the exemption provided by Section 4(2) under the Act.
(b) On January 14, 1997, in connection with the execution of the ATM
Technology Agreement between the Company and Intel Corporation ("Intel"), the
Company issued to Intel a warrant to purchase up to 147,401 shares of Series B
Preferred Stock at an exercise price of $3.39 per share. This warrant expires on
January 14, 2004. Upon the closing of our initial public offering, and after
accounting for a subsequent stock split, this warrant became exercisable for
common stock at the rate of three shares of common stock for each share of
preferred stock underlying the warrant. The Registrant relied on the exemption
provided by Section 4(2) under the Act.
(c) On March 26, 1997, August 6, 1997 and October 1, 1997, respectively,
the Registrant issued and sold 2,000, 10,324 and 7,374 shares of its Series B
Preferred Stock to Gallagher PR, Mr. William Sahlman, and Mr. Nick Lippis,
respectively. The shares of Series B Preferred Stock acquired by Gallagher PR
were issued in exchange for services rendered to the Registrant. The shares of
Series B Preferred Stock acquired by Messrs. Lippis and Sahlman were sold for an
aggregate purchase price of $59,996. Upon the closing of our initial public
offering, and after accounting for a subsequent stock split, the shares of
Series B Preferred Stock issued and sold to Gallagher PR and Messrs. Lippis and
Sahlman automatically converted into 59,094 shares of common stock. The
Registrant relied on the exemption provided by Rule 701 under the Act in the
case of Gallagher PR and Section 4(2) under the Act in the case of Messrs.
Lippis and Sahlman.
(d) On October 29, 1997, the Registrant issued and sold 2,422,361 shares of
its Series C Preferred Stock to certain accredited investors for an aggregate
purchase price of $11,506,215. Upon the closing of our initial public offering,
and after accounting for a subsequent stock split, the shares of Series C
Preferred Stock automatically converted into 7,267,068 shares of common stock.
The Registrant relied on the exemption provided by Section 4(2) under the Act.
(e) On August 14, 1998, in connection with the execution of the Loan and
Security Agreement with SVB, the Company issued to SVB a warrant to purchase up
to 25,000 shares of Series C Preferred Stock at an exercise price of $4.75 per
share. Upon the closing of our initial public offering, and after accounting for
a subsequent stock split, this warrant became exercisable for common stock at
the rate of three shares of common stock for each share of preferred stock
underlying the warrant. This warrant expires on August 14, 2003. The Registrant
relied on the exemption provided by Section 4(2) under the Act.
(f) On October 29, 1997 and on April 27, 1998, in connection with the
execution of the Master Lease Agreement with Comdisco, Inc. ("Comdisco") the
Company issued to Comdisco warrants to purchase 8,421 and 6,316 shares of Series
C Preferred Stock at an exercise price of $4.75 per share. These warrants expire
on October 29, 2007 and on April 27, 2008. Upon the closing of our initial
public offering, and after accounting for a subsequent stock split, these
warrants became exercisable for common stock at the rate of three shares of
common stock for each share of preferred stock underlying the warrants. The
Registrant relied on the exemption provided by Section 4(2) under the Act.
(g) On October 9, 1998, the Registrant issued and sold 3,225,806 shares of
its Series D Preferred Stock to certain to certain accredited investors for an
aggregate purchase price of $24,999,997. Upon the closing of our initial public
offering, and after accounting for a subsequent stock split, the shares of
Series D Preferred Stock automatically converted into 9,677,396 shares of common
stock. The Registrant relied on the exemption provided by Section 4(2) under the
Act.
On February 29, 2000, in connection with the acquisition of OnPREM Networks
Corporation ("OnPREM"), the Registrant issued 1,142,309 shares of its Common
Stock to the former shareholders of
II-2
OnPREM, which shares are being registered for re-sale in this Registration
Statement. The Registrant relied on the exemption provided by Section 4(2) of
the Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
II-3
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
2.1 Agreement and Plan of Merger and Reorganization among the
Company, Copper Mountain Acquisition Corp. and OnPREM
Networks Corporation dated January 25, 2000.(4)
3.1 Amended and Restated Certificate of Incorporation of the
Company.(1)
3.2 Bylaws.(1)
4.1 Reference is made to Exhibits 3.1 and 3.2.(1)
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.*
10.1 Amended and Restated 1996 Equity Incentive Plan (the "1996
Plan").(1)
10.2 Form of Stock Option Agreement pursuant to the 1996 Plan.(1)
10.3 1999 Employee Stock Purchase Plan and related offering
documents.(1)
10.4 Employment Agreement between the Company and Steve Hunt,
dated July 31, 1996.(1)
10.5 Employment Agreement between the Company and Richard Gilbert,
dated March 22, 1998.(1)
10.6 Master Equipment Lease between the Company and Comdisco, Inc.,
dated September 30, 1997.(1)
10.7 Loan and Security Agreement between the Company and Silicon
Valley Bank, dated August 14, 1998.(1)
10.8 Loan and Security Agreement between the Company and Silicon
Valley Bank and MMC/GATX Partnership No. 1, dated October 4,
1996.(1)
10.9 Office Lease between the Company and Public Storage
Properties XVIII, Inc., dated June 14, 1996.(1)
10.10 Office Lease between the Company and R.G. Harris & Company,
dated August 12, 1997.(1)
10.11 Office Sublease between the Company and Stuart Leeb and
Associates, dated May 1, 1998.(1)
10.12 Office Lease between the company and Palomar Enterprises,
Inc., dated July 20, 1998.(1)
10.13 Warrant Agreement between the Company and MMC/GATX
Partnership No. 1, dated October 4, 1996.(1)
10.14 Warrant Agreement between the Company and Silicon Valley Bank,
dated October 4, 1996.(1)
10.15 Warrant Agreement between the Company and Comdisco, Inc.,
dated October 29, 1997.(1)
10.16 Warrant Agreement between the Company and Comdisco, Inc.
dated April 27, 1998.(1)
10.17 Warrant Agreement between the Company and Intel Corporation,
dated January 14, 1997.(1)
10.18 Warrant Agreement between the Company and Silicon Valley Bank,
dated August 14, 1998.(1)
10.19 Amended and Restated Investors' Rights Agreement by and among
the Company and certain stockholders of the Company, dated
October 9, 1998.(1)
10.20 Right of First Refusal and Co-Sale Agreement by and among the
Company and certain stockholders of the Company, dated
October 9, 1998.(1)
10.21 Voting Agreement by and among the Company and certain
stockholders of the Company, dated October 9, 1998.(1)
10.22 Founder Stock Purchase Agreement between the Company and
Joseph D. Markee, dated March 11, 1996.(1)
10.23 First Amendment to Founder Stock Purchase Agreement between
the Company and Joseph D. Markee, dated June 12, 1998.(1)
10.24 Founder Stock Purchase Agreement between the Company and
Mark J. Handzel, dated March 11, 1996.(1)
10.25 First Amendment to Founder Stock Purchase Agreement between
the Company and Mark J. Handzel, dated January 27, 1999.(1)
+10.26 General Agreement for the Procurement of Products and Services
and the Licensing of Software between the Company and Lucent
Technologies Inc., dated November 17, 1998.(1)
+10.27 OEM Purchase and Development Agreement between the Company and
3COM Corporation, dated November 24, 1998.(1)
+10.28 Development, Manufacturing and Supply Agreement between the
Company and Netopia, Inc., dated May 19, 1998.(1)
II-4
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
10.29 Warrant Agreement between the Company and Intel Corporation,
dated January 14, 1997.(1)
10.30 1999 Non-Employee Directors' Stock Option Plan.(1)
10.31 Form of Nonqualified Stock Option for use with 1999
Non-Employee Directors' Stock Option Plan.(1)
10.32 Form of Indemnification Agreement.(1)
+10.33 Equipment Purchase Agreement between the Company and
NorthPoint Communications, Inc. dated April 8, 1999.(1)
+10.34 Standard Full Service Gross Office Lease among the Company,
Pacific Sorrento Mesa Holdings, L.P., and Pacific Stonecrest
Holdings, L.P., dated March 31, 1999.(1)
+10.35 Equipment Purchase Agreement between the Company and
NorthPoint Communications, Inc. dated July 21, 1999.(2)
+10.36 Equipment Purchase Agreement between the Company and Rhythms
NetConnections, Inc. dated December 10, 1999.(4)
10.37 Software License Agreement between the Company and Rhythms
NetConnections, Inc. dated December 10, 1999.(4)
+10.38 Customer Technical Support Services Agreement between the
Company and Rhythms NetConnections, Inc. dated December 10,
1999.(4)
10.39 Employment Agreement between the Company and Joseph D. Markee,
dated March 12, 1999.(1)
10.40 OnPREM Networks Corporation Stock Option Plan (3).
10.41 Form of Stock Option Agreement pursuant to the OnPREM Networks
Corporation 1998 Stock Option Plan (3).
