<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 22, 2000
COPPER MOUNTAIN NETWORKS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-25865 33-0702004
(Commission File No.) (IRS Employer Identification No.)
2470 EMBARCADERO WAY
PALO ALTO, CALIFORNIA 94303
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (650) 687-3300
<PAGE>
ITEM 5. OTHER EVENTS.
Copper Mountain Networks, Inc. ("Copper Mountain") is voluntarily filing
this report on Form 8-K in order to publicly file updated financial statements
and results of operations for the year ended December 31, 1999. The information
set forth in this report will be provided to shareholders of OnPREM Networks
Corporation in connection with an Information Statement soliciting the vote of
the OnPREM shareholders for approval of an acquisition of OnPREM by Copper
Mountain, as described in the press release attached hereto as Exhibit 99.1, the
contents of which are hereby incorporated by reference. The information in this
report will also be filed with Copper Mountain's Annual Report on Form 10-K.
2
<PAGE>
SELECTED FINANCIAL DATA
In the table below, we provide you with our summary historical financial
data. We have prepared this information using our financial statements, for the
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 in herein (in thousands, except
per share data).
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 11, 1996
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31,
----------------------------------- ----------
1999 1998 1997 1996
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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 1,483
Sales and marketing 16,158 5,363 1,510 --
General and administration 5,998 3,428 1,928 553
Amortization of deferred stock compensation 5,431 3,929 1,490 189
--------- --------- --------- ---------
Total operating expenses 43,110 19,945 9,681 2,225
--------- --------- --------- ---------
Income (loss) from operations 16,611 (10,524) (11,187) (2,225)
Interest and other income 4,385 406 268 47
Interest expense (289) (213) (97) (3)
--------- --------- --------- ---------
Income (loss) before income taxes 20,707 (10,331) (11,016) (2,181)
Provision for income taxes 8,490 -- -- --
--------- --------- --------- ---------
Net income (loss) $ 12,217 $ (10,331) $ (11,016) $ (2,181)
========= ========= ========= =========
Basic net income (loss) per share (1) $ .39 $ (3.87) $ (7.81) $ (5.84)
========= ========= ========= =========
Diluted net income (loss) per share (1) $ .23 $ (3.87) $ (7.81) $ (5.84)
========= ========= ========= =========
Shares used in Basic per share
calculations (1) 31,289 2,666 1,410 374
========= ========= ========= =========
Shares used in Diluted per share
calculations (1) 52,282 2,666 1,410 374
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivelents and
short-term marketable investments $117,169 $ 18,529 $ 9,517 $ 3,406
Working capital 132,187 24,326 7,653 366
Total assets 165,775 36,209 12,332 4,056
Long-term debt and capital lease
obligation, less current portion 4,044 1,965 735 262
Total stockholders' equity 143,321 26,843 9,069 749
</TABLE>
- ----------
(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.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 access concentrators, or CE200, the related
wide area network cards, line cards and, to a lesser extent, from sales of our
DSL CPE. Additionally, we 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 adversly 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.
4
<PAGE>
We outsource most of our manufacturing and supply chain management
operations, and we conduct manufacturing engineering, quality assurance, program
management, documentation control and product repairs at our 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.
5
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain
income data for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
DECEMBER 31,
----------------------------
1999 1998 1997
----- ------ --------
<S> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0%
Cost of revenue 47.0 56.8 813.7
----- ----- -------
Gross profit (loss) 53.0 43.2 (713.7)
Operating expenses:
Research and development 13.8 33.1 2,252.6
Sales and marketing 14.3 24.6 715.6
General and administration 5.4 15.7 913.8
Amortization of deferred stock compensation 4.8 18.0 706.2
----- ----- -------
Total operating expenses 38.3 91.4 4,588.2
----- ----- -------
Income (loss) from operations 14.7 (48.2) (5,301.9)
Interest income and other 3.9 1.9 127.0
Interest expense (.3) (1.0) (46.0)
----- ----- -------
Income (loss) before income taxes 18.3 (47.3) (5,220.9)
Provision for income taxes 7.5 -- --
----- ----- -------
Net income (loss) 10.8% (47.3)% (5,220.9)%
----- ----- -------
</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.