10.42 Employment Agreement between the Company and Wilson O.
Cochran, II, dated February 29, 2000.*
10.43 Non-Competition Agreement between the Company and Wilson O.
Cochran, II, dated February 29, 2000.*
21.1 Subsidiaries of Copper Mountain Networks, Inc.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.*
24.1 Power of Attorney (see signature page hereto).
27 Financial Data Schedule.*
- ----------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
filed with the Securities and Exchange Commission (the "Commission") on
March 1, 1999 (File No. 333-73153), as amended by Amendment No. 1 filed
with the Commission on April 13, 1999, Amendment No. 2 filed with the
Commission on April 26, 1999, and Amendment No. 3 filed with the Commission
on May 11, 1999.
(2) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.
(3) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
filed with the Commission on March 10, 1999 (File No. 333-32218).
(4) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed
with the Commission on March 15, 2000.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999.
* Filed Herewith
+ 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.
(b) Financial Statement Schedules.
Page
----
Schedule II Valuation and Qualifying Accounts................... II-7
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
County of San Diego, State of California, on March 20, 2000.
By: /s/ John A. Creelman
-------------------------------------
John A. Creelman
Vice President of Finance,
Chief Financial Officer and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard S. Gilbert and John A. Creelman
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments, exhibits thereto and other documents in connection
therewith) to this Registration Statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities Act
of 1933, as amended, which relates to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Richard S. Gilbert President, Chief Executive Officer March 20, 2000
- ----------------------------- and Director
Richard S. Gilbert (Principal Executive Officer)
/s/ John A. Creelman Vice President of Finance, Chief March 20, 2000
- ----------------------------- Financial Officer, and Secretary
John A. Creelman (Principal Financial and Accounting
Officer)
/s/ Joseph D. Markee Chief Technical Officer and March 20, 2000
- ----------------------------- Chairman of the Board
Joseph D. Markee
/s/ Robert L. Bailey Director March 20, 2000
- -----------------------------
Robert L. Bailey
/s/ Tench Coxe Director March 20, 2000
- -----------------------------
Tench Coxe
/s/ Roger Evans Director March 20, 2000
- -----------------------------
Roger Evans
/s/ Richard H. Kimball Director March 20, 2000
- -----------------------------
Richard H. Kimball
/s/ Raymond V. Thomas Director March 20, 2000
- -----------------------------
Raymond V. Thomas
/s/ Andrew W. Verhalen Director March 20, 2000
- -----------------------------
Andrew W. Verhalen
</TABLE>
II-6
Schedule II
COPPER MOUNTAIN NETWORKS, INC.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
-----------
Balance at Charged to Balance at
Beginning Costs and End of
Allowance for Doubtful Accounts: of Year Expenses Deductions Year
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999.............. $ ------- 140,000 ------- $140,000
</TABLE>
NOTE: The Company had no activity in allowance for doubtful accounts prior
to 1999.
<TABLE>
<CAPTION>
Additions
----------
Balance at Charged to Balance at
Beginning Costs and End of
Inventory Reserves: of Year Expenses Deductions Year
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997.............. $ ------- 897,000 ------- $ 897,000
Year ended December 31, 1998.............. $ 897,000 504,000 229,000 $1,172,000
Year ended December 31, 1999.............. $1,172,000 750,000 1,094,000 $ 828,000
</TABLE>
<TABLE>
<CAPTION>
Additions
----------
Balance at Charged to Balance at
Beginning Costs and End of
Accrued Warranty: of Year Expenses Deductions Year
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997.............. $------- 2,000 ------- $ 2,000
Year ended December 31, 1998.............. $ 2,000 426,000 10,000 $ 418,000
Year ended December 31, 1999.............. $418,000 1,779,000 267,000 $1,930,000
</TABLE>
II-1
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
2.1 Agreement and Plan of Merger and Reorganization among the
Company, Copper Mountain Acquisition Corp. and OnPREM
Networks Corporation dated January 25, 2000.(4)
3.1 Amended and Restated Certificate of Incorporation of the
Company.(1)
3.2 Bylaws.(1)
4.1 Reference is made to Exhibits 3.1 and 3.2.(1)
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.*
10.1 Amended and Restated 1996 Equity Incentive Plan (the "1996
Plan").(1)
10.2 Form of Stock Option Agreement pursuant to the 1996 Plan.(1)
10.3 1999 Employee Stock Purchase Plan and related offering
documents.(1)
10.4 Employment Agreement between the Company and Steve Hunt,
dated July 31, 1996.(1)
10.5 Employment Agreement between the Company and Richard Gilbert,
dated March 22, 1998.(1)
10.6 Master Equipment Lease between the Company and Comdisco, Inc.,
dated September 30, 1997.(1)
10.7 Loan and Security Agreement between the Company and Silicon
Valley Bank, dated August 14, 1998.(1)
10.8 Loan and Security Agreement between the Company and Silicon
Valley Bank and MMC/GATX Partnership No. 1, dated October 4,
1996.(1)
10.9 Office Lease between the Company and Public Storage
Properties XVIII, Inc., dated June 14, 1996.(1)
10.10 Office Lease between the Company and R.G. Harris & Company,
dated August 12, 1997.(1)
10.11 Office Sublease between the Company and Stuart Leeb and
Associates, dated May 1, 1998.(1)
10.12 Office Lease between the company and Palomar Enterprises,
Inc., dated July 20, 1998.(1)
10.13 Warrant Agreement between the Company and MMC/GATX
Partnership No. 1, dated October 4, 1996.(1)
10.14 Warrant Agreement between the Company and Silicon Valley Bank,
dated October 4, 1996.(1)
10.15 Warrant Agreement between the Company and Comdisco, Inc.,
dated October 29, 1997.(1)
10.16 Warrant Agreement between the Company and Comdisco, Inc.
dated April 27, 1998.(1)
10.17 Warrant Agreement between the Company and Intel Corporation,
dated January 14, 1997.(1)
10.18 Warrant Agreement between the Company and Silicon Valley Bank,
dated August 14, 1998.(1)
10.19 Amended and Restated Investors' Rights Agreement by and among
the Company and certain stockholders of the Company, dated
October 9, 1998.(1)
10.20 Right of First Refusal and Co-Sale Agreement by and among the
Company and certain stockholders of the Company, dated
October 9, 1998.(1)
10.21 Voting Agreement by and among the Company and certain
stockholders of the Company, dated October 9, 1998.(1)
10.22 Founder Stock Purchase Agreement between the Company and
Joseph D. Markee, dated March 11, 1996.(1)
10.23 First Amendment to Founder Stock Purchase Agreement between
the Company and Joseph D. Markee, dated June 12, 1998.(1)
10.24 Founder Stock Purchase Agreement between the Company and
Mark J. Handzel, dated March 11, 1996.(1)
10.25 First Amendment to Founder Stock Purchase Agreement between
the Company and Mark J. Handzel, dated January 27, 1999.(1)
+10.26 General Agreement for the Procurement of Products and Services
and the Licensing of Software between the Company and Lucent
Technologies Inc., dated November 17, 1998.(1)
+10.27 OEM Purchase and Development Agreement between the Company and
3COM Corporation, dated November 24, 1998.(1)
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
+10.28 Development, Manufacturing and Supply Agreement between the
Company and Netopia, Inc., dated May 19, 1998.(1)
10.29 Warrant Agreement between the Company and Intel Corporation,
dated January 14, 1997.(1)
10.30 1999 Non-Employee Directors' Stock Option Plan.(1)
10.31 Form of Nonqualified Stock Option for use with 1999
Non-Employee Directors' Stock Option Plan.(1)
10.32 Form of Indemnification Agreement.(1)
+10.33 Equipment Purchase Agreement between the Company and
NorthPoint Communications, Inc. dated April 8, 1999.(1)
+10.34 Standard Full Service Gross Office Lease among the Company,
Pacific Sorrento Mesa Holdings, L.P., and Pacific Stonecrest
Holdings, L.P., dated March 31, 1999.(1)
+10.35 Equipment Purchase Agreement between the Company and
NorthPoint Communications, Inc. dated July 21, 1999.(2)
+10.36 Equipment Purchase Agreement between the Company and Rhythms
NetConnections, Inc. dated December 10, 1999.(4)
10.37 Software License Agreement between the Company and Rhythms
NetConnections, Inc. dated December 10, 1999.(4)
10.38 Customer Technical Support Services Agreement between the
Company and Rhythms NetConnections, Inc. dated December 10,
1999.(4)
10.39 Employment Agreement between the Company and Joseph D. Markee,
dated March 12, 1999.(1)
10.40 OnPREM Networks Corporation Stock Option Plan (3).
10.41 Form of Stock Option Agreement pursuant to the OnPREM Networks
Corporation 1998 Stock Option Plan (3).
10.42 Employment Agreement between the Company and Wilson O.
Cochran, II, dated February 29, 2000.*
10.43 Non-Competition Agreement between the Company and Wilson O.
Cochran, II, dated February 29, 2000.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.*
24.1 Power of Attorney (see signature page hereto).
27 Financial Data Schedule.*
- ----------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
filed with the Securities and Exchange Commission (the "Commission") on
March 1, 1999 (File No. 333-73153), as amended by Amendment No. 1 filed
with the Commission on April 13, 1999, Amendment No. 2 filed with the
Commission on April 26, 1999, and Amendment No. 3 filed with the Commission
on May 11, 1999.
(2) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.
(3) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
filed with the Commission on March 10, 1999 (File No. 333-32218).
(4) Filed as an exhibit to the Registrant's Current Report on Form 8-K dated
March 15, 2000.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999.
* Filed Herewith
+ 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.
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
March 20, 2000
Copper Mountain Networks, Inc.
2470 Embarcadero Way
Palo Alto, CA 94303
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Copper Mountain Networks, Inc. (the "Company") of a
Registration Statement on Form S-1 (the "Re-Sale Registration Statement") with
the Securities and Exchange Commission, covering the registration of 1,142,309
shares of the Common Stock, $.001 par value, of the Company (the "Shares") on
behalf of certain selling stockholders.
In connection with this opinion, we have examined the Re-Sale Registration
Statement and related prospectus, the Company's Certificate of Incorporation and
Bylaws, as amended, and such other documents, records, certificates, memoranda
and other instruments as we deem necessary as a basis for this opinion. We have
assumed the genuineness and authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof, and the due execution and delivery of all documents where due
execution and delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares are validly issued, fully paid, and nonassessable.
We consent to the filing of this opinion as an exhibit to the Re-Sale
Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Lance W. Bridges
---------------------------------
Lance W. Bridges
TABLE OF CONTENTS
PAGE
1. Employment............................................................1
2. Loyal And Conscientious Performance...................................2
3. Compensation Of The Employee..........................................2
4. Compensation Upon Termination.........................................3
5. Confidential And Proprietary Information; Nonsolicitation.............5
6. Assignment And Binding Effect.........................................6
7. Notices...............................................................6
8. Choice Of Law.........................................................6
9. Integration...........................................................6
10. Amendment.............................................................6
11. Waiver................................................................7
12. Severability..........................................................7
13. Interpretation; Construction..........................................7
14. Representations And Warranties........................................7
15. Counterparts..........................................................7
16. Arbitration...........................................................7
17. Injunctive Relief.....................................................8
18. Trade Secrets Of Others...............................................8
19. Advertising Waiver....................................................8
1.
EXHIBIT 10.42
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of the date on which the Agreement and Plan of Merger and
Reorganization (the "Merger Agreement") between COPPER MOUNTAIN NETWORKS, INC.,
a Delaware corporation (the "Company") and ONPREM NETWORKS, INC. becomes
effective (the "Effective Date"), by and between the Company and WIL COCHRAN
(the "Employee"). The Company and the Employee are hereinafter collectively
referred to as the "Parties", and individually referred to as a "Party".
RECITALS
A. The Company and Onprem Networks, Inc. have entered into an Agreement and
Plan of Merger and Reorganization (the "MERGER AGREEMENT") of even date
herewith, providing for the acquisition by the Company of Onprem Networks, Inc.
pursuant to a merger of a wholly owned subsidiary of the Company ("MERGER SUB")
with and into Onprem Networks, Inc. (the "MERGER"). This Agreement is
conditional upon the finalization of the Merger and will become effective on the
date the Merger becomes effective (the "Closing Date").
B. In connection with the Merger, Employee has agreed to enter into a
Noncompetition Agreement ("Noncompetition Agreement") with the Company which
will be executed concurrently herewith.
C. The Company desires assurance of the association and services of the
Employee in order to retain the Employee's experience, skills, abilities,
background and knowledge, and is willing to engage the Employee's services on
the terms and conditions set forth in this Agreement.
D. The Employee desires to be in the employ of the Company, and is willing
to accept such employment on the terms and conditions set forth in this
Agreement.
AGREEMENT
In consideration of the foregoing Recitals and the mutual promises and
covenants herein contained, and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT.
1.1 TERM. The Company hereby employs the Employee, and the Employee
hereby accepts employment by the Company, upon the terms and conditions set
forth in this Agreement. The term of this Agreement shall commence on the
Effective Date and shall continue for one year from the Effective Date (the
"Term") unless terminated earlier in accordance with Section 4 herein.
2.
1.2 TITLE. The Employee shall have the title of Vice President and
General Manager - MTU of the Company and shall serve in such other capacity or
capacities as the Board of Directors of the Company may from time to time
prescribe.
1.3 DUTIES. The Employee shall do and perform all services, acts or
things necessary or advisable to manage and conduct the business of the Company
and which are normally associated with the position of General Manager - MTU,
consistent with the bylaws of the Company and as required by the Company's Board
of Directors.
1.4 POLICIES AND PRACTICES. The employment relationship between the
Parties shall be governed by the policies and practices established by the
Company and its Board of Directors.
1.5 LOCATION. Unless the Parties otherwise agree in writing, during the
term of this Agreement, the Employee shall perform the services Employee is
required to perform pursuant to this Agreement at the Company's offices or at
any other place at which the Company maintains an office; provided, however,
that the Company may from time to time require the Employee to travel
temporarily to other locations in connection with the Company's business.
2. LOYAL AND CONSCIENTIOUS PERFORMANCE.
2.1 LOYALTY. During the Employee's employment by the Company, the
Employee shall devote Employee's full business energies, interest, abilities and
productive time to the proper and efficient performance of Employee's duties
under this Agreement.
3. COMPENSATION OF THE EMPLOYEE.
3.1 BASE SALARY. The Company shall pay the Employee a base salary of not
less than One Hundred Fifty Thousand Dollars ($150,000) per year (the "Base
Salary"), less payroll deductions and all required withholdings payable in
regular periodic payments in accordance with Company policy. Such Base Salary
shall be prorated for any partial year of employment on the basis of a 365-day
fiscal year.
3.2 BONUS PLAN. Employee shall be eligible for any Bonus Plan
implemented by the Company in its sole discretion.
3.3 STOCK OPTIONS.
3.3.1 PURCHASE CONSIDERATION STOCK OPTIONS. Company acknowledges
that Employee has stock options to purchase TBD shares of the Common Stock of
Onprem Networks, Inc. which will be rolled over into stock options to purchase
the Common Stock of the Company pursuant to the Exchange Ratio as defined in the
Merger Agreement (the "Purchase Consideration Options").
3.3.2 INITIAL STOCK OPTIONS. Upon commencement of full-time
employment with the Company, Employee will be granted a stock option to purchase
50,000 shares of Common Stock of the Company at an exercise price equal to 100%
of the fair market
3.
value of the Company's Common Stock on the date of grant (the "Initial Option")
under the standard terms of the Company's 1998 Stock Plan or any successor stock
option plan. Pursuant to the Stock Plan, the shares subject to the Initial
Option will be subject to vesting over four (4) years so long as Employee
continues to be employed with the Company, with 25% of the shares subject to the
Initial Option vesting as of the first anniversary of Employee's employment with
the Company and an additional 1/48th of such shares vesting as of the end of
each monthly period thereafter.
3.3.3 ADDITIONAL STOCK OPTIONS. Upon commencement of full-time
employment with the Company, Employee will be granted an additional stock option
to purchase 50,000 shares of Common Stock of the Company at an exercise price
equal to 100% of the fair market value of the Company's Common Stock on the date
of grant (the "Additional Option") under the standard terms of the Company's
1998 Stock Plan or any successor stock option plan. The Company, may in its sole
discretion grant to Employee additional stock options to purchase shares of the
Common Stock of the Company.