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
6
<PAGE>
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. The Company's effective income tax rate for 1999 was 41%,
------------
which approximates the combined federal and California statutory rate (net of
federal benefit). During 1999, the Company's utilization of net operating loss
and tax credit carryforwards was limited under sections 382 and 383 of the
Internal Revenue Code. The Company has previously not recorded a tax provision
(benefit) due to its historical net losses. Additionally, the realization of
its 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 $9.4 million in 1998. The increase in gross profit was primarily the
result of the absorption of overhead associated with greater unit volumes and
increased economies of scale. As a result, our gross margin in 1998 improved
substantially over 1997.
Research and Development. Our research and development expenses increased
------------------------
from $4.8 million in 1997 to $7.2 million in 1998. This increase in our research
and development expenses was related to increases in personnel and personnel
related costs, prototype material expenses, contract development expense and as
well as expenses related to the completion and commercial release of our initial
products.
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
7
<PAGE>
officers and support staff, legal, accounting and consulting fees. The increase
in our general and administrative staffing, was required to support the growth
in our operations, commercial activities and customer base.
Interest 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.
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 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 Decemeber 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 periods ended
December 31, 1999, 1998 and 1997 was $20.3 million, ($14.3) milllion 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 year 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.
Cash provided by financing activities for the periods 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.
8
<PAGE>
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.
9
<PAGE>
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 revenues $ 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 revenues $ 317 $ 1,281 $ 5,556 $ 14,667
Gross profit 100 486 2,197 6,638
Income (loss) from operations (3,367) (3,545) (3,210) (402)
Net income (loss) (3,287) (3,545) (3,257) (242)
Basic net income (loss) per share (1) (1.54) (1.44) (1.16) (0.07)
Diluted net income (loss) per share (1) (1.54) (1.44) (1.16) (0.07)
</TABLE>
- -------------
(1) Basic and diluted net income per share computations for each quarter are
independent and may not add up to the net income per share computation for
the respective year. Net income per share data for all periods presented
has been adjusted to reflect the two-for-one stock split 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 per share.
10
<PAGE>
FINANCIAL STATEMENTS
PAGE
NUMBER
------
Documents filed as part of the report:
Report of Ernst & Young LLP, Independent Auditors F-2
Balance Sheets at December 31, 1999 and 1998 F-3
Statements of Operations for 1999, 1998 and 1997 F-4
Statements of Stockholders' Equity for Fiscal 1999, 1998 and 1997 F-5
Statements of Cash Flows for 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Copper Mountain Networks, Inc.
We have audited the accompanying balance sheets of Copper Mountain Networks,
Inc. as of December 31, 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.