3.4 CASH PAYMENT. Assuming Employee's continuous employment throughout
the Term, the Company will pay Employee one hundred twenty-five thousand
($125,000), minus standard deductions and withholdings, in equal monthly
installments throughout the Term.
3.5 CHANGES TO COMPENSATION. The Employee's compensation may be changed
from time to time by mutual agreement of the Employee and the Company.
3.6 EMPLOYMENT TAXES. All of the Employee's compensation shall be
subject to customary withholding taxes and any other employment taxes as are
commonly required to be collected or withheld by the Company.
3.7 BENEFITS. The Employee shall, in accordance with Company policy and
the terms of the applicable plan documents, be eligible to participate in
benefits under any employee benefit plan or arrangement which may be in effect
from time to time and made available to the Company's key management employees.
4. COMPENSATION UPON TERMINATION.
4.1 TERMINATION BY THE COMPANY. The Company may terminate the Employee's
employment under this Agreement upon thirty (30) days notice for any reason by
delivery of written notice of such termination to the Employee.
4.2 TERMINATION BY THE EMPLOYEE. The Employee may terminate the
Employee's employment with the Company upon thirty (30) days notice to the
Company.
4.3 TERMINATION BY MUTUAL AGREEMENT OF THE PARTIES. The Employee's
employment pursuant to this Agreement may be terminated at any time upon a
mutual agreement in writing of the Parties. Any such termination of employment
shall have the consequences specified in such agreement.
4.
4.4 COMPENSATION UPON TERMINATION.
4.4.1 TERMINATION BY THE COMPANY WITHOUT CAUSE OR RESIGNATION BY THE
EMPLOYEE FOR GOOD REASON. In the event Employee's employment is terminated by
the Company without Cause (as defined herein) or in the event that Employee
resigns for Good Reason (as defined herein) during the Term of this Agreement
and then upon the Employee's furnishing to the Company an effective waiver and
release of claims (a form of which is attached hereto as Exhibit A), the Company
agrees to: i) pay the Employee the balance of the one hundred twenty-five
thousand dollars ($125,000) to which Employee is entitled pursuant to Section
3.4 herein, less standard deductions and withholdings; and ii) accelerate the
vesting of the shares subject to the Initial Option such that one hundred
percent (100%) of the unvested shares subject to the Initial Option will be
vested and exercisable as of the date of termination. If Employee's employment
is terminated during or after the Term of this Agreement, by the Company without
Cause (as defined herein) or in the event that Employee resigns for Good Reason
(as defined herein), then upon the Employee's furnishing to the Company an
effective waiver and release of claims (a form of which is attached hereto as
Exhibit A), the Company agrees to accelerate the vesting of the shares subject
to the Purchase Consideration Option such that one hundred percent (100%) of the
unvested shares subject to the Purchase Consideration Option will be vested and
exercisable as of the date of termination.
4.4.2 RESIGNATION BY THE EMPLOYEE WITHOUT GOOD REASON OR TERMINATION
BY THE COMPANY FOR CAUSE. If the Employee's employment shall be terminated by
the Company for Cause or if the Employee resigns without Good Reason, the
Company shall pay the Employee's accrued Base Salary and accrued and unused
vacation benefits earned through the date of termination at the rate in effect
at the time of the notice of termination to or from Employee, and the Company
shall thereafter have no further obligations to the Employee under this
Agreement.
4.4.3 CONTINUED EFFECT OF EMPLOYEE'S NONCOMPETITION AGREEMENT.
Employee understands and agrees that his duties and obligations under the
Noncompetition Agreement will remain in full force and effect during the term of
the Noncompetition Agreement, regardless of whether Employee remains employed
with the Company.
4.4.4 TERMINATION OF OBLIGATIONS. In the event of the termination of
the Employee's employment hereunder and pursuant to this Section 4, the Company
shall have no obligation to pay Employee any Base Salary, bonus or other
compensation or benefits, except as provided in this Section 4 or for benefits
due to the Employee (and/or the Employee's dependents under the terms of the
Company's benefit plans). The Company may offset any amounts Employee owes it or
its subsidiaries against any amount it owes Employee pursuant to this Section
4.4.
4.5 DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
5.
4.5.1 FOR CAUSE. "Cause" for the Company to terminate Employee's
employment hereunder shall mean the occurrence of any of the following events:
(i) the Employee's repeated failure to satisfactorily perform the
Employee's job duties under this Agreement after notice and a reasonable
opportunity to cure;
(ii) knowing failure by the Employee to comply with all material
applicable laws in performing the Employee's job duties or in directing the
conduct of the Company's business;
(iii) commission by the Employee of any felony or intentionally
fraudulent or other act against the Company, or its affiliates, employees,
agents or customers which demonstrates the Employee's untrustworthiness or lack
of integrity;
(iv) the Employee's engaging or in any manner participating in any
activity which is directly competitive with or intentionally injurious to the
Company or any of its affiliates or which violates any material provisions of
Section 5 hereof; or
(v) the Employee's commission of any fraud against the Company or
any of its affiliates or use or intentional appropriation for his personal use
or benefit of any funds or properties of the Company not authorized by the Board
to be so used or appropriated.
4.5.2 GOOD REASON. "Good Reason" for the Employee to terminate the
Employee's employment hereunder shall mean the occurrence of any of the
following events without the Employee's consent:
(i) a substantial adverse alteration in the nature, status or
prestige of the Employee's responsibilities or Base Salary as set forth in this
Agreement or a substantial adverse change in the Employee's title or reporting
level from that set forth in this Agreement;
(ii) the relocation of the Company's executive offices or principal
business location to a point more than fifty (50) miles from the Fremont,
California area.
(iii) a material breach of this Agreement by the Company.
4.6 SURVIVAL OF CERTAIN SECTIONS. Sections 6, 7, 10, 16, 17, 18 and 19
of this Agreement will survive the termination of this Agreement.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION; NONSOLICITATION.
5.1 The Employee agrees to execute and abide by the Proprietary
Information and Inventions Agreement attached hereto as Exhibit B.
6.
6. ASSIGNMENT AND BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Employee and the Employee's heirs, executors, personal representatives, assigns,
administrators and legal representatives. Because of the unique and personal
nature of the Employee's duties under this Agreement, neither this Agreement nor
any rights or obligations under this Agreement shall be assignable by the
Employee. This Agreement shall be binding upon and inure to the benefit of the
Company and its successors, assigns and legal representatives.
7. NOTICES.
All notices or demands of any kind required or permitted to be given by
the Company or the Employee under this Agreement shall be given in writing and
shall be personally delivered (and receipted for) faxed during normal business
hours or mailed by certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
COPPER MOUNTAIN NETWORKS, INC.
-------------------------------
-------------------------------
If to the Employee:
-------------------------------
-------------------------------
Any such written notice shall be deemed received when personally delivered or
three (3) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.
8. CHOICE OF LAW.
This Agreement is made in Palo Alto, California. This Agreement shall
be construed and interpreted in accordance with the laws of the State of
California.
9. INTEGRATION.
This Agreement contains the complete, final and exclusive agreement of
the Parties relating to the terms and conditions of the Employee's employment,
and supersedes all prior and contemporaneous oral and written employment
agreements or arrangements between the Parties.
10. AMENDMENT.
This Agreement cannot be amended or modified except by a written
agreement signed by the Employee and the Company.
7.
11. WAIVER.
No term, covenant or condition of this Agreement or any breach thereof
shall be deemed waived, except with the written consent of the Party against
whom the wavier is claimed, and any waiver or any such term, covenant, condition
or breach shall not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other term, covenant, condition or breach.
12. SEVERABILITY.
The finding by a court of competent jurisdiction of the
unenforceability, invalidity or illegality of any provision of this Agreement
shall not render any other provision of this Agreement unenforceable, invalid or
illegal. Such court shall have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or provision
which most accurately represents the Parties' intention with respect to the
invalid or unenforceable term or provision.
13. INTERPRETATION; CONSTRUCTION.
The headings set forth in this Agreement are for convenience of
reference only and shall not be used in interpreting this Agreement. This
Agreement has been drafted by legal counsel representing the Company, but the
Employee has been encouraged, and has consulted with, Employee's own independent
counsel and tax advisors with respect to the terms of this Agreement. The
Parties acknowledge that each Party and its counsel has reviewed and revised, or
had an opportunity to review and revise, this Agreement, and the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
14. REPRESENTATIONS AND WARRANTIES.
The Employee represents and warrants that Employee is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that Employee's
execution and performance of this Agreement will not violate or breach any other
agreements between the Employee and any other person or entity.
15. COUNTERPARTS.
This Agreement may be executed in two counterparts, each of which shall
be deemed an original, all of which together shall contribute one and the same
instrument.
16. ARBITRATION.
To ensure rapid and economical resolution of any disputes which may
arise under this Agreement, the Employee and the Company agree that any and all
disputes or controversies of any nature whatsoever, arising from or regarding
the interpretation, performance, enforcement or breach of this Agreement shall
be resolved by confidential, final and binding arbitration
8.
(rather than trial by jury or court or resolution in some other forum) to the
fullest extent permitted by law. Any arbitration proceeding pursuant to this
Agreement shall be conducted by the American Arbitration Association ("AAA") in
Palo Alto, CA under the then existing employment-related AAA arbitration rules.
If for any reason all or part of this arbitration provision is held to be
invalid, illegal, or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other portion of this arbitration provision or any other
jurisdiction, but this provision will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable part or parts of
this provision had never been contained herein, consistent with the general
intent of the Parties insofar as possible.
I HAVE READ Section 16 AND IRREVOCABLY AGREE TO ARBITRATE ANY DISPUTE IDENTIFIED
ABOVE. ______ (EMPLOYEE'S INITIALS)
17. INJUNCTIVE RELIEF.
The Employee is obligated under this Agreement to render services and
comply with covenants of a special, unique, unusual and extraordinary character,
thereby giving this Agreement peculiar value, so that the loss of such service
or violation by the Employee of this Agreement, including, but not limited to,
the Proprietary Information and Inventions Agreement, could not reasonably or
adequately be compensated in damages in an action at law. Therefore,
notwithstanding Section 18 herein, in addition to any other remedies or
sanctions provided by law, whether criminal or civil, and without limiting the
right of the Company and successors or assigns to pursue all other legal and
equitable rights available to them, the Company shall have the right during the
Employee's employment hereunder (or thereafter with respect to obligations
continuing after the termination of this Agreement) to compel specific
performance hereof by the Employee or to obtain temporary and permanent
injunctive relief against violations hereof by the Employee, including, but not
limited to violations of the Proprietary Information and Inventions Agreement,
and, in furtherance thereof, to apply to any court with jurisdiction over the
Parties to enforce the provisions hereof.
18. TRADE SECRETS OF OTHERS.
It is the understanding of both the Company and the Employee that the
Employee shall not divulge to the Company and/or its subsidiaries any
confidential information or trade secrets belonging to others, with the
exception of Onprem Networks, Inc., nor shall the Company and/or its affiliates
seek to elicit from the Employee any such information. Consistent with the
foregoing, with the exception of Onprem Networks, Inc., the Employee shall not
provide to the Company and/or its affiliates, and the Company and/or its
affiliates shall not request, any documents or copies of documents containing
such information.
19. ADVERTISING WAIVER.
The Employee agrees to permit the Company and/or its affiliates, and
persons or other organizations authorized by the Company and/or its affiliates,
to use, publish and distribute advertising or sales promotional literature
concerning the products and/or services of the
9.
Company and/or its affiliates, or the machinery and equipment used in the
provision thereof, in which the Employee's name and/or pictures of the Employee
taken in the course of the Employee's provision of services to the Company
and/or its affiliates, appear. The Employee hereby waives and releases any claim
or right the Employee may otherwise have arising out of such use, publication or
distribution.
10.
IN WITNESS WHEREOF, the Parties have executed this Employment Agreement
as of the date first above written.
COPPER MOUNTAIN NETWORKS, INC.
By: /s/ Chris Carroll
------------------------------------
Its: Vice President of Human Resources
-----------------------------------
Dated: February 29, 2000
---------------------------------
EMPLOYEE: /s/ Wilson O. Cochran, II
------------------------------
WIL COCHRAN
Dated: February 29, 2000
---------------------------------
11.
EMPLOYMENT AGREEMENT
BY AND BETWEEN
COPPER MOUNTAIN NETWORKS, INC.
AND
WIL COCHRAN
12.
EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In consideration of the payments and other benefits set forth in Section __
of the Employment Agreement dated ___________, to which this form is attached,
I, WIL COCHRAN, hereby furnish COPPER MOUNTAIN NETWORKS, INC. (the "Company"),
with the following release and waiver ("Release and Waiver").
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns, affiliates,
parent, subsidiaries, and Benefit Plans, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys' fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising at any time prior to and including my employment
Termination Date with respect to any claims relating to my employment and the
termination of my employment, including but not limited to, claims pursuant to
any federal, state or local law relating to employment, including, but not
limited to, discrimination claims, claims under the California Fair Employment
and Housing Act, and the Federal Age Discrimination in Employment Act of 1967,
as amended ("ADEA"), or claims for wrongful termination, breach of the covenant
of good faith, contract claims, tort claims, and wage or benefit claims,
including but not limited to, claims for salary, bonuses, commissions, stock,
stock options, vacation pay, fringe benefits, severance pay or any form of
compensation.
I also acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the
Company.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this Release and Waiver is knowing and
voluntary, and that the consideration given for this Release and Waiver is in
addition to anything of value to which I was already entitled as an Employee of
the Company. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the Release and Waiver granted
herein does not relate to claims which may arise after this Release and Waiver
is executed; (b) I have the right to consult with an attorney prior to executing
this Release and Waiver (although I may choose voluntarily not to do so); and if
I am over 40 years of age upon execution of this Release and Waiver: (c) I have
twenty-one (21) days from the date of termination of my employment with the
Company in which to consider this Release and Waiver (although I may choose
voluntarily to execute this Release and Waiver earlier); (d) I have seven (7)
days following the execution of this Release and Waiver to revoke my consent to
this Release and Waiver; and (e) this Release and Waiver shall not be effective
until the seven (7) day revocation period has expired.
Date: By:
------------------------- -----------------------------
WIL COCHRAN
13.
EXHIBIT B
COPPER MOUNTAIN NETWORKS, INC.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by COPPER
MOUNTAIN NETWORKS, INC. (the "Company"), and the compensation now and hereafter
paid to me, I, WIL COCHRAN, hereby agree as follows:
1. NONDISCLOSURE
1.1 RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times during
my employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I will obtain Company's
written approval before publishing or submitting for publication any material
(written, verbal, or otherwise) that relates to my work at Company and/or
incorporates any Proprietary Information. I hereby assign to the Company any
rights I may have or acquire in such Proprietary Information and recognize that
all Proprietary Information shall be the sole property of the Company and its
assigns.
1.2 PROPRIETARY INFORMATION. The term "PROPRIETARY INFORMATION" shall
mean any and all confidential and/or proprietary knowledge, data or information
of the Company. By way of illustration but not limitation, "PROPRIETARY
INFORMATION" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "INVENTIONS"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry, which
is not gained as result of a breach of this Agreement, and my own, skill,
knowledge, know-how and experience to whatever extent and in whichever way I
wish.
1.3 THIRD PARTY INFORMATION. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary information ("Third Party Information") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of my employment and
thereafter, I will hold Third Party Information in the strictest confidence and
will not disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.
1.4 NO IMPROPER USE OF INFORMATION OF PRIOR EMPLOYERS AND OTHERS. During
my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or any
other person to whom I have an obligation of confidentiality, and I will not
bring onto the premises of the Company any unpublished documents or any property
belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by the
Company.
2. ASSIGNMENT OF INVENTIONS.
2.1 PROPRIETARY RIGHTS. The term "Proprietary Rights" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.
2.2 PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which
I made prior to the
14.
commencement of my employment with the Company are excluded from the scope of
this Agreement. To preclude any possible uncertainty, I have set forth on
Exhibit B-2 (Previous Inventions) attached hereto a complete list of all
Inventions that I have, alone or jointly with others, conceived, developed or
reduced to practice or caused to be conceived, developed or reduced to practice
prior to the commencement of my employment with the Company, that I consider to
be my property or the property of third parties and that I wish to have excluded
from the scope of this Agreement (collectively referred to as "Prior
Inventions"). If disclosure of any such Prior Invention would cause me to
violate any prior confidentiality agreement, I understand that I am not to list
such Prior Inventions in Exhibit B-2 but am only to disclose a cursory name for
each such invention, a listing of the party(ies) to whom it belongs and the fact
that full disclosure as to such inventions has not been made for that reason. A
space is provided on Exhibit B-2 for such purpose. If no such disclosure is
attached, I represent that there are no Prior Inventions. If, in the course of
my employment with the Company, I incorporate a Prior Invention into a Company
product, process or machine, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with
rights to sublicense through multiple tiers of sublicensees) to make, have made,
modify, use and sell such Prior Invention. Notwithstanding the foregoing, I
agree that I will not incorporate, or permit to be incorporated, Prior
Inventions in any Company Inventions without the Company's prior written
consent.