ERNST & YOUNG LLP
San Diego, California
January 28, 2000
F-2
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
BALANCE SHEETS
(in thousands)
<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 -- --
Convertible preferred stock, no par value, zero and
10,223 shares issued and outstanding at December 31,
1999 and 1998 -- 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-3
<PAGE>
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-4
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------- ------------------ Notes
Number Number Receivable
of of From
Shares Amount Shares Amount Stockholders
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,723 $ 2,723 3,929 $ 4 (69)
Issuance of Series B convertible
preferred stock at $3.39 per share for cash and
conversion of convertible bridge note payable, net
of offering expenses of $76,000 1,850 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 -- --
Stock grants for consulting services 2 -- 55 -- --
Issuance of warrants to purchase convertible preferred stock
in connection with technology agreement, notes payable, and
Consulting services -- -- -- -- --
Deferred compensation related to the grant of stock options -- -- -- -- --
Amortization related to deferred stock compensation -- -- -- -- --
Net loss -- -- -- -- --
-------- -------- -------- -------- --------
Balance at December 31, 1997 6,997 20,425 4,461 4 (69)
Exercise of options to purchase common stock -- -- 1,030 1 --
Stock grants for consulting services -- -- 19 -- --
Deferred compensation related to the grant of stock options -- -- -- -- --
Amortization related to deferred stock compensation -- -- -- -- --
Stock forfeited by employee -- -- (476) -- 16
Repayment of stockholder note -- -- -- -- 12
Issuance of Series C convertible preferred stock
warrants in connection with a financing agreement -- -- -- -- --
Issuance of Series D convertible preferred stock at $7.75 per
share for cash, net of offering expenses of $923,000 3,226 24,077 -- -- --
Net loss -- -- -- -- --
-------- -------- -------- -------- --------
Balance at December 31, 1998 10,223 $ 44,502 5,034 $ 5 $ (41)
</TABLE>
<TABLE>
<CAPTION>
Addi-
tional Deferred Accumu- Total
Paid in Compen- lated Stockholders'
Capital sation Deficit Equity
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 1,896 $ (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
of offering expenses of $76,000 -- -- -- 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 -- -- 16
Stock grants for consulting services 15 -- -- 15
Issuance of warrants to purchase convertible preferred stock
in connection with technology agreement, notes payable, and
Consulting services 113 -- -- 113
Deferred compensation related to the grant of stock options 2,429 (2,429) -- --
Amortization related to deferred stock compensation -- 1,490 -- 1,490
Net loss -- -- (11,016) (11,016)
-------- -------- -------- --------
Balance at December 31, 1997 4,469 (2,563) (13,197) 9,069
Exercise of options to purchase common stock 60 -- -- 61
Stock grants for consulting services 5 -- -- 5
Deferred compensation related to the grant of stock options 11,128 (11,128) -- --
Amortization related to deferred stock compensation -- 3,929 -- 3,929
Stock forfeited by employee (16) -- -- --
Repayment of stockholder note -- -- -- 12
Issuance of Series C convertible preferred stock
warrants in connection with a financing agreement 21 -- -- 21
Issuance of Series D convertible preferred stock at $7.75 per
share for cash, net of offering expenses of $923,000 -- -- -- 24,077
Net loss -- -- (10,331) (10,331)
-------- -------- -------- --------
Balance at December 31, 1998 $ 15,667 $ (9,762) $(23.529) $ 26,843
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
COPPER MOUNTAIN NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CON'T)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------- ------------------ Notes
Number Number Receivable
of of From
Shares Amount Shares Amount Stockholders
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Conversion of preferred to common stock (10,223) (44,502) 30,670 31 --
Issuance of common stock, net of offering
costs of $1.2 million -- -- 9,200 9 --
Stock grants for consulting services -- -- 1 -- --
Repayment of notes receivable from shareholders -- -- -- -- 41
Deferred compensation related to the grant of stock options -- -- -- -- --
Amortization related to deferred stock compensation -- -- -- -- --
Net exercise of warrant to purchase common stock -- -- 235 -- --
Tax benefit from the exercise of stock options -- -- -- -- --
Exercise of options to purchase common stock -- -- 2,522 3 --
Net income -- -- -- -- --
-------- -------- -------- -------- --------
Balance at December 31, 1999 -- $ -- 47,662 $ 48 $ --
</TABLE>
<TABLE>
<CAPTION>
Addi-
tional Deferred Accumu- Total
Paid in Compen- lated Stockholders'
Capital sation Deficit Equity
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Conversion of preferred to common stock 44,471 -- -- --
Issuance of common stock, net of offering
costs of $1.2 million 88,664 -- -- 88,673
Stock grants for consulting services 7 -- -- 7
Repayment of notes receivable from shareholders -- -- -- 41
Deferred compensation related to the grant of stock options 234 (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 -- -- 9,389
Exercise of options to purchase common stock 717 -- -- 720
Net income -- -- 12,217 12,217
-------- -------- -------- --------
Balance at December 31, 1999 $159,149 $ (4,565) $(11,311) $143,321
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
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, net (86,005) (10,898) --
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-7
<PAGE>
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-8
<PAGE>
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 and
$504,000 for the years ended December 31, 1999 and 1998, 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.