2.3 ASSIGNMENT OF INVENTIONS. Subject to Sections 2.4 and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my right, title and interest in and to
any and all Inventions (and all Proprietary Rights with respect thereto) whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with the Company. Inventions assigned
to the Company, or to a third party as directed by the Company pursuant to this
Section 2, are hereinafter referred to as "Company Inventions".
2.4 NONASSIGNABLE INVENTIONS. This Agreement does not apply to an
Invention which qualifies fully as a nonassignable Invention under Section 2870
of the California Labor Code (hereinafter "Section 2870"). I have reviewed the
notification on Exhibit B-1 (Limited Exclusion Notification) and agree that my
signature acknowledges receipt of the notification.
2.5 OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment and for six (6) months after termination of my employment with the
Company, I will promptly disclose to the Company fully and in writing all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, I will promptly disclose to the Company all
patent applications filed by me or on my behalf within a year after termination
of employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under
Section 2870; and I will at that time provide to the Company in writing all
evidence necessary to substantiate that belief. The Company will keep in
confidence and will not use for any purpose or disclose to third parties without
my consent any confidential information disclosed in writing to the Company
pursuant to this Agreement relating to Inventions that qualify fully for
protection under the provisions of Section 2870. I will preserve the
confidentiality of any Invention that does not fully qualify for protection
under Section 2870.
2.6 GOVERNMENT OR THIRD PARTY. I also agree to assign all my right,
title and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.
2.7 WORKS FOR HIRE. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire",
pursuant to United States Copyright Act (17 U.S.C., Section 101).
2.8 ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in
every proper way to obtain, and from time to time enforce, United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company may
reasonably request for use in applying for, obtaining, perfecting, evidencing,
sustaining and enforcing such Proprietary
15.
Rights and the assignment thereof. In addition, I will execute, verify and
deliver assignments of such Proprietary Rights to the Company or its designee.
My obligation to assist the Company with respect to Proprietary Rights relating
to such Company Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after my termination for the time actually spent by me at the
Company's request on such assistance.
In the event the Company is unable for any reason, after reasonable effort, to
secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and attorney
in fact, which appointment is coupled with an interest, to act for and in my
behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
3. RECORDS. I agree to keep and maintain adequate and current records (in
the form of notes, sketches, drawings and in any other form that may be required
by the Company) of all Proprietary Information developed by me and all
Inventions made by me during the period of my employment at the Company, which
records shall be available to and remain the sole property of the Company at all
times.
4. ADDITIONAL ACTIVITIES. I agree that during the period of my employment
by the Company I will not, without the Company's express written consent, engage
in any employment or business activity which is competitive with, or would
otherwise conflict with, my employment by the Company. I agree further that for
the period of my employment by the Company and for one (l) year after the date
of termination of my employment by the Company I will not induce any employee of
the Company to leave the employ of the Company.
5. NO CONFLICTING OBLIGATION. I represent that my performance of all the
terms of this Agreement and as an Employee of the Company does not and will not
breach any agreement to keep in confidence information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or oral in
conflict herewith.
6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I
will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company Inventions,
Third Party Information or Proprietary Information of the Company. I further
agree that any property situated on the Company's premises and owned by the
Company, including disks and other storage media, filing cabinets or other work
areas, is subject to inspection by Company personnel at any time with or without
notice. Prior to leaving, I will cooperate with the Company in completing and
signing the Company's termination statement.
7. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and
unique and because I may have access to and become acquainted with the
Proprietary Information of the Company, the Company shall have the right to
enforce this Agreement and any of its provisions by injunction, specific
performance or other equitable relief, without bond and without prejudice to any
other rights and remedies that the Company may have for a breach of this
Agreement.
8. NOTICES. Any notices required or permitted hereunder shall be given to
the appropriate party at the address specified below or at such other address as
the Party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or if sent by certified or
registered mail, three (3) days after the date of mailing.
9. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of
the Company, I hereby consent to the notification of my new employer of my
rights and obligations under this Agreement.
10. GENERAL PROVISIONS.
10.1 GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement
will be governed by and construed according to the laws of the State of
California, as such laws are applied to agreements entered into and to be
performed entirely within California between California residents. I
16.
hereby expressly consent to the personal jurisdiction of the state and federal
courts located in San Diego County, California for any lawsuit filed there
against me by Company arising from or related to this Agreement.
10.2 SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.
10.3 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.
10.4 SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
10.5 EMPLOYMENT. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company'S right
to terminate my employment at any time, with or without Cause.
10.6 WAIVER. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
10.7 ENTIRE AGREEMENT. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company as a consultant if no other
agreement governs nondisclosure and assignment of inventions during such period.
This Agreement is the final, complete and exclusive agreement of the Parties
with respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the Party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.
This Agreement shall be effective as of the first day of my employment
with the Company, namely: _______________, 20__.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT B-1 TO THIS AGREEMENT.
Dated:
---------------------------------
- ---------------------------------------
(SIGNATURE)
- ---------------------------------------
(EMPLOYEE'S PRINTED NAME)
ACCEPTED AND AGREED TO:
COPPER MOUNTAIN NETWORKS, INC.
---------------------------
---------------------------
By:
------------------------------------
Title:
---------------------------------
Dated:
---------------------------------
17.
EXHIBIT B-1
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY THE EMPLOYEE in accordance with Section 2872 of the
California Labor Code that the foregoing Agreement between the Employee and the
Company does not require the Employee to assign or offer to assign to the
Company any invention that the Employee developed entirely on your own time
without using the Company's equipment, supplies, facilities or trade secret
information except for those inventions that either:
1. RELATE AT THE TIME OF CONCEPTION OR REDUCTION TO PRACTICE OF
THE INVENTION TO THE COMPANY'S BUSINESS, OR ACTUAL OR
DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT OF THE
COMPANY;
2. RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
COMPANY.
To the extent a provision in the foregoing Agreement purports to
require the Employee to assign an invention otherwise excluded from the
preceding paragraph, the provision is against the public policy of this state
and is unenforceable.
This limited exclusion does not apply to any patent or invention
covered by a contract between the Company and the United States or any of its
agencies requiring full title to such patent or invention to be in the United
States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
----------------------------------
WIL COCHRAN
Date:
-----------------------------
WITNESSED BY:
- --------------------------------
(PRINTED NAME OF REPRESENTATIVE)
18.
EXHIBIT B-2
TO: COPPER MOUNTAIN NETWORKS, INC.
FROM: WIL COCHRAN
DATE: ________________, 2000
SUBJECT: PREVIOUS INVENTIONS
1. Except as listed in Section 2 below, the following is a complete
list of all inventions or improvements relevant to the subject matter of my
employment by COPPER MOUNTAIN NETWORKS, INC. (the "Company") that have been made
or conceived or first reduced to practice by me alone or jointly with others
prior to my engagement by the Company:
[ ] No inventions or improvements.
[ ] See below:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
[ ] Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which I owe to the following party(ies):
INVENTION OR IMPROVEMENT PARTY(IES) RELATIONSHIP
1.
--------------------------- --------------- --------------------------
2.
--------------------------- --------------- --------------------------
3.
--------------------------- --------------- --------------------------
[ ] Additional sheets attached.
19.
EXHIBIT 10.43
NONCOMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "AGREEMENT") is made and entered into
as of February 29, 2000 (the "AGREEMENT DATE"), by and between COPPER MOUNTAIN
NETWORKS, INC., a Delaware corporation (the "PARENT"), ONPREM NETWORKS, INC., a
California corporation ("COMPANY"), and WIL COCHRAN ("Employee"). Capitalized
terms used herein and not otherwise defined shall have the meanings given to
them in the Merger Agreement.
RECITALS
A. As a key employee, substantial stockholder and optionholder of the
Company, Employee has obtained extensive and valuable knowledge and confidential
information concerning the business of the Company.
B. Parent and the Company have entered into an Agreement and Plan of Merger
and Reorganization (the "MERGER AGREEMENT") of even date herewith, providing for
the acquisition by Parent of the Company pursuant to a merger of a wholly owned
subsidiary of Parent ("MERGER SUB") with and into the Company (the "MERGER").
This Agreement will become effective on the date the Merger becomes effective
(the "Closing Date").
C. In connection with the Merger, Employee (i) will receive substantial
benefits as a result of the Merger; (ii) has been offered employment with Parent
contingent upon the occurrence of and following the Closing Date; and (iii) will
be paid four hundred thousand dollars ($400,000) during the term of this
Agreement, contingent upon Employee's continued compliance with the terms of
this Agreement. Employee will be paid one hundred twenty-five thousand dollars
($125,000) in each of the first and second years of this Agreement, in equal
monthly installments. Employee will be paid one hundred fifty thousand dollars
($150,000) during the third year of this Agreement in equal monthly
installments. The Employee's right to receive the payments provided for herein
shall cease and be rendered a nullity immediately should the Employee violate
any provision of this Agreement. Employee's right to receive the payments
provided for herein are not contingent on Employee's employment with the
Company. As an inducement to Parent and Merger Sub to consummate the Merger and
enable Parent and Merger Sub to secure more fully the benefits of the Merger and
for the additional consideration provided herein, Employee has agreed not to
compete in the manner and to the extent herein set forth in this Agreement.
D. Employee's obligations under this Agreement are separate and independent
from Employee's obligations under the Employment Agreement which Employee will
simultaneously enter into with the Company. Employee's obligations under this
Agreement will remain in full force and effect during the term of the
Noncompetition Agreement, regardless of whether Employee remains employed with
the Company.
E. Parent has requested, as a condition precedent to executing the Merger
Agreement and consummating the transactions contemplated by the Merger
Agreement, that Employee execute and deliver this Agreement, and Employee
desires to enter into this Agreement.
1.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein
contemplated and intending to be legally bound hereby, the parties hereto agree
as follows:
1. RESTRICTION ON COMPETITION. In order to induce the Company to consummate
the Merger and for other good and valuable consideration as provided herein,
Employee agrees that, during the Noncompetition Period, Employee shall not:
(a) engage directly or indirectly in Competition in any Restricted
Territory; or
(b) directly or indirectly be or become an officer, director,
stockholder, owner, co-owner, Affiliate, partner, promoter, employee, agent,
representative, designer, consultant, advisor, manager, licensor, sublicensor,
licensee or sublicensee of, for or to, or otherwise be or become associated with
or acquire or hold (of record, beneficially or otherwise) any direct or indirect
interest in, any Person that engages directly or indirectly in Competition in
any Restricted Territory;
provided, however, that Employee may, without violating this Section 1,
own, as a passive investment, shares of capital stock of a publicly-held
corporation that engages in Competition if (i) such shares are actively traded
on an established national securities market in the United States, (ii) the
number of shares of such corporation's capital stock that are owned beneficially
(directly or indirectly) by Employee and the number of shares of such
corporation's capital stock that are owned beneficially (directly or indirectly)
by Employee's Affiliates collectively represent less than one percent of the
total number of shares of such corporation's capital stock outstanding, and
(iii) neither Employee nor any Affiliate of Employee is otherwise associated
directly or indirectly with such corporation or with any Affiliate of such
corporation.
2. NO HIRING OR SOLICITATION OF EMPLOYEES. Employee agrees that, during the
Noncompetition Period, Employee shall not, and shall not permit any of his
Affiliates to: (a) hire any Specified Employee, or (b) directly or indirectly,
personally or through others, encourage, induce, attempt to induce, solicit or
attempt to solicit (on Employee's own behalf or on behalf of any other Person)
any Specified Employee or any other employee to leave his or her employment with
Parent, the Company or any of Parent's other subsidiaries. (For purposes of this
Section 2, "Specified Employee" shall mean any individual who (i) is or was an
employee of Parent, the Company or any of the Company's other subsidiaries on
the date of this Agreement or during the 180-day period ending on the date of
this Agreement, and (ii) remains or becomes an employee of Parent, the Company
or any of the Company's other subsidiaries on the date of this Agreement or at
any time during the Noncompetition Period.
3. ACKNOWLEDGEMENTS BY EMPLOYEE. Employee acknowledges that by virtue of
his position with the Company he or she has developed considerable expertise in
the business operations of the Company and has had extensive access to trade
secrets and other confidential information of the Company. Employee recognizes
that Parent would be irreparably damaged, and its substantial investment in the
Company materially impaired, if Employee were to enter into an activity
competing with the business of Parent, the Company (or any subsidiary, successor
or acquiror of Parent or the Company) in violation of the terms of this
Agreement or if
2.
Employee were to disclose or make unauthorized use of any confidential
information concerning the business of Parent, the Company (or any subsidiary,
successor or acquiror of Parent or the Company). Accordingly, Employee expressly
acknowledges that he or she is voluntarily entering into this Agreement and that
the terms and conditions of this Agreement are fair and reasonable to Employee
in all respects.
4. CONFIDENTIALITY. Employee agrees that he shall hold all Confidential
Information in strict confidence and shall not at any time (whether during or
after the Noncompetition Period): (a) reveal, report, publish, disclose or
transfer any Confidential Information to any Person (other than Parent or the
Company), except in the performance of his obligations as an employee of Parent;
(b) use any Confidential Information for any purpose, except in the performance
of his obligations as an employee of Parent; or (c) use any Confidential
Information for the benefit of any Person (other than Parent or the Company.)
Employee agrees that as a condition of his employment with Parent, he will
execute the Proprietary Information & Inventions Agreement, attached to the
Employment Agreement he will enter into with Parent effective the Closing Date.
5. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants, to and
for the benefit of the Indemnitees, that: (a) he has full power and capacity to
execute and deliver, and to perform all of his obligations under, this
Agreement; and (b) neither the execution and delivery of this Agreement nor the
performance of this Agreement will result directly or indirectly in a violation
or breach of (i) any agreement or obligation by which Employee or any of his
Affiliates is or may be bound, or (ii) any law, rule or regulation. Employee's
representations and warranties shall survive the expiration of the
Noncompetition Period for an unlimited period of time.
6. INJUNCTIVE RELIEF. Employee agrees that he is obligated under this
Agreement to render services and comply with covenants of a special, unique,
unusual and extraordinary character, thereby giving this Agreement peculiar
value so that the loss of such service or violation by Employee of this
Agreement, including but not limited to, Sections 1, 3 and 4 herein could not
reasonably or adequately be compensated in damages at law. Therefore,
notwithstanding Section 15 herein, Employee agrees that, in the event of any
breach or threatened breach by Employee of any covenant or obligation contained
in this Agreement, each of Parent, the Company and any of Parent's or the
Company's other subsidiaries and the other Indemnitees shall be entitled (in
addition to any other remedy that may be available to it, including monetary
damages) to seek and obtain (a) a decree or order of specific performance to
enforce the observance and performance of such covenant or obligation, and (b)
an injunction restraining such breach or threatened breach. Employee further
agrees that no Indemnitee shall be required to obtain, furnish or post any bond
or similar instrument in connection with or as a condition to obtaining any
remedy referred to in this Section 6, and Employee irrevocably waives any right
he may have to require any Indemnitee to obtain, furnish or post any such bond
or similarly instrument.
7. INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to any of the Indemnitees, Employee shall indemnify
and hold harmless each Indemnitee against and from any loss, damage, injury,
harm, detriment, lost opportunity, liability, exposure, claim, demand,
settlement, judgment, award, fine, penalty, tax, fee (including attorneys'
fees), charge or expense (whether or not relating to any third-party claim) that
is
3.
directly or indirectly suffered or incurred at any time (whether during or after
the Noncompetition Period) by such Indemnitee, or to which such Indemnitee
otherwise becomes subject at any time (whether during or after the
Noncompetition Period), and that arises directly or indirectly out of or by
virtue of, or relates directly or indirectly to, (a) any inaccuracy in or breach
of any representation or warranty contained in this Agreement, or (b) any
failure on the part of Employee to observe, perform or abide by, or any other
breach of, any restriction, covenant, obligation or other provision contained in
this Agreement.
8. NON-EXCLUSIVITY. The rights and remedies of Parent, the Company, and the
other Indemnitees under this Agreement are not exclusive of or limited by any
other rights or remedies which they may have, whether at law, in equity, by
contract or otherwise, all of which shall be cumulative (and not alternative).
Without limiting the generality of the foregoing, the rights and remedies of
Parent, the Company, and the other Indemnitees under this Agreement, and the
obligations and liabilities of Employee under this Agreement, are in addition to
their respective rights, remedies, obligations and liabilities under the law of
unfair competition, under laws relating to misappropriation of trade secrets,
under other laws and common law requirements and under all applicable rules and
regulations. Nothing in this Agreement shall limit any of Employee's
obligations, or the rights or remedies of Parent, the Company or any of the
other Indemnitees, under the Merger Agreement; and nothing in the Merger
Agreement shall limit any of Employee's obligations, or any of the rights or
remedies of Parent, the Company or any of the other Indemnitees, under this
Agreement. No breach on the part of Parent, the Company or any other party of
any covenant or obligation contained in the Merger Agreement, or any other
agreement shall limit or otherwise affect any right or remedy of Parent, the
Company or any of the other Indemnitees under this Agreement.