F-9
<PAGE>
Sales returns are estimated based on historical experience and management's
expectations and are recorded at the time product revenue is recognized.
Revenue from service and support arrangements is recognized ratably as
services are performed. Annual service and support arrangements can be purchased
by customers for products no longer under warranty and are billed quarterly.
The Company may extend limited stock rotation, product return and price
protection rights to certain distributors and resellers. The Company may not be
able to estimate product returns if the relationship with the distributor is new
or if there is limited historical basis to determine product returns. Deferred
revenue, which is included in accrued liabilities, represents the margin on
shipments of products to distributors or resellers that will be recognized when
the Company can reasonably estimate product returns.
Research and Development Costs
Costs incurred in connection with research and development are charged to
operations as incurred.
Software Costs
Software product development costs incurred from the time technological
feasibility is reached until the product is available for general release to
customers are capitalized and reported at the lower of cost or net realizable
value. 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.
F-10
<PAGE>
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).
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 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
F-11
<PAGE>
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 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
DECEMBER 31,
--------------------
1999 1998
-------- --------
(in thousands)
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
======== ========
F-12
<PAGE>
4. INVESTMENTS
At December 31, 1999 and 1998, investments consisted of the following (in
thousands):
CURRENT NONCURRENT
------------------ -------------------
DECEMBER 31, DECEMBER 31,
----------------- -------------------
1999 1998 1999 1998
------- ------- ------- ---------
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 $ --
======= ======= ======= =========
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
F-13
<PAGE>
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 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
10.8%, collateralized by equipment $ 2,254 $ --
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
F-14
<PAGE>
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.
1996 Equity Incentive Plan
In August 1996, the Company adopted the 1996 Equity Incentive Plan (the
"1996 Plan"). A total of 7.9 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-15
<PAGE>
All stock option transactions are summarized as follows (in thousands,
except per share data):
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
------ -------
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
======
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>
$ 0.03 - 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
F-16
<PAGE>
the accounting for stock options granted 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>
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
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-17
<PAGE>
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
===========
Less amount representing interest (678)
------------
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 warrant is
exercisable for the longer of ten years from the date of issuance or five years
after an initial public offering. The estimated fair value of the warrant was
$25,000, which has been capitalized as debt issuance costs and is being
amortized over the life of the financing agreement.
F-18
<PAGE>
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 is as follows (in
thousands):
YEAR ENDED
DECEMBER 31,
----------------------
1999 1998
------- -----------
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 $ --
======= ===========
The following is a reconciliation from the expected statutory federal
income tax expense to the Company's actual income tax expense (in thousands):
YEAR ENDED
DECEMBER 31,
----------- -----------
1999 1998
----------- -----------
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 $ --
========== ==========
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):
DECEMBER 31,
--------------------
1999 1998
-------- --------
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 $ -- $ --
======== ========
F-19
<PAGE>
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 January 2000, the Company entered into a definitive agreement to
acquire 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 will acquire OnPrem in exchange for the issuance
of approximately 1.3 million shares of Copper Mountain common stock and Copper
Mountain stock options. The acquisition will be accounted for as a purchase
transaction and is expected to close in the first quarter of 2000. This
acquisition has been approved by the Boards of Directors of each company and is
subject to various closing conditions.
F-20
<PAGE>
ITEM 7. EXHIBITS.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
99.1 Press Release, dated as of January 26, 2000 entitled "Copper Mountain
Agrees to Acquire OnPrem Networks, Expanding Its DSL Product Offering
With Low-Density DSL Concentrator for Multi-Tenant Unit Market."
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COPPER MOUNTAIN NETWORKS, INC.
Dated: February 22, 2000 By: /s/ JOHN A. CREELMAN
--------------------
John A. Creelman
Vice President of Finance,
Chief Financial Officer
and Secretary
II-1
<PAGE>
INDEX TO EXHIBITS
23.1 Consent of Ernst & Young LLP, Independent Auditors.
99.1 Press Release, dated as of January 26, 2000 entitled "Copper Mountain
Agrees to Acquire OnPrem Networks, Expanding Its DSL Product Offering
with Low-Density DSL Concentrator for Multi-Tenant Unit Market."
II-2
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-0702004) pertaining to the 1996 Equity Incentive Plan, 1999 Employee
Stock Purchase Plan, 1999 Non-employee Directors' Stock Option Plan and Options
Granted Outside Any Plan of Copper Mountain Networks, Inc. of our report dated
January 28, 2000, with respect to the financial statements of Copper Mountain
Networks, Inc. included in the Current Report (Form 8-K) expected to be filed on
February 22, 2000.
ERNST & YOUNG LLP
San Diego, California
February 18, 2000
<PAGE>
EXHIBIT 99.1
COPPER MOUNTAIN AGREES TO ACQUIRE ONPREM NETWORKS, EXPANDING ITS DSL PRODUCT
OFFERING WITH LOW-DENSITY DSL CONCENTRATOR FOR MULTI-TENANT UNIT MARKET
ACQUISITION WILL ENABLE MTU SERVICE PROVIDER CUSTOMERS TO COST-EFFECTIVELY
EXTEND REACH TO SMALL BUILDINGS
PALO ALTO, Calif., January 26, 2000--Copper Mountain Networks, Inc., (Nasdaq:
CMTN), the market-share leader in business Digital Subscriber Line (DSL)
equipment, today announced a definitive agreement to acquire privately-held
OnPrem Networks Corp. of Fremont, California. OnPrem is a developer of highly
integrated DSL solutions for the small and medium building Multi-Tenant Unit
(MTU) market. Supporting its business objectives, this acquisition expands
Copper Mountain's 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.
Under the terms of the agreement, Copper Mountain will acquire OnPrem Networks
Corp. in exchange for the issuance of approximately 1.3 million shares of Copper
Mountain common stock and Copper Mountain stock options. The acquisition will be
accounted for as a purchase transaction and is expected to close later in the
first quarter of Copper Mountain's fiscal year 2000. This acquisition has been
approved by the boards of directors of each company and is subject to various
closing conditions.
OnPrem's low-density integrated DSL concentrator will complement Copper
Mountain's existing line of high-density and mid-density DSL concentrators to
create a complete solution aimed at meeting the needs of MTU service providers
who manage portfolios of buildings of all sizes--ranging from small buildings
requiring a low-cost, low-density solution, to large buildings with
higher-density and capability requirements. OnPrem's DSL concentrator is
currently under development and is expected to be introduced in the second
quarter of 2000.
OnPrem was founded in 1998 by Wil Cochran, CEO; George Marshall, vice president
of marketing; and Casey Cox, vice president of engineering. OnPrem employees
will form the nucleus of an MTU business unit for Copper Mountain, with Wil
Cochran serving as general manager. The new Copper Mountain MTU business unit
will continue to be based in Fremont.
"The acquisition of OnPrem is of great strategic importance to Copper Mountain's
Multi-Tenant Unit market momentum," said Rick Gilbert, president and CEO of
Copper Mountain. "In 1999, we had tremendous success in the CLEC central office
market, becoming the number one provider of business DSL solutions. In 2000,
Copper Mountain plans to aggressively expand our franchise into the MTU market,
and we believe that the acquisition of OnPrem will position us well to achieve a
dominant position in this additional DSL market segment."
Gilbert added, "Our MTU customers have repeatedly indicated to us that success
in the MTU marketplace requires both a dedicated team focusing on the unique
needs of this segment and a complete product line. OnPrem has put together a
terrific R&D team that understands the requirements of the MTU marketplace very
well, and OnPrem is developing a MTU product that, together with our existing
higher-density solutions, will help Copper Mountain address this growing DSL
market segment with a complete offering."
According to Department of Energy building surveys, there are over 118,000
Multi-Tenant Unit buildings in the U.S. alone. The annual U.S. MTU market is
projected to exceed $1.0 billion dollars by 2002 with over 3.5 million MTU-based
users expected by the year 2002, according to industry analysts.