9. SEVERABILITY. If any provision of this Agreement or any part of any such
provision is held under any circumstances to be invalid or unenforceable in any
jurisdiction, then (a) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) the invalidity or
unenforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
10. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed in all respects by, the laws of the State of California (without
giving effect to principles of conflicts of laws).
11. WAIVER. No failure on the part of Parent, the Company or any other
Indemnitee to exercise any power, right, privilege or remedy under this
Agreement, and no delay on the part of Parent, the Company or any other
Indemnitee in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
4.
No Indemnitee shall be deemed to have waived any claim of such Indemnitee
arising out of this Agreement, or any power, right, privilege or remedy of such
Indemnitee under this Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly executed
and delivered on behalf of such Indemnitee; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of Employee and his heirs, executors, estate, personal
representatives and legal representatives. This Agreement shall be binding upon
and shall inure to the benefit of Parent, the Company, and the other
Indemnitees. Each of Parent, the Company, and the other Indemnitees may freely
assign any or all of its rights under this Agreement, at any time, in whole or
in part, to any Person without obtaining the consent or approval of Employee or
of any other Person. Because of the unique and personal nature of Employee's
duties under this Agreement, neither this Agreement nor any rights or
obligations under this Agreement shall be assignable by Employee.
13. INTEGRATION. This Agreement forms the complete and exclusive statement
of the terms of Employee's agreement with Parent and the Company regarding the
subject matter herein.
14. FURTHER ASSURANCES. Employee shall (at Employee's sole expense) execute
and/or cause to be delivered to each Indemnitee such instruments and other
documents, and shall (at Employee's sole expense) take such other actions, as
such Indemnitee may reasonably request at any time (whether during or after the
Noncompetition Period) for the purpose of carrying out or evidencing any of the
provisions of this Agreement.
15. ARBITRATION. To ensure rapid and economical resolution of any disputes
which may arise under this Agreement, Employee and the Company agree that any
and all disputes or controversies of any nature whatsoever, arising from or
regarding the interpretation, performance, enforcement or breach of this
Agreement shall be resolved by confidential, final and binding arbitration
(rather than trial by jury or court or resolution in some other forum) to the
fullest extent permitted by law. Any arbitration proceeding pursuant to this
Agreement shall be conducted by the American Arbitration Association ("AAA") in
Palo Alto, California under the then existing employment-related AAA arbitration
rules. If for any reason all or part of this arbitration provision is held to be
invalid, illegal, or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other portion of this arbitration provision or any other
jurisdiction, but this provision will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable part or parts of
this provision had never been contained herein, consistent with the general
intent of the parties insofar as possible.
EMPLOYEE HAS READ Section 15 AND IRREVOCABLY AGREES TO ARBITRATE ANY DISPUTE
IDENTIFIED ABOVE. ______ (EMPLOYEE'S INITIALS)
16. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
5.
17. CONSTRUCTION. Whenever required by the context, the singular number
shall include the plural, and vice versa; the masculine gender shall include the
feminine and neuter genders; and the neuter gender shall include the masculine
and feminine genders. Any rule of construction to the effect that ambiguities
are to be resolved against the drafting party shall not be applied in the
construction or interpretation of this Agreement. Neither the drafting history
nor the negotiating history of this Agreement shall be used or referred to in
connection with the construction or interpretation of this Agreement. As used in
this Agreement, the words "include" and "including," and variations thereof,
shall not be deemed to be terms of limitation, and shall be deemed to be
followed by the words "without limitation." Except as otherwise indicated in
this Agreement, all references in this Agreement to "Sections" are intended to
refer to Sections of this Agreement.
18. SURVIVAL OF OBLIGATIONS. Except as specifically provided herein, the
obligations of Employee under this Agreement (including the obligations under
Sections 3, 4, 6 and 12) shall survive the expiration of the Noncompetition
Period. The expiration of the Noncompetition Period shall not operate to relieve
Employee of any obligation or liability arising from any prior breach by
Employee of any provision of this Agreement.
19. OBLIGATIONS ABSOLUTE. Employee's obligations under this Agreement are
absolute and shall not be terminated or otherwise limited by virtue of any
breach (on the part of Parent, the Company, any other Indemnitee or any other
Person) of any provision of the Merger Agreement or any other agreement, or by
virtue of any failure to perform or other breach of any obligation of Parent,
the Company, any other Indemnitee or any other Person.
20. AMENDMENT. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Employee, and Parent (or any successor to Parent, the
Company (or any successor to Parent or the Company).
21. DEFINED TERMS. For purposes of this Agreement:
(a) "Affiliate" means, with respect to any specified Person, any other
Person that, directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with such specified
Person.
(b) A Person shall be deemed to be engaged in "Competition" if: such
Person or any of such Person's subsidiaries or other Affiliates is engaged
directly or indirectly in any manner or capacity, as adviser, principal, agent,
affiliate, promoter, partner, officer, director, employee, stockholder, owner,
co-owner, consultant, or member of any association or otherwise, in any phase of
the business of designing, developing, manufacturing, assembling, promoting,
selling, supplying, distributing, reselling, installing, supporting,
maintaining, repairing, refurbishing, licensing, sublicensing, financing,
leasing or subleasing any products or services which relate to Digital
Subscriber Line (DSL) solutions and/or related network management tools.
Pursuant to this Section, if, subsequent to his employment with the Company,
Employee undertakes employment with an entity whose business includes activities
relating to DSL solutions and/or related network management tools, but
Employee's activities for the entity do not include participating in or
responsibility for such DSL solutions or related management tool aspects of the
entity's business, Employee shall not be in violation of this Section.
6.
(c) "Confidential Information" means any non-public information
(whether or not in written form and whether or not expressly designated as
confidential) relating directly or indirectly to the business, operations,
financial affairs, performance, assets, technology, processes, products,
contracts, customers, licensees, sublicensees, suppliers, personnel, consultants
or plans of Parent, the Company or any of Parent or the Company's other
subsidiaries (including any such information consisting of or otherwise relating
to trade secrets, know-how, technology, inventions, prototypes, designs,
drawings, sketches, processes, license or sublicense arrangements, formulae,
proposals, research and development activities, customer lists or preferences,
pricing lists, referral sources, marketing or sales techniques or plans,
operations manuals, service manuals, financial information, projections, lists
of consultants, lists of suppliers or lists of distributors); provided, however,
that "Confidential Information" shall not be deemed to include information of
Parent, or the Company that is already publicly known and in the public domain
through no direct or indirect action of Employee.
(d) "Indemnitees" shall include: (i) Parent; (ii) the Company; (iii)
each Person (other than Employee) who is or becomes an Affiliate of Parent or
the Company; and (iv) the successors and assigns of each of the Persons referred
to in clauses "(i)", "(ii)" and "(iii)" of this sentence.
(e) "Noncompetition Period" shall mean the term of this Agreement and
shall be the period commencing on the date of this Agreement and ending on the
third anniversary of the effective date of this Agreement.
(f) "Person" means any: (i) individual; (ii) corporation, general
partnership, limited partnership, limited liability partnership, trust, company
(including any limited liability company or joint stock company) or other
organization or entity; or (iii) governmental body or authority.
(g) "Restricted Territory" means the entire world.
7.
IN WITNESS WHEREOF, Employee has duly executed and delivered this
Non-Competition Agreement as of the date first above written.
/s/ WILSON O. COCHRAN, II
--------------------------------------------------
WIL COCHRAN
Address:
------------------------------------------
Telephone No.:( ) Facsimile:( )
-------- --------
8.
EXHIBIT 21.1
SUBSIDIARIES OF COPPER MOUNTAIN NETWORKS, INC.
. OnPREM Networks Corporation
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
--------------------------------------------------
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 28, 2000 (except for Note 12, as to which the
date is February 29, 2000), with respect to the financial statements and
schedule of Copper Mountain Networks, Inc., and our report dated February 18,
2000 (except for Note 7, as to which the date is February 29, 2000), with
respect to the financial statements of OnPrem Networks Corporation in the
Registration Statement (Form S-1) and related prospectus of Copper Mountain
Networks, Inc. for the registration of 1,142,309 shares of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
March 15, 2000
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<FISCAL-YEAR-END> DEC-31-1999
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