<PAGE>
"With the CopperEdge 200 and CopperEdge 150, we have DSL concentrators that
scale from 24 to 196 ports, enabling providers to offer DSL services to tenants
in large and mid-sized buildings," said Gilbert. "By augmenting our product
portfolio with the 8 to 24 port concentrator that OnPrem is developing, Copper
Mountain will be able to meet the needs of carriers and MTU providers for a
competitively-priced product well suited for smaller MTU properties across the
U.S. and abroad."
"OnPrem has developed the premier product in the small-to-medium building MTU
market, and is uniquely poised to leverage the relationships Copper Mountain has
already developed with premier CLEC and MTU service providers across the U.S.,"
said Wil Cochran. "Together, we can meet the high-speed access needs of all
types of buildings, regardless of size. We expect the combination of Copper
Mountain and OnPrem products to provide the broadest range of product densities
available for MTU applications today."
Copper Mountain DSL Solutions
Copper Mountain's CopperEdge(R) DSL concentrators deliver bandwidth up to 1.5
Mbps while supporting multiple services over DSL, including Internet access,
toll-quality voice services, corporate virtual private networks (VPNs), and
Frame Relay. With up to 192 ports per chassis, the CopperEdge 200 offers maximum
flexibility and expandability for DSL service. The CopperEdge 150, which is
optimized for use in mid-sized MTU buildings, is available in 24- or 48-port
configurations. The addition of OnPrem's low port-density DSL concentrator to
Copper Mountain's product line will give providers an entry-level unit that
scales from 8 to 24 ports.
About Copper Mountain Networks
Copper Mountain Networks, Inc. (Nasdaq: CMTN) develops and markets a
comprehensive family of DSL solutions that enable high-speed internetworking
over existing copper facilities. The company's mission is to enable carriers and
other service providers to offer a full range of high-performance,
cost-effective data and voice services over DSL that are easy to deploy, use,
and manage. Copper Mountain's CopperRocket(R) CPE family addresses the
bandwidth, reliability, ease-of-use, and cost concerns of remote offices and
users. Its carrier-class CopperEdge(R) DSL concentrators and CopperView(TM)
network management solutions offer a robust and scalable platform for carrierS
and Multi-Tenant Unit service providers to generate a high return on investment
while satisfying the ever-increasing user demand for bandwidth. Customers
wanting more information about Copper Mountain products can contact Diana
Helfrich at (650) 687-3314 or visit the company's World Wide Web site at
http://www.coppermountain.com. For investor relations information, call toll
free 877-INFO-CMTN (463-6268) or contact the company at [email protected].
Portions of this release contain forward-looking statements regarding future
events and are subject to risks and uncertainties. Copper Mountain wishes to
caution you that there are a number of factors that could cause actual results
to differ materially from the results indicated by such statements. Copper
Mountain's proposed acquisition of OnPrem has not been completed and is subject
to certain conditions. If any of these conditions are not met, Copper Mountain
may not complete the acquisition of OnPrem, or, if the acquisition is completed,
it may not be on the terms described in this release. If the acquisition of
OnPrem is not completed or if there are any subsequent delays in introducing
OnPrem's products, the benefits of such acquisition may not be realized. Other
factors which could cause Copper Mountain's actual results to differ from the
results indicated by forward-looking statements in this release include, but are
not limited to, risks related to integrating OnPrem's operations and products
with those of Copper Mountain, uncertainties related to retaining OnPrem's key
employees, uncertainties regarding market acceptance of OnPrem's products, and
Copper Mountain's ability to keep pace with rapidly changing product
requirements, and factors affecting the demand for DSL technologies. We refer
you to the documents Copper Mountain files from time to time with the Securities
and Exchange Commission, specifically the section titled Risk Factors in our
Registration Statement on Form S-1 (No. 333-73153).
Copper Mountain and all Copper Mountain product names are trademarks of Copper
Mountain Networks, Inc. All other marks are the property of their respective
owners.